Rachel Reeves is under pressure to ramp up government spending on research and development (R&D) to £30 billion by the end of the decade, as business leaders warn that the UK risks falling behind global innovation powerhouses.
The Confederation of British Industry (CBI) is calling on the chancellor to set an “ambitious and world-leading goal” of increasing R&D spending to 3.4% of GDP by 2030—equivalent to an additional £10 billion in funding. The business lobby group argues that such an investment would help the UK compete with high-innovation economies such as the United States and send a strong signal to both domestic and foreign investors.
In its submission to the government ahead of the upcoming spending review, the CBI stressed that boosting R&D expenditure would “crowd in” private sector investment, with estimates suggesting that every £1 of public spending could attract up to £5 of private funding.
The UK’s total government R&D spending reached £15.5 billion in 2022 and is expected to rise to £20 billion for 2023 when new data is released next month. Much of this funding is allocated through UK Research and Innovation (UKRI) and its seven research councils.
However, despite these increases, the UK remains behind leading economies such as the US, which invests hundreds of billions of dollars annually in AI, technology, and scientific research. The CBI argues that setting a clear target of 3.4% of GDP would help push Britain into the top three R&D spenders in the G7, strengthening its position in the global economy.
Investment in defence research and innovation is already on the rise, with an extra £6 billion per year committed to meeting the government’s 2.5% GDP defence spending target. This is likely to be increased further as European nations seek to bolster their security capabilities in response to geopolitical tensions.
Reeves is facing mounting financial constraints ahead of her first spring statement next Wednesday, with economic forecasts expected to be downgraded. Lower-than-expected growth and productivity figures could put her fiscal target—balancing day-to-day government spending with tax revenues by 2030—at risk.
As a result, the chancellor is looking for spending cuts to keep public finances on track. The Department for Work and Pensions has already announced £5 billion in welfare and disability payment cuts by 2030, while other departments have been told to find a further £6 billion in savings.
Alongside calls for increased R&D investment, the CBI is urging the government to commit to freezing business taxes for the rest of this parliament. The group argues that recent tax hikes and regulatory changes have knocked business confidence, discouraging investment.
Louise Hellem, chief economist at the CBI, warned that uncertainty over policy is forcing businesses to scale back expansion plans.
“Our economic analysis shows that firms are set to reduce output and hiring and are having to pass on cost increases to customers,” she said.
“For [Labour’s] growth mission to succeed, government must inject business with a serious confidence boost. As an immediate priority, it should re-commit to not raising the business tax burden further over the course of this parliament.
“Setting an ambitious goal for R&D spending, making it easier to invest in skills, and taking measures to reduce the regulatory burden on business would be encouraging moves that would show that the government understands what business needs to see.”
With Labour committed to making the UK the fastest-growing economy in the G7, the challenge for Reeves will be balancing the need for investment with fiscal restraint. Whether the government can deliver on the CBI’s demands without jeopardising its economic credibility remains to be seen.