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Autumn statement 2022 – what it means for physics

5 December 2022

By Elizabeth Chamberlain, Head of Policy

An in-depth look at how the government’s economic agenda will shape our sector.

Last month, in one of the most closely watched political set pieces of recent years, the new Chancellor of the Exchequer presented his autumn statement. With memories of the uncertainty of the summer and early autumn still fresh, there was huge pressure on Jeremy Hunt to provide reassurance to the financial markets and to face the twin challenges of reducing government debt and kickstarting economic growth.

With his focus on stability, growth and public services Hunt was determined to make the point that this was a long-term plan with investment in our economic future at its heart.

It contained key announcements for the scientific community around the protection of research and development (R&D) funding and set the aim of a high-wage, high-skills economy as a key objective.

And as well as the top-line economic approach there was plenty in the statement for the scientific community to mull over.

R&D spending protected

The chancellor made it clear that in his view R&D budget cuts would be a profound mistake. He specifically referenced artificial intelligence, quantum and robotics as core areas for growth, and argued the UK needs to be better at turning world-class innovation into world-class companies. Just a week before, the IOP had published a new report proposing a vision for the UK quantum sector and calling for action on UK quantum sector growth.

R&D spending will be protected and then increased to £20bn by 2024-25. The 11.1% inflation rate will inevitably reduce the impact of the previously announced funding increases, but the government’s recognition of the vital role R&D plays in driving long-term economic growth is welcome. The aim, in the chancellor’s own words, is to turn the UK into the next Silicon Valley.

Of course, this was very welcome news to the IOP: given the challenging economic context we – and other science organisations – were deeply concerned that R&D funding would be cut. We lobbied strongly for R&D commitments to be maintained, writing to the chancellor ahead of the statement to make our case.

“In order to carry on delivering for the economy it’s crucial that R&D funding is both long-term and sustainable – to enable people and disruptive ideas to flourish and drive tomorrow’s breakthroughs.”

The importance given to R&D and innovation by the chancellor sends a positive signal to the community as did the speech which the prime minster, Rishi Sunak, gave more recently to the Confederation of British Industry, in which he reiterated the importance the government is placing on scientifically driven economic growth.

In 2019 alone, physics-based industries generated £229bn for the UK economy and sustained 2.7 million full-time equivalent jobs. In order to carry on delivering those kinds of outcomes it’s crucial that R&D funding is both long-term and sustainable – to enable people and disruptive ideas to flourish and drive tomorrow’s breakthroughs.

You can read more about how much physics contributes to UK growth and jobs in our R&D Blueprint, Physics: investing in our future.

Education and skills a key priority

The chancellor also focused heavily on education, specifically stating that the aim of his plan was to lead to a stronger education system. Being pro-education is being pro-growth, Hunt said, describing improving education as a moral mission.

There is also significantly more spending in schools amounting to an extra £2.3bn next year and the year after, taking the core schools budget to a total of £58.8bn.

This equates to around a 4% annual increase, and the Institute for Fiscal Studies estimates that school funding is now forecast to exceed growth in school costs and grow in real terms in the next few years.

Schoolchildren in a physics classroom doing experiments on a table

Another positive announcement was made on skills reform, with Sir Michael Barber being brought in to advise the government on delivering T-levels, approving higher technical qualifications, rolling out skills bootcamps, and introducing the lifelong loan entitlement from 2025.

And on regulatory reform, the government will task the government chief scientific adviser and national technology adviser, Sir Patrick Vallance, to lead work to consider how the UK can better regulate emerging technologies, enabling their rapid and safe introduction.

The key growth industries identified are digital technology, life sciences, green industries, financial services, and advanced manufacturing.

Next steps for the IOP and physics

There was much detail in the autumn statement, more of which is outlined below, and this will take time both to be finessed in delivery and digested by the scientific community.

At the IOP, we’re analysing this detail and will work to shape the programmes and change that emerge from the government’s plans. On R&D, we know that long-term funding stability is vital, and it is one of our key recommendations in the R&D Blueprint. Association to Horizon Europe also continues to be a priority, although any mention of funding for this was conspicuously absent from the autumn statement speech and documents.

And on education, we will continue to address the shortage of physics teachers, which is one of the primary challenges facing physics education. We raised this in our recent meeting with the permanent secretary at the Department for Education, and she is keen to work with the IOP on how to tackle this.

We’ll also continue our work to break down stereotypes that put young people from under-represented backgrounds off physics, through our Limit Less campaign – and will keep making the point that a skills revolution, and ultimately growth and innovation, are dependent on encouraging more young people into the field.

Other measures – the autumn statement in detail

  • There will be reforms to R&D tax reliefs. For expenditure on or after 1 April 2023, the Research and Development Expenditure Credit (RDEC) rate will increase from 13% to 20%, while the small and medium-sized enterprises (SME) additional deduction will decrease from 130% to 86% and the SME credit rate will decrease from 14.5% to 10%. The stated aim of these reforms is to improve the competitiveness of the RDEC scheme, and to move towards a simplified, single RDEC-like scheme for all.
  • The government will consult on the design of a single scheme, and work with industry to understand whether further support is necessary for R&D-intensive SMEs, without significant change to the overall cost envelope for supporting R&D. Research conducted by CBI Economics for the IOP’s Paradigm Shift report, found that 59% of physics innovators surveyed believed that a more attractive tax rate would enable them to undertake more R&D activity in the next five years.
  • Accordingly, while increasing the generosity of the RDEC scheme and looking to move to a single scheme for all companies are positive changes, the changes to the SME scheme have been criticised as likely to dampen the innovation potential of emerging research-intensive businesses.
  • Funding for the Catapult network will increase by 35% compared to the last five-year funding cycle, and for Wales there’s a promise of £10m of support for the Advanced Technology Research Centre, intended to deliver a defence-focused Centre of Excellence Site in Wales, to include high-security laboratory space, and training and skills infrastructure. The centre will focus on work for the Ministry of Defence and has the support of the Welsh Government.
  • The government will refocus the Investment Zones programme to catalyse a limited number of high-potential clusters, working with local stakeholders, to be announced in the coming months. The existing expressions of interest will therefore not be taken forward. The new focus will be on zones around universities, perhaps countering criticism that the previous proposals would ‘displace’ R&D. Making universities the centre of the zones could generate additional translational research and spinouts, as well as protect current spinouts for longer and allow them to reach maturity. It is less likely to displace existing R&D.
  • Although the government will continue to review and confirm each year whether a return to spending 0.7% of gross national income (GNI) on Official Development Assistance (ODA) is possible against the latest fiscal forecast, until then spending will continue at around 0.5% of GNI. The decision to not further cut the current level of ODA even in these challenging economic circumstances is a welcome one. UK financial support for international research collaboration with less well-resourced countries remains vital. An example of how much this is important is the IOP’s Africa-UK Physics Partnership Programme. The programme is developing physics capacity, including access to facilities, in sub-Saharan Africa, strengthening the region’s physics talent pipeline, and facilitating stronger equitable research and innovation linkages with the UK.

Elizabeth Chamberlain is Head of Policy at the IOP