Written evidence submitted by Scottish Funding Council (SSS0018)

Response from the Scottish Funding Council to the Scottish Affairs Committee’s inquiry, September 2023

Introduction and summary

The Scottish Funding Council (SFC) is Scotland’s tertiary education and research authority, a non-departmental public body of the Scottish Government, established by the Further and Higher Education (Scotland) Act 2005. The 2005 Act places a specific duty on SFC to secure the undertaking of research by post-16 education bodies in Scotland.

In exercising our responsibilities, SFC provides core research and knowledge exchange (KE) funding for universities distributed annually through block grant funding, in addition to making complementary strategic investments in research and KE.

We are, therefore, responding to the Scottish Affairs Committee’s inquiry into Science in Scotland in our capacity as a public funder of research in Scotland (which we describe in further detail in our response) with relevant experience and insights we consider will support the Committee in answering the questions set out in its Call for Evidence.

In addition to outlining the role of SFC in the research landscape and what our responsibilities are, our response highlights the following:

• The benefits of the dual support system in facilitating research in Scotland and the importance of SFC’s underpinning funding, which provides essential research infrastructure and supports the development of talented individuals to produce research, in the leveraging of further investment.
• The importance of the UK Government funding, via UKRI, to support research in Scotland and the constructive relationships that SFC has with UK partners including the Department for Science, Innovation and Technology.
• The international influence of Scottish research, in particular, in tackling the global challenges set out by the Sustainable Development Goals, where Scottish research receives 80% more citations than the global average, and we excel in particular areas of Scottish strength such as Life Below Water.
• The collective challenge facing institutions in Scotland and across the UK as most research is not funded at full economic cost leaving institutions to find the balance, drawing on other sources of income such as international student fees to cross- subsidise research activity.
• The opportunity offered by the size and shape of the sector in Scotland, where collaboration at a national level can be achieved with a “Team Scotland” approach.
• The need for the differences in Scotland’s research and development landscape to be

recognised by the UK Government and business, in particular, that Scotland’s

economy is driven by SMEs, who miss out on opportunities as existing mechanisms predominately focus on “big business.”

• That SFC has significant influence on the Research Excellence Framework, in terms of its development and administration and it is a key source of data which informs SFC’s allocation of our core research funding in Scotland.
• That Scottish universities are successful and influential participants in the EU’s research funding programmes and the announcement that the UK will associate to Horizon Europe is hugely welcome. With association secured, renewed effort is required to make up the ground lost in Scottish/EU relationships due to the delay and uncertainty and SFC will seek to support the Scottish sector to rebuild collaborative partnerships with EU researchers.

Response from the Scottish Funding Council to the Scottish Affairs Committee’s inquiry, September 2023

Scottish Funding Council

1.        The Scottish Funding Council (SFC) welcomes the opportunity to respond to the UK Parliament Scottish Affairs Committee’s inquiry into Scotland’s scientific research capability.

2.        SFC is Scotland’s tertiary education and research authority, a non-departmental public body of the Scottish Government (established by the Further and Higher Education (Scotland) Act 2005) with the duty to secure the coherent provision of high-quality fundable further and higher education by colleges and universities in Scotland, in addition to securing the undertaking of research.

3.        Our Strategic Plan 2022-2027 outlines our priority to invest in excellent research and innovation that advances current knowledge; attracts and nurtures talent and entrepreneurship; mobilises collaboration and additional investment; enhances our international reputation; and delivers economic transformation and societal value.

4.        Our response to the Committee’s inquiry provides information on our role in Scotland’s world-class university research system and addresses the most relevant elements of the call for evidence to our statutory remit. We would be happy to expand on our written contribution by providing oral evidence to the Committee in due course.

SFC’s role in Scotland’s university research system

5.        Scotland has a strong reputation for science and research excellence that attracts talent and investment from around the world. Our diverse and highly regarded institutions consistently deliver cutting-edge research that creates knowledge of immense social, economic and cultural value.

