ALEX BRUMMER: If Prime Minister’s rhetoric about a higher-paid, higher-skilled economy is to become reality, UK must attract top R&D talent
The Government is doing its best to turn Boris Johnson’s rhetoric about a higher-paid, higher-skilled and high-productivity economy into reality.
There never has been doubt about the capabilities of Britain’s top research universities. This was demonstrated by Oxford-Jenner when it linked with AstraZeneca to bring the Covid vaccine to citizens in record time.
That represents the tip of an iceberg which has seen imported talent and the top universities create great enterprises such as smart-chip maker Arm Holdings.
Vision: Boris Johnson wants a higher-paid, higher-skilled and high-productivity economy
More is the pity that Arm may end up in unfriendly overseas hands as Hermann Hauser, one of the overseas talents behind the enterprise, has warned.
What is remarkable is that the UK has become the European hub for innovation and creativity in life sciences, artificial intelligence, gaming and financial technology in spite of past dereliction in support of research and development.
The Budget and spending review seeks to address past shortcomings although Rishi Sunak could have been more robust in unlocking resources. UK outlays on R&D in 2019, at 1.8 per cent of total output, was among the lowest of the advanced countries and way below the OECD average of 2.5 per cent.
The Government aims to address this and plough £20billion in by 2024-25, helping to drive total expenditure across the economy, private and public sectors, to 2.4 per cent of GDP by 2027. This means putting more resources into the research universities as well as providing more generous tax breaks.
As critical, is ensuring human resources are topped up. One of the great concerns has been that the European talent attracted to the UK’s research base would be constrained by Brexit immigration rules.
A simpler visa process for established scientists and technicians will be helpful. But the perimeter needs to be widened so that the UK does not allow the most talented PhD, post-doctoral researchers and tech entrepreneurs to take their brainpower off to the US or elsewhere.
That would destroy the Cabinet’s superpower ambition.
All Budgets are hostage to known unknowns. Big market upheavals can render forecasts irrelevant.
The Bank for International Settlements (BIS) in Basle, the central bankers’ club, has a good record of tracking risk build-up. We have all become acutely aware of the meltdown in the China real estate market with the problems at Evergrande, Modern Land and others.
Latest BIS data shows that exposures of the global financial system to China are growing exponentially. Cross-border claims to non-financial firms in China, including the real estate sector, reached $970billion (£705billion) in the first half of 2021. The BIS notes that this is more than double foreign claims on other major, newly-rich economies such as Mexico, Brazil and Korea.
Indeed, claims in China represented 18 per cent of the rest of the world’s emerging markets. At the same time global banks have boosted lending to Chinese firms by 40 per cent to $450billion (£327billion) since 2020, leaving Western finance greatly exposed. Clearly, China, as second only to the United States in the global output league, has huge bandwidth through the cash it generates from exports, and sits on vast foreign exchange reserves.
It has the capacity to meet any crisis. So far its handling of Evergrande has been stand-offish at a time when President Xi Jinping is seeking to put a lid on unfettered capitalism. What is troubling for the Bank of England is that UK banks are the largest creditors, with exposures of £187billion.
That may not be that surprising given the status that HSBC and Standard Chartered have in the region and their superior knowledge of events.
But it needs very careful monitoring.
As pledged in March 2021 the Chancellor has ensured banks and the City are not further disadvantaged by the jump in corporation tax from 2023 onwards.
Even so the financial sector, China notwithstanding, is still being punished for the financial crisis. If ever there was a moment to get behind the City as it faces derivative trading, IPO and asset management challenges from Paris, Frankfurt, Amsterdam and even New York, it is now.
As a Goldman Sachs alumnus, Sunak should have recognised this. But he has left the Square Mile in an armlock.