Can the UK remain a global ‘science superpower’?

There have been multiple changes to the U.K.’s life sciences industry in recent months, raising concerns over the country’s future competitiveness on a global stage.

Alarm bells were set ringing thanks to a reduction in SME research and development (R&D) tax credits, alongside an increase in the NHS sales levy, and loss of European Research Council Horizon Europe funding. Wider industry trends, such as a dip in clinical trials, stabilising of venture capital funding, and a supposed exodus of R&D activity to other countries, have all added to the uncertainty.

While this has affected sentiment, it’s not all doom and gloom. If concerns are appropriately addressed, the U.K. can and will remain a ‘science superpower’, a phrase we’ve seen used repeatedly in government circles.

Funding research

Prestigious Horizon Europe grants are a primary source of R&D funding across Europe. At U.K. universities and institutions, their loss could impact the quality of research being conducted, while lowering the appeal for high quality talent and subsequently, the R&D and intellectual property that flows into start-ups and spin-outs. The grants also foster international collaboration in research, arguably just as important as the funding itself.

However, in 2021, the government created a ‘Plan B’, putting aside nearly £7 billion to help support the industry. This comes alongside a continued pledge to increase expenditure on U.K. Research and Innovation to £20 billion per annum by 2024/2025.

While still lower than the EU average as a percentage of GDP, it’s a step in the right direction.

Reduced tax credits impact SMEs

Business relief was significantly reduced last year on R&D investments made by companies, ostensibly to prevent fraud in the scheme. This £4.5 billion reduction in overall relief by 2028 is particularly alarming as it impacts sharply on the early-stage growth phase of U.K. companies, 80% of which are SMEs.

Drug discovery and development services will also be affected. Particularly prominent outside the Golden Triangle of London, Oxford and Cambridge, and an integral part of the levelling up agenda, they provide contract services to many SMEs which could be impacted.

This said, the BioIndustry Association has put forward advice that fraud can be reduced while continuing to support genuine R&D-intensive SMEs. This will be vital in maintaining the country’s already exceptionally strong start-up and spin-out ecosystem.

Bigger firms face larger levy and changing R&D dynamics

By contrast, the net R&D Expenditure Credit available to large companies has been increased by 42%. However, larger companies – who are focused on product – are more concerned by the NHS levy, an exodus of R&D activity, and declining clinical trials activity.

Designed to limit the NHS’s medicines bill while supporting innovation, increased demand, and a backlog for medicines since the COVID-19 pandemic, companies have seen the NHS levy triple from 5.1% to 15%. It means pharmaceutical companies are now obliged to return almost £3.3 billion in sales revenue to the government, up from £600 million in 2021 and £1.8 billion in 2022.

Both AstraZeneca and GSK have called for the levy to be reduced, but it should be noted that it’s helped the NHS pay for new medicines, keeping patients out of hospital and improving survival rates.

The levy and declining clinical trials have seen some larger biopharmas such as AbbVie and Eli Lilly pull out of the country’s pricing agreement. Bayer reduced its U.K. footprint, while GSK and AstraZeneca are choosing to build new factories in other countries.

Yet a so-called exodus of R&D from the U.K., is slightly overstated. Firstly, a 69% figure suggested by consultancy firm Ayming UK includes 200 companies conducting all types of R&D - not just life sciences. Secondly, the redirection of R&D by larger companies is not currently being seen by smaller companies.

While clinical trials declined 41% between 2017 and 2021, there are positives on the horizon too. Take the growth of Cell & Gene Therapy clinical trials, the government partnering with BioNTech to trial innovative cancer vaccines, and Grail recruiting 140,000 people in England to trial a blood test to detect early-stage cancer more cheaply, to name a few.

The impact on real estate

Although VC has reduced from booming 2021 levels, it’s still higher than 2020 – flowing into many markets and allowing companies to conduct R&D, grow and demand space. We continue to see steady real estate requirements in the market for lab space as a result.

However, JLL research shows a stark imbalance between the supply of purpose built life science real estate and demand. The challenges discussed above may only exacerbate this imbalance or may help them.

Overall, it’s a pivotal time for life sciences and one which will be dictated by forward thinking government decisions. There’s optimism about the strength of the existing U.K. life science ecosystem. While the industry needs to voice its concerns, by working together, we can bring about purposeful change to ensure the U.K. remains a top life sciences destination.