6.        SFC contributes to the foundation and infrastructure that makes this research possible, and we work closely with Scotland’s universities to best deliver sustainable research excellence. Reflecting devolved research responsibilities, we provide core research and knowledge exchange (KE) funding for universities distributed through block grant funding, which will total £305m in the academic year (AY) 23/24. This funding comes to

SFC via the Scottish Government’s annual budget.1

7.        SFC also makes complementary strategic investments in research and KE, including our Innovation Centre programme, support for university-business collaboration through Interface, and investments in strategic research collaboration.

8.        In this way, as well as supporting fundamental research, SFC’s funding facilitates Scottish KE and innovation. In AY2020-21 Scottish universities supported 29,649 SMEs, non- commercial organisations and corporations on innovation-focused projects; facilitated 297 spin-out companies, 1374 startups and 116 social enterprises.2

9.        SFC’s research and KE funding supports each university, regardless of size or specialisation, to be able to deliver high-quality research and provide research-informed teaching, and there is evidence of research excellence in every university in Scotland. SFC’s funding also sustains a world-leading system of tertiary education that enables students to flourish via high-quality education and allows SFC to consider research and KE as part of a holistic overview of university activity.

10.    Our largest grant, the Research Excellence Grant (known as REG and which totals £247m in AY23/24) is allocated mainly on an institution’s performance in the Research Excellence Framework (REF) which we discuss later in our submission.

The Dual Support System

11.    SFC’s core research and KE funding upholds the UK’s unique ‘dual support’ system for university research in Scotland, alongside grants from the UK Government through UK Research & Innovation (UKRI). Similar arrangements also exist in England, Wales and Northern Ireland.

12.    The dual support system is critical in enabling and underpinning Scotland’s university research competitiveness and success. Through this system, Scottish university research benefits from a 50/50 mix of public funding from both the Scottish Government (SFC’s core funding) and UK Government (via UKRI) to provide a complementary balance of –

• flexible and stable funding in the form of the block grants to institutions provided by SFC; and
• discrete funding for specific research projects competitively won by individual researchers and teams, provided by UKRI.

1 https://www.sfc.ac.uk/publications-statistics/announcements/2023/SFCAN132023.aspx

2 https://www.hesa.ac.uk/data-and-analysis/business-community - HE business and community interaction survey); Intellectual property, start-ups and spin-offs | HESA)             

13.    As underpinning funding, SFC’s investment supports the leveraging of further investment by providing the conditions necessary to win competitive funding, such as the provision of essential research infrastructure and overheads, and the development of the talented people needed to produce excellent research. It also has a structural role in contributing to the full costs of research projects that are not fully funded at 100% of their cost. In this way, SFC funding leverages UKRI and other research funding sources including industry, EU and charity funding. The makeup of Scottish university research income (21/22) is demonstrated in the below diagram.

14.    As a crucial partner in the dual support system, SFC has constructive relationships and regular, direct, engagement with UKRI and the UK Government Department of Science, Innovation and Technology (DSIT). We work alongside Scottish Government colleagues to provide expertise and insight to inform UK policy and seek to ensure that it reflects the Scottish research system and devolved competencies.

International influence of Scottish scientific research

15.    One approach (of many) to consider Scotland’s international research influence is its contribution to international challenges. For example, Scotland is globally respected in research related to the implementation of the Sustainable Development Goals (SDGs).

16.    This was made clear in SFC’s March 2022 publication “Scotland’s Research Contribution to National and International Challenges”, which demonstrated that between 2010 and 2020, Scottish research, both SDG and non-SDG related, had high citation impact.3 This research showed Scotland was a leading nation when considered alongside comparator nations (including Germany and the USA) with Scottish research receiving 80% more

3 Citation impact refers to when a publication is cited within a new piece of published research and can be a sign that research is being built on and that knowledge is being taken forward as part of the process that drives research impact. Citation rate has also been taken to be indicative of research quality in some cases.             

citations than the global average and surpassing the UK average. Specifically on SDG research, relevant Scottish publications were cited at two times the global average.4

17.    Over half of Scotland’s work on SDG-related research is undertaken with international partners, demonstrating Scotland's status as a key international research collaborator. In assessing Scotland’s SDG share of internationally collaborated publications, Scotland (55.4%) was above other comparator countries including Germany (50%) and the USA (35.5%).

