HEPI: Unleash the levelling-up potential of universities by attracting foreign investment into UK innovation

• Universities to leverage global connections to help drive local growth
• Blueprint for government to work with sector to address long-term decline in UK inward investment and spark growth in new innovation clusters outside Golden Triangle
• Target the top 200 research and development (R&D) investors in the world, report tells Government as new Whitehall Departments take shape
• Universities to ‘hunt in packs’ and combine forces to attract major R&D investors
• Government urged to forge stronger bilateral relationships with key countries to help attract R&D investment, as ‘Plan B’ decision looms closer
• Minister says ‘Research universities are the jewels in the crown of our R&D economy’

A new report was launched today (7 March) in London by the Higher Education Policy Institute (HEPI) and Midlands Innovation, supported by the National Centre for Universities and Business (NCUB) and Universities UK International (UUKi).

The report sets out a blueprint for universities and government to work together in order to unleash the levelling-up potential of the UK’s world-renowned higher education sector to help attract international investment across the country.

Drawing on extensive analysis and research from its authors and a pilot underway in the Midlands, the report points to a significant opportunity to provide a long-term boost for local economies by attracting more Foreign Direct Investment (FDI) into the innovation clusters that surround university campuses across the UK. It suggests a number of practical measures that would better leverage universities’ global connections to directly support their local areas by attracting investment to boost economic development and job creation.

It proposes a national programme and policy framework to deliver more ambitious, joined-up thinking between universities, local growth partners and government around securing FDI into R&D, including learning from international best-practice from around the world.

While the report finds evidence that universities already play an important role in attracting Foreign Direct Investment (FDI) to the UK, it identifies a clear opportunity for this role to be expanded and improved, making a number of recommendations for government, universities and local economic growth organisations. These include:

• Government should target the world’s top 200 R&D investors, taking advantage of its new Whitehall Departments to launch a refreshed and more ambitious approach to securing FDI into science and technology
• Government should incorporate FDI into R&D into its ambitious new plans to forge bilateral international research and innovation bridges with partner nations
• Universities, government and local partners should work together to showcase the investment potential of the innovation clusters that surround campuses across the UK
• Universities should work together and ‘hunt in packs’ in order to attract more significant inward investment into regional economies
• A more systematic approach should be taken to introduce universities to firms who may potentially or have recently invested in a local area

On levelling up, the report finds that universities have a unique role to play, not only to provide the foundation for the research ecosystem that attracts investment but also to offer a pipeline of skilled graduates for industry collaboration and spin-outs. The recommendations could help level-up local economies beyond London and the South East, by supporting the expansion of innovation clusters with universities at their heart.

The report, The role of universities in driving overseas investment into UK Research and Development by Dr Alexis Brown (attached), comes as the Government announces nearly £0.5m of funding for the Midlands Pilot, developed by a coalition of 17 universities and partners including the Midlands Engine Partnership. It is led by Midlands Innovation with the support of Midlands Enterprise Universities and hosted by the University of Nottingham. The Pilot is helping identify and develop R&D investment propositions involving universities from across the region.

George Freeman MP, Minister for Innovation at the Department of Science Innovation & Technology, said:

‘The UK ranks 4th in the world rankings for innovation. Research universities are the jewels in the crown of our R&D economy, laying the foundations for a new era of UK innovation and prosperity in all parts of the UK.

‘From training world-class researchers to breakthrough science in world-class labs, high growth spinouts and industry collaborations, UK universities are key to the UK Innovation Economy and our global role as a Science Superpower.’

Lord Johnson of Lainston CBE, Minister for Investment at the Department for Business and Trade, said:

‘By boosting innovation and attracting the world’s brightest minds to the UK, our unrivalled universities are the engine driving record levels of overseas investment into the UK.

‘With government working alongside universities, our world-leading sectors in life sciences, AI, nuclear and more can reach new heights, building a roadmap to become a science and technology superpower.’

