Thought Leadership written by Dayne Hodgson, Co-Founder and Director at RedKnight Consultancy.
Research and innovation are crucial drivers of economic growth and societal progress. In Wales, the R&D landscape is ripe with potential, yet it faces several challenges that hinder its full potential.
This article explores the current state of R&D funding in Wales, identifies key challenges, and outlines strategic opportunities for enhancing its impact and efficiency.
By adopting a multi-faceted approach to improve engagement with funding mechanisms, infrastructure, and talent retention, Wales can strengthen its position as a leader in innovation within the UK and beyond.
Current State of Research and Innovation in Wales
In 2020, Wales reported a total Research and Development (R&D) expenditure of £1.5bn. This investment is primarily driven by the private sector, accounting for nearly 70% of the total, with higher education institutions contributing around 28.5%. Welsh government and Research Councils contribute 1.6%. This distribution highlights a vibrant engagement from businesses and academic institutions, whilst demonstrating a significant underrepresentation in governmental and non-profit contribution to R&D.
R&D in Wales is supported through a blend of public, private, charitable, and overseas funding, complemented by incentives such as R&D tax credits. In the financial year 2021-22, Innovate UK directed £40m towards Welsh R&D, constituting 2.6% of its total UK distribution. Similarly, Research Councils contributed £86m, which amounted to 2.3% of their UK-wide funding. The Higher Education Funding Council for Wales (HEFCW) provided £113m, representing 3.6% of the comparable UK funding. In addition, Welsh entities benefited from £135m through R&D tax credits, which was about 2% of the total UK allocation.
Despite these investments, per capita funding in Wales remains significantly lower than the UK average. Whilst Wales accounts for 4.7% of the UK population, its R&D expenditure (£1.5bn) represents only 2.4% of the UK’s total R&D spending (£61.8bn). Research Council funding per capita in Wales was £12.62p compared to the UK average of £22.75p. The disparity is further evident in R&D tax credits, with Wales receiving £0.33p per capita versus the UK average of £1.64p over the same period.
The current funding landscape shows that whilst Wales receives noteworthy contributions from major UK funding bodies, it still lags behind other UK regions. This disparity in funding is hindering the nation’s ability to deliver more high-calibre research and innovation initiatives, and retain home-grown talent. This highlights the need for a strategic re-evaluation of Wales’ approach to research and innovation funding so it can obtain a more equitable amount relative to the national average and unlock its many areas of untapped potential.
Challenges in the Welsh R&D Landscape
The challenges facing R&D in Wales are multifaceted, however one of the key factors is the low level of engagement with funding opportunities. For the year 2020-21, Wales received £59m from UKRI funding, representing 27% of the total value of the awards that were applied for that year. This percentage value is on par with the average award rate across the UK, which ranges between 23% and 31%. Despite the comparable award rate in terms of value, the total amount of funding awarded to Wales is significantly lower compared to neighbouring regions, for example, the Southwest (England) received £166m (30% award value), the West Midlands received £128m (29% award value), and the Northwest (England) received £213m (31% award value) in the same period.
This pattern continues when considering the number of awards received. Wales was awarded 90 UKRI awards in 2020-21 with a success rate of 25% based on the number of applications submitted. This is considerably lower than neighbouring regions, for example, the Southwest (England) received 234 awards (27% success rate), the West Midlands received 222 awards (31% success rate), and the Northwest (England) received 303 awards (29% success rate) in the same period.
These figures illustrate that whilst Wales is competitive in securing funding proportional to the number of applications submitted, the overall volume of applications and consequently the total funding received is considerably lower than more densely populated and/or economically active regions.
Other noteworthy challenges affecting R&D expenditure in Wales include:
- Funding from non-profit organisations and the government is disproportionately low, which limits the scope and scale of research initiatives, particularly in sectors that are not traditionally commercial.
- R&D activities are predominantly concentrated in a few urban centres and associated with universities or science parks, which stifles innovation in more rural or economically disadvantaged areas.