18.    Scotland has particular strengths in areas including Life Below Water (SDG14) and Life on Land (SDG15). For example, data from Sea Mammal Research Unit (SMRU) based at the university of St. Andrews has supported the US Navy in mitigating the impact of its sonar activities, with both the Norwegian and Dutch navies also changing operating procedures based on SMRU research. On dry land, the University of Stirling has collaborated with partners in Gabon to create a research hub – forestLAB – which supported conversation-led business models for sustainable development in central Africa. Scotland is also internationally respected in other SDG areas, including Zero Hunger (SDG2) and Good Health and Wellbeing (SDG3). 5

19.    Although this data is only focused on research in relation to the SDGs, it gives a sense of the breadth of activity and the recognition of Scotland's contribution to global research and international influence.

Opportunities and challenges for Scottish university research

20.    Scotland’s university research base is operating in a changing context with a number of opportunities, challenges and strategic drivers. As Scotland’s tertiary education and research authority, we work closely with Scotland’s universities to promote and deliver sustainable research excellence in this changing context.

21.    SFC is currently facing a challenging public spending environment. SFC’s funding allocation of £304.5m for AY23/24 has enabled us to maintain investment in research and innovation and represents a 1.8% increase on the previous academic year (not adjusted for inflation).

22.    Investment in core university research in Scotland has not kept pace with the growth experienced in England. For comparison, between 2016/17 to 2022/23, the combined

4 Scotland’s research share of SDG14 related publications (within the total SDG output for Scotland and comparators) was considerably above average for both the UK and globally, and in SDG15 our share (5.9%) was the highest amongst the global competitors and the above UK average (4.5%). In addition, international collaborations in SDG15 displayed the highest citation impact amongst global competitors.

5 Scottish international collaborations in both areas of research have the highest citation impact of all the global comparators considered in the report.             

total of SFC’s research and KE funding increased by 7%, while the combined total of the equivalent Research England core funding increased by around 30%.

23.    We continue to work with institutions and other stakeholders to consider how we collectively address the challenges ahead to secure the long-term sustainability and continued success of Scotland’s tertiary education sector and impactful research.

24.    Research is a loss-making activity for institutions across the UK as most research projects are not fully funded at full economic cost and institutions are expected find the balance using other sources of funding, particularly from core funding as part of the dual support system (delivered by SFC in Scotland as indicated above). However, there are increasing draws on these other sources of funding including growing requirements from funders to ‘match’ investments and environmental sustainability requirements for research. This is increasing the propensity of institutions across the UK to cross-subsidise research from other sources including international student income.

25.    This financial context is set against significant ambitions for research from both Governments and record levels of inflation which are eroding the value of funding and the availability of low-cost loans.

26.    Scotland’s research base is highly productive and competitive both nationally and internationally, with a global reputation, as previously highlighted regarding the SDGs, that we are rightly proud of. However, there are some emerging signs that Scottish university research competitiveness is becoming more challenging to sustain.

27.    Scotland performed well at a national level in the most recent REF exercise but there are some areas that require focus. Scotland maintained its position in the quality and environment elements of REF2021 but lost ground in impact. Changes observed from REF2014 to REF2021, include a slight decrease in Scotland’s share of the UK researcher population and nationally, Scotland had a lower increase in volume than the UK average. There are a number of potential reasons for these trends including differences in availability of funding and, for REF impact, differences in Scotland’s business base, particularly the greater reliance on SMEs whose use of research differs from the requirements of large businesses.

