Driving innovation is crucial for the UK’s economic growth, security, and global competitiveness. Yet policymakers face a complex challenge: with a wide array of policy tools available, which ones are right for the job? 

From broad tax incentives to highly specific market commitments, each instrument comes with its own unique strengths, risks, and resource implications. To help navigate these critical decisions, we are launching a new, interactive UK R&D Policy Toolkit.

This toolkit provides:

• In-depth, evidence-based profiles of nine major R&D policy tools, alongside specific, actionable advice on best practices.
• A comprehensive framework for evaluating and comparing returns on public and private R&D investment.
• An interactive calculator to generate benefit-cost ratios for potential R&D investment.

Drawing inspiration from work by Bloom, Van Reenen and Williams, and grounded in economic theory and policy experience, our analysis reveals several key insights. It shows that the most effective national strategy does not depend on a single "best" tool, but on deploying a sophisticated portfolio, carefully matching the instrument to the specific policy goal. 

Overall, our analysis shows that public investment in R&D is needed to address a fundamental market failure at the heart of innovation: knowledge created by one firm inevitably "spills over", benefiting the wider economy in ways the originating firm cannot charge for. Because they cannot capture the full value of their work, private firms systematically underinvest in R&D. This is bad for society. 

The evidence shows that the social returns from private R&D can be more than four times higher than the private returns. This creates a clear rationale for direct public investment, which is a powerful lever for growth. Studies show that it not only generates substantial returns on its own – with UK analysis suggesting an average return of around 40% – but it also stimulates more private sector activity. Research indicates that for every 10% increase in government-funded R&D, private R&D investment increases by an estimated 5-6%. This creates a complementary effect, amplifying the impact of public funds and demonstrating that public and private R&D are partners, not rivals, in driving innovation.

The suitability of an R&D policy tool will vary by the needs of the policymaker, which may vary. One dimension is targetability: on one end are broad-based tools like R&D tax reliefs, which are excellent for general stimulus but are poor for strategic targeting. On the other end are surgical instruments like innovation prizes or advance market commitments, which offer technological targeting to solve specific policy challenges, but which may be less effective at stimulating overall innovation. 

A second dimension is flexibility. Some tools offer agility; Innovate UK’s Contracts for Innovation, with their phased model, allow for rapid pivoting of resources away from unpromising R&D paths. Conversely, the power of other tools lies in their deliberate inflexibility. The success of an advanced market commitment hinges on a credible and stable commitment over many years to shape new markets, while technology and innovation centres – like the UK’s network of Catapults – require significant, long-term core funding commitments to be viable. This funding lock-in is a strategic feature, designed to build investor confidence.

This choice of instrument also depends on the specific type of problem being addressed. While grants and innovation prizes can de-risk the high financial cost of early-stage research, regulatory sandboxes are explicitly designed to reduce regulatory uncertainty for firms bringing novel products to market. Technology and innovation centres are designed to overcome the high costs and risks associated with accessing specialist R&D facilities. These factors should be considered alongside any inherent characteristics of the problem at hand, such as the maturity of a given technology.

Our goal is to support a more strategic, evidence-based approach to R&D policy that maximises public value and accelerates UK innovation. However, our analysis of the tools is only as good as the evidence base, which in some areas is very patchy. This is why the UK's increased efforts on metascience are very welcome.

As this is a beta version, we actively welcome engagement and feedback from across the policy and research communities to help us refine and improve this resource.

We invite you to explore the toolkit today.

🔗 CLICK HERE TO ACCESS THE TOOLKIT