A national study shows that R&D grants for companies to significantly boost growth and create jobs.
Grants amounting to a total of Â£8bn led to the growth of a value of Â£43 billion and created around 150,000 jobs.
The findings of the government’s policy of subsidizing promising industrial research – the so-called practice of “picking winners”.
The analysis is the first to suggest that the policy may work at a national level.
Professor Stephen Roper from the Warwick Business School and director of the Enterprise Research Centre, led the research. He said that it was the first time that such a detailed analysis had been undertaken.
“Our study is the first time that we have been able to make an overall assessment in the whole range of the science support provided by the UK public sector to business,” he told BBC News.
“It shows very clearly that subsidies to R&D have a positive impact, creating jobs and stimulating growth in the hi-tech, high value-added sectors that the UK must encourage to remain competitive on the world stage.”
Prof Roper and his colleagues have tracked 15,000 hi-tech companies that have received government R&D subsidies. It was found that, on average, these companies employ 23% more people at the end of six years compared to companies that have not received grants. The turnover has increased by 28% and productivity by 6% over the same period.
The largest growth in employment and turnover has occurred in the manufacturing sector. The impact seems to be especially important for less productive firms. Small businesses have also benefited more from subsidies.
Job creation was strongest in London, the South-East and North-West. The turnover of companies that have increased the most in Scotland, in Yorkshire, and in London.
The Prime Minister has announced an expansion of the industrial R&D funding in the last year in the framework of the industrial strategy of the government. This included a supplement of Â£4.7 billion for the science budget over the next four years. The plan is to stimulate UK industry, focusing on the strengths of the research.
A large part of the extra money will be for grants to invite projects of collaboration between hi-tech companies and university researchers. This will partly be channelled through the so-called industrial strategy, the challenge fund, which aims to support key growth sectors, including medicine, robotics and artificial intelligence (AI), a clean energy and autonomous vehicles.
It is to be feared, however, that the plan is a return to a discredited policy since the 1970s, government subsidies for failing businesses.Free market
A previous Conservative government introduced and then abandoned a Â£350 million that aims to support the it sector in the 1980s because he disagreed with its policy of introducing free market principles to the economy.
There are also concerns by some commentators that a top-down approach for the funding of industrial research will lead to more resources for the development of clear, well-established ideas, to the detriment of more innovative, which could lead to important breakthroughs that could be translated into business success.
The new study, but suggests that the policy of picking the winners might work if it is well targeted, according to Prof Roper.
“We have significantly larger effects of the growth in the manufacturing sector than in services, and between small businesses than large businesses. And so, we can try to pick the winners, but select winners within these groups, or point to these groups a little more.
“So, rather than safeguarding the national champions, we should be looking for the next generation of national champions – small, promising, up-and-coming companies that have the potential to scale. It is one of those who we should be supporting.”
Follow Pallab on Twitter