28.    Scotland continues to perform well in securing UKRI income, with a national share higher than our researcher population share. However, analysis of HESA data indicates that Scotland's share of total UKRI Research Council grant income to universities has slightly reduced over the period 11/12 to 21/22 (from around 16% to just over 14%), though total funding increased, reflecting rises in UKRI budgets.

29.    Alongside their rUK peers, Scottish institutions are considering how to respond to UK research landscape changes, including:

• an increasing focus on inter- and multi-disciplinary research and greater challenge- and mission-led approaches;
• moves towards larger and longer grants which may be more challenging for

Scotland’s sector with more research active institutions of smaller size;

• increasing focus on research environment and culture, which may be advantaged by size and critical mass; and
• increasing focus on private sector leverage, particularly big business, and requirements for match funding. This can be challenging for Scotland’s sector where the majority of businesses are SMEs.

30.    Differences in ability to respond to these changes may be a factor in Scotland’s university research competitiveness. The size and scale of the sector may come into play here: Scotland’s university research base includes a lot of small research active institutions, and we have a higher level of research active institutions per capita compared to England.

31.    However, Scotland’s size and shape also offers opportunities. It is easier to collaborate at a national level, to pool resources and draw on what the system has to offer in a ‘Team Scotland’ approach. This scale means that we can be agile and well connected, something which SFC seeks to drive with our portfolio of strategic investments.

32.    Finally, Government support for applied health research is devolved and therefore Scottish researchers do not have full access to National Institute for Health and Care Research (NIHR) funding as English researchers do. Instead, the Scottish Government’s Chief Scientist’s Office (CSO) has an applied health research funding portfolio and pays into selected NIHR schemes to enable Scottish sector participation. The range of schemes open to Scottish researchers has recently increased, however there are still disparities in the levels of applied health research funding available and some challenges exist in providing the additional costs of research that’s undertaken in clinical and social care settings. Differences in access to this funding in devolved nations were highlighted in the Research Excellence Framework 2021 Medicine, Health and Life Sciences assessment panel report.6

33.    SFC is working with Scottish institutions to better understand and develop how we can best support the continuing success of Scottish university research.

UK Government and Private Sector Support

34.    UK Government and private sector support for research and development in Scotland is crucial to continue our research success, to drive innovation, and deliver social and economic impact. As previously outlined, funding from the UK Government (via UKRI) upholds the publicly funded ‘dual support system’ for research in Scotland, alongside funding from SFC. This system is a crucial part of our national research competitiveness

6 REF Overview report by Main Panel A and Sub-panels 1 to 6 (May 2022) mp-a-overview-report-final-updated- september-2022.pdf (ref.ac.uk) (page 18)             

and success.

35.    To build upon successes, and further enhance the Scottish research and development ecosystem, the UK Government and private sector can provide additional support through their continuing commitment to the ‘dual support system’ and:

-          Recognition of differences in Scotland’s R&D landscape, including our different business base, in UK policies and funding opportunities. The UK’s business landscape is not homogenous and Scotland’s economy is predominately driven by SMEs (99.4% of all private sector businesses).7 Scottish universities and businesses aim to work collaboratively across the UK and to leverage funding from UK-wide schemes (e.g. Strength in Places funding). It is essential that policies and funding opportunities (i.e. UKRI, Innovate UK) are designed to support the diverse strengths of the UK’s full economic ecosystem, including SMEs. Existing mechanisms can often be focused on big business and technology. Improvements are needed to support a wider demographic makeup of businesses and to facilitiate funding of innovation at a national context.

-          It is important that differences in the Scottish Research and Development (R&D) system are recognised and built upon in taking forward the place agenda. For example, Scotland has more small-scale research active institutions which can have less capacity to absorb and manage large grants. The participation of different sizes of research active instituions should be considered in the design of new interventions.

-          Increased co-ordination between UK and Scottish Governments’ R&D activity. The UK and Scottish Governments have published separate strategies (e.g., UK Innovation Strategy, UK Levelling Up Agenda, Scottish Government National Strategic for Economic Transformation, Scottish Government Innovation Strategy) outlining their respective visions for R&D. These frameworks can work together to ensure business confidence and attractiveness to private investment interested in the Scottish sector.

