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Investment in R&D crucial if physics to play part in re-energising economy – CBI Economics

11 October 2021

Innovation survey forms part of a wider IOP programme investigating the contribution of physics to the UK and Irish economies.

Skills shortages have caused nearly two-thirds of physics-based businesses to cut back on research and development (R&D) and innovation in the last five years, analysis conducted by CBI Economics on behalf of the Institute of Physics (IOP) has found.

The analysis, published by the IOP as ‘Paradigm Shift: Unlocking the power of physics innovation for a new industrial era’, was based on the findings from a survey of 304 innovative, physics-based firms across the UK and the Republic of Ireland (RoI) and is part of the IOP’s Productivity Programme looking at the value of physics to the economy.

The IOP’s Physics and the Economy work will later in the year look at workforce issues as well as the overall contribution of physics to the UK and Irish economies.

‘Paradigm Shift’ found 66% of physics innovators in the UK and Ireland reported suspending or delaying R&D in the past five years because of skills shortages.

Almost one-third said they had missed or scaled back production (30%) or sales goals (30%) or abandoned activity altogether (29%).

But it also found that 65% of physics-based firms are planning to increase investment in the next five years, making a potentially crucial contribution to the UK and Irish economies.

The report found that 91% of physics innovators said R&D/innovation is a strategic priority that is incorporated into their business plans but 45% said the COVID-19 pandemic has had a negative impact on their R&D/innovation plans (26% said it has had a positive impact).

Also highlighted is the strategic importance of public funding of R&D in innovative physics-based firms, with physics innovators that have received public funding over the past five years more optimistic than those that have received no public funding (71% expected to increase spending vs 57%, respectively).

The publication of the findings highlights the importance of the UK government hitting its 2.4% of GDP target for investment in physics-led innovation and R&D.

Outgoing IOP president, and business leader, Jonathan Flint CBE FInstP, said: “Physics innovation is incredibly important to the economy but development times for physics technologies are typically longer than for other technologies – that is why public investment in the sector is so important.

“Anyone in business, whether physics based or not, is very aware of the labour shortages the UK is facing in any number of sectors but in focusing on the problems of today we should make sure we don’t neglect the opportunities of tomorrow.

“This report has found that physics-based businesses, in sectors like engineering, transport, manufacturing, computing, space science or energy generation, are a potential source of growth and innovation.

“If we want to build the modern, innovative and carbon-neutral economy of the future then physics and physics innovators have a massive part to play in that. Getting the right public and private investment in so businesses can plan ahead is a crucially important challenge for the government and investors.”

The IOP commissioned CBI Economics to conduct the work by surveying businesses that were actively engaged with physics technologies or research areas and that had undertaken innovation during the previous five years. The survey included both members and non-members of the CBI and the Irish Business and Employers’ Confederation (IBEC).

This piece of work will be followed later in the year by the IOPs Workforce Skills project, another strand of the Productivity Programme which will provide new insight into the use of physics-related skills in the UK and RoI economies, as well as the predicted changes in demand for skills driven by future technological change.

The analysis also found that 61% of physics innovators in the UK said long-term funding schemes could encourage more R&D/innovation activity in the next five years, and that 59% believed that a more attractive tax rate for R&D activity would support greater activity in the UK.

Anna Leach, CBI deputy chief economist, said: “As businesses look to restart investment projects put on hold during the pandemic, this survey strikingly reveals that more government support for R&D today will have a material impact on the economy in years to come. 70% of the companies that had received government innovation funding said that without it, their R&D activity would not have taken place. 

“UK government decisions made this autumn can shore up company confidence to invest, set the UK on a path to stronger economic growth and boost our leadership in cutting-edge science and technology. Business wants to see the government’s long-term plan for public R&D spending, tax credits, skills and smarter taxation at the Spending Review and through the Innovation Strategy.  

“These measures will be critical if the UK is going to compete and win on the global stage and meet the greatest challenges of our time – including reaching net-zero by 2050.”