This report provides a review of evidence relating to the impact of public sector research and development (R&D) on economic performance, both at the macro-economic level as well as the level of individual sectors. The relevant literature is very large, having grown rapidly in recent years and it has been the subject of several reviews. Our primary focus is on the UK and on more recent evidence. 

The UK public sector influences R&D expenditure in several ways. First, the public sector itself carries out research in various departments of state. Secondly, it provides funding to directly support R&D carried out elsewhere in the economy. For example, it funds R&D carried out in the Higher Education Sector via the Higher Education Funding Councils and the Research Councils (through the ‘Dual Support’ system). It also, through grants and contracts, funds R&D expenditure carried out in the private business and non-for-profit sectors. Thirdly, it provides indirect support through fiscal incentives to the private business sector principally in the form of R&D tax credits. Our focus in this review will be on the second of these routes and in particular on the role of publicly funded research in the higher education sector. 

The allocation of public sector funding for university research in the UK is increasingly conditioned by the need to demonstrate ‘impact’. The impact imperative is reflected in both parts of the dual funding structure of the UK higher education system. Competitive bidding for grants through the Research Councils requires the identification of impact pathways during the grant application process. It also involves the identification of impacts beyond peer group research publications in the post-project evaluation process (Research Council Economic Impact Group (‘Warry Report’), 2006). Since 2011, each of the Research Councils has been required to produce an annual impact report and a set of standard impact indicators. Similarly, the Funding Councils’ Research Excellence Framework assessment exercise in 2013 will, for the first time, include an assessment of wider socio-economic impact beyond the strictly academic. This will be based on sets of case-study submissions. 

This publication provides a brief overview of the scale of public sector R&D in the UK. This is done in terms of both the funding and conduct of R&D and the way that role has evolved in the recent past. It places university research funding in the context of the UK R&D system and discusses the breakdown behind applied and basic research. The next section sets out an innovation systems framework for assessing the impact of public funded R&D and is followed by a section reviewing studies on impact with a particular focus on the UK. A final section summarizes the main conclusions.