-          Increasing Government Expenditure on Research and Development (GovERD) in Scotland. GovERD (UK Government spending) as a share of GDP was 0.13% for Scotland and 0.15% for the UK in 2020. When compared internationally, Scotland ranked in the third quartile for GovERD as a share of GDP, lower than the EU and OECD averages (0.26%). Scotland would benefit from increased Government R&D spending.8

7 Business Size - Businesses in Scotland: 2022 - gov.scot (www.gov.scot)

8 scotlands-national-innovation-strategy.pdf (www.gov.scot)

-          Increased Business Expenditure on Research and Development (BERD). Whilst the new BERD methodology estimates have indicated improvement (through better representing smaller businesses), BERD expenditure represented an estimated 1.86% of Scottish GDP in 2021. This remains lower than the proportion of GDP in the UK as a whole (2.00%) and highlights the need for increased business investment in R&D in Scotland.9

-          Funding to support innovation scaling. Scotland has a strong record of securing Innovate UK funding (10.77% of IUK income in 2022/23). However, this does not currently translate to an enhanced pipeline of growing businesses. Scotland’s universities are an asset to attract inward investment, but funding is needed to help with the scaling-up of business. This challenge was recognised in the recent Scottish Government Innovation Strategy.

-          Easing the financial burden of initial academic-business collaboration. Early engagement with industry on emerging technologies is essential for the diffusion and adoption of research. The provision of grants and subsidies for R&D projects can help alleviate the financial burden on start-ups and SMEs, removing barriers to collaborations. The sector informs SFC that expansion of current tax incentives (R&D tax relief) and venture capital support, would incentivise private investment in research-driven start-ups.

-          Investing in and enabling wider access to research infrastructure. Research infrastructure for universities, including to collaborate with businesses, is essential. Universities have invested in incubator spaces, but challenges remain in supporting scaling business collaboration with appropriate infrastructure. University-business collaboration and research commercialisation is also deterred by specific policies such as VAT rules, limiting how much university infrastructure can be used by profit generating businesses. These issues are shared across the UK and should be reviewed to support innovation and collaboration.

-          Addressing global talent recruitment barriers. People are noted as a main pillar of the UK Innovation Strategy and the importance of our research community is recognised in a number of Scottish Government documents. Attracting and retaining top global talent is vital for successful research and development. The sector informs SFC of multiple barriers to recruitment including complexity of applications, fees for applicants and dependants and the upfront Immigration Health Surcharge.

The Research Excellence Framework

36.    In considering the effectiveness of the Research Excellence Framework (REF) as a data

9 scotlands-national-innovation-strategy.pdf (www.gov.scot)

source to support the allocation of funding in Scotland, it is important to note that the REF is carried out jointly by the four UK HE funding bodies: SFC, Research England, the Higher Education Funding Council for Wales (HEFCW) and the Department for Economy in the Northern Irish Government (DfENI). The process is collectively owned and paid for, and the REF team are formally employed by Research England under the direction of a joint steering group.

37.    SFC has significant influence on the REF, in terms of both development and administration, ensuring that it appropriately reflects the Scottish university system. In addition, while the core of the REF assessment is the same across the UK, each nation uses the results in their own independent approaches to the allocation of funding. So, while the process to generate REF results is consistent, the use of those results to distribute funding is different in each nation and reflects national priorities and approaches. For example, SFC’s distribution approach includes consideration of the UKRI research funding won by an institution, as well as REF results, to reflect the role that our funding has in supporting institutions to leverage research project funding.

38.    At the request of UK and devolved government Ministers, SFC and the other UK HE funding bodies recently undertook the Future Research Assessment Programme (FRAP) to explore possible approaches to the assessment of UK higher education research performance. The Programme reported in June with changes including an increased focus on people & culture in research, changes in the connection between research outputs and staff and a new approach to determine numbers of research active staff.

