A new economic impact assessment of university research suggests that the £3.5bn a year currently spent on publicly funded research generates an additional annual output of £45bn in UK companies.

The assessment, presented at a British Academy/Economic and Social Research Council innovation seminar, also suggest that benefits of research spending in higher education are greater than those from other areas of government-supported research and development (R&D).

‘£45bn a year is a good return on £3.5bn,’ said economist Prof Haskel, co-author of the study from Imperial College Business School. ‘It’s important to be able to put a proper figure on how public investment in university research correlates with private sector productivity for the first time.’

The authors used 20 years’ worth of figures from the Department for Business, Innovation and Skills to construct a new measure, called private sector total factor productivity (TFP), which is the change in output not accounted for by typical forms of spending, such as labour and machinery investment.

The TFP figures calculated in this study capture the contribution of ’intangible’ activities such as new technology, knowledge, skills and design. The study shows a strong correlation between public spend on research - through the research councils - and increased TFP over 21 years from 1986 to 2007.

According to Imperial, there are two main challenges to working out how university research contributes to productivity.

‘First, universities openly publish new findings and make them freely available for use anywhere in the economy, so it’s hard to follow a payment trail from idea to application,’ said Prof Haskel. ‘Second, the private sector also invests in developing new knowledge, so we also need to account for these investments before looking at effects from universities.’

The study also shows that the benefits of public spending on research in higher education are greater than those from other R&D areas supported by government, such as publicly funded civil and defence R&D, which show no such correlations with private sector growth.

The research was funded by the COINVEST project from the European Commission Seventh Framework Programme.