Nick Hillman, Director of HEPI, said:

‘I have seen close up the enormous benefits that Foreign Direct Investment brings to the UK as a governor of the University of Manchester, as a former special adviser to the Minister for Science and as someone who currently lives in the Oxford-Cambridge Arc. It creates highly skilled jobs, promotes innovation and improves local people’s quality of life.

‘If the UK is to deliver substantial further economic growth while also levelling up, we must now get even better at welcoming new investment from overseas. This report shows clearly how the UK can build an unrivalled offer and I know our excellent university system stands ready to be at the heart of it.’

Dr Helen Turner, Director of Midlands Innovation, said:

‘This report builds on the trail-blazing Universities as Drivers of Trade and Investment Pilot led by universities and our partners in the Midlands and supported by Government. It highlights the invaluable role universities already play in attracting high-quality inward investment outside of London and the South East to grow the clusters of innovation that will ultimately help level-up those regional economies.

‘We particularly welcome the recommendation that universities should work collaboratively to “hunt in packs” by scaling-up their strengths, ambitions and offer to investors. Midlands Innovation is proud to develop and host the Pilot and will continue to share emergent findings from the programme with universities and policymakers from across the UK.’

Jamie Arrowsmith, Director of Universities UK International, said:

‘This report outlines the major role that international business investment in university R&D has to play in driving growth and prosperity – both domestically and further afield. This investment benefits local communities, creates jobs and amplifies the global reach of UK research. Our members are increasingly leveraging their role as global actors to build new and strengthen existing links with international businesses, but this report makes it equally clear that there is more to be done.

‘UUKi looks forward to helping take forward the recommendations in the report, to help maximise the potential of our universities to act as beacons for global investment.’

Dr Joe Marshall, CEO of NCUB, said:

‘The UK has attracted significant levels of foreign direct investment (FDI) into its R&D system over many years. As this report illustrates, FDI is a vital source of funding for the research and innovation sector. However, we cannot be complacent. Other nations are actively competing to attract this investment.

‘NCUB is commissioning research to give us a better understanding of how we perform in the factors that influence international investment decisions. This will be published later this year.’

Notes for editors

1. HEPI was established in 2002 to influence the higher education debate with evidence. It is UK-wide, independent and non-partisan, and it is funded by organisations and higher education institutions that wish to support vibrant policy discussions as well as through events. On Tuesday, 7 March 2023, HEPI will be hosting its first Annual Lecture since the start of the pandemic, with Andreas Schleicher, Director of the Education Directorate at the OECD. For further details, see here.
2. Foreign Direct Investment is already a significant source of private sector funding into university R&D activities. Across the 15 universities in the Midlands Universities as Drivers of Trade and Investment Pilot, FDI represented an average of 37% of all industry income in 2019/20 (with 9 percentage points coming from the EU and 28 percentage points from the rest of the world).
3. According to HESA data, FDI in university R&D has historically centred in London and the South East.
4. Health and Life Sciences are the dominant sectors and subject areas for FDI into university R&D. By subject, 29.6% of FDI is concentrated in clinical medicine and 9.2% in biosciences, though investment in chemistry and general engineering is growing as proportion of overall university R&D FDI.
5. While the UK continues to be an attractive destination for overseas R&D investment, this investment cannot be taken for granted – overseas investment in university R&D declined by 6% between 2020 and 2021.
6. The Midlands Pilot focuses on sectors where the region’s universities have research and innovation strengths and expertise that, when combined, are genuinely world leading. These include transport technologies, agri-food, zero-carbon energy, health and life sciences and the creative and digital industries. The Pilot team is working with Government officials and the Science and Innovation Network in four target markets (Australia, Germany, Singapore and South Korea) to explore the practicalities of promoting these opportunities to major international investors in R&D and help shape new policies and approaches. The Pilot is being co-funded by the region’s universities, the Department for Science, Innovation and Technology and the Department for Levelling Up, Housing and Communities through their support of the Midlands Engine Partnership.