- Another critical issue is the retention of talent within Wales. Many Welsh graduates and skilled professionals often seek opportunities outside Wales, which drains the region of the intellectual capital necessary to drive innovation. Only 60% of Welsh graduates work in Wales.
Strategic Opportunities for Enhancement
To transform the research and innovation landscape in Wales, a comprehensive approach involving increased funding, infrastructure development, collaborative efforts, and talent retention strategies is essential. Areas for policy enhancements might include:
- Increased level of engagement with funding bodies: As discussed above, whilst Wales is competitive in securing funding proportional to the number of applications submitted, the overall volume of applications and consequently the total funding received is considerably lower than neighbouring regions. This emphasises the need to increase the capacity and resources to boost the number, and critically, the quality of applications from Wales to enhance its share of UKRI funding. This approach can also be adopted for targeting other funding sources, such as Horizon Europe, the Defence and Security Accelerator (DASA) and National Institute for Health & Care Research (NIHR).
- Decentralise R&D Infrastructure: Expanding R&D infrastructure beyond traditional hubs by establishing satellite research centres and innovation labs across various regions of Wales could democratise access to R&D benefits. This decentralisation would support regional economic development and harness local talents and resources (see point 5).
- Foster Robust Collaborations: Building stronger links between universities, industries, and government bodies can catalyse the development of innovative solutions and enhance the commercialisation of research. Partnerships can be encouraged through policy incentives that promote shared projects and funding, including identifying collaborative grant competitions and co-investment funds.
- Focus on Emerging Technologies: Prioritising cutting-edge fields of strategic importance to Wales, such as semiconductors, photonics, digital technologies, renewable energy, and biotechnology can set a forward-looking agenda for Wales’ R&D efforts and enable organisations in these key sectors to be pro-active in identifying funding opportunities in these areas to enhance the chance of success.
- Enhance Talent Retention: A Wales Governance Centre report from 2023 revealed a stagnation in middle-to-higher earning roles in Wales since 2000-01, with the highest median pay linked to natural resources and utilities. As of July 2023, job vacancies in Wales were predominantly in healthcare, administration, and retail—sectors known for lower median pay and a prevalence of part-time positions. Conversely, vacancies in mid-to-higher range service sectors like banking, finance, insurance, and management were scarce, except in legal/HR, social services, and IT, which showed some activity. These limited opportunities are underpinning the long-term ‘brain drain’ challenge which Wales has not been able to overcome. Enhancing Wales’ R&D ecosystem is key to attracting more funding into the nation to boost innovation and create more high skilled jobs and economic growth, and provide greater opportunities so it can better retain its homegrown talent.
- Attract and Retain Global Talent and Investment: Providing a more vibrant and prosperous R&D ecosystem could enhance Wales’ reputation on the global stage, making the nation more attractive to international researchers and investors.
Conclusion
Whilst Wales has a long track record and a solid foundation in research and innovation, there are clear opportunities to expand and enhance these efforts. By addressing the identified gaps in funding, infrastructure, collaboration, and talent retention, Wales can unlock its full potential as a dynamic leader in global innovation. Implementing these strategic opportunities will require a coordinated effort among government, industry, academia, and the non-profit sector, all aimed at creating a more vibrant, inclusive, and productive R&D environment in Wales. With targeted investments and policies, Wales can achieve a sustainable and prosperous future, powered by research and innovation.
References
[1] The Royal Society (June 2023), Research and Innovation in Wales. Available at: https://royalsociety.org/-/media/policy/projects/investing-in-uk-r-and-d/regional/factsheets/research-innovation-wales.pdf
[2] Welsh Parliament Senedd Research (July 2021), Research and Innovation in Wales: Research Briefing. Available at: https://senedd.wales/media/qrobg4st/21-11-research-and-innovation-in-wales-2021-eng-web.pdf
[3] Wales Fiscal Analysis, Wales Governance Centre (November 2023). “Labour Market Update for Wales, 2023). Available at: https://www.cardiff.ac.uk/__data/assets/pdf_file/0007/2779882/20230920_Labour-Market_27oct.pdf
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