39.    The Programme involved significant analysis and extensive consultation, both nationally and internationally, to inform the development of the next national assessment exercise in 2028. SFC was and is an integral part of these discussions, represented on the Programme Board directing the work and putting forward recommendations for the next REF. This includes ensuring that the process reflects the breadth of the UK’s research landscape. We will continue to be on the Steering Group for REF2028 as it develops as a result of further extensive consultation with the sector.

40.    The REF is the primary source of data which informs SFC’s allocation of the majority of

our core research funding (REG) to promote research excellence in Scotland. An

institution’s performance in REF dictates the majority of the SFC research funding it will receive annually until the next assessment, thereby playing a significant role in a stable allocation that allows institutions to develop and implement long-term research strategies.

41.    Allocating the Research Excellence Grant (REG) on a basis of research quality and volume (i.e., the number of researchers in an area of research within an institution) ensures that funding is distributed effectively and appropriately. This is reflected in the core purposes of REF 2028:

• To inform the allocation of block-grant research funding to HEIs based on research quality;
• To provide accountability for public investment in research and produce evidence of the benefits of this investment; and

• To provide insights into the health of research in HEIs in the UK.

42.    REF has additional value in that it promotes and benchmarks quality research in the UK, provides a rich resource of data to support policy and strategy development and communicates the wider economic and societal benefits of research.

43.    Ahead of the publication of the most recent REF results in 2021, SFC undertook an extensive consultation examining the principles of REG in light of developments in the UK landscape since 2014, and in response to changes in REF. This included consultation with the Scottish sector.10 On alignment with rUK, feedback included:

• support for close alignment with rUK, noting that significant divergence may disadvantage Scottish institutions and affect their ability to compete. This reflected wide recognition that Scottish institutions operate within a UK-wide landscape, competing with institutions in rUK for external research funding, PGR students, and research staff nationally and internationally.
• acknowledgement that, while close alignment was beneficial, some divergence from wider UK funding policy enabled a more devolved and place sensitive framework which could reflect Scottish priorities and challenges.

44.    In recognition of this feedback and wide broad support from the sector, SFC made a number of changes to the REG formula for AY22/23 which promote alignment with rUK but reflect Scotland’s distinct landscape and our national approach.

Horizon Europe association

45.    Scottish universities are successful and influential participants in the EU’s research funding programmes. Scotland received €870 million in Horizon 2020 funding between 2014-2021, the largest per head share of any UK nation under the Horizon programme, reflecting excellence in the Scottish sector and the ability to successfully leverage additional research funding.

46.    The announcement that the UK will associate to Horizon Europe means that, from 2024, Scottish stakeholders will be able to participate in Horizon projects on the same basis as partners in EU member states across all pillars of the programme. This news is hugely welcome; securing association to Horizon Europe was a Scottish Government priority with a recent communication from the First Minister outlining that: “Scotland’s universities are global leaders on research and innovation, playing a vital role in tackling some of the major social and environmental challenges we face” and “full association to Horizon Europe is vital in maintaining that excellent standing in research and innovation

10 Research Excellence Grant and Research Postgraduate Grant (sfc.ac.uk)

and continuing to tackle global challenges’.11

47.    Scottish institutions welcomed the announcement following significant concerns about the delay and its potential impact, including loss of talented and globally mobile people and the exclusion of Scottish researchers from pan-European collaborations. The benefits of Horizon association for Scottish institutions and research are significant including the ability to form and lead international partnerships across universities and industry, to tackle global challenges such as Net Zero.

48.    With association secured, renewed effort is required on all fronts to ensure that Scottish institutions are best placed to respond as quickly and fully as possible to the opportunities that are now open to them following association having been agreed. It is particularly important that Scottish researchers are able to play a full part in the pan-EU collaborations supported under Pillar Two of Horizon Europe (Global Challenges and European Industrial Competitiveness) and that Scottish businesses, particularly the SME community, can take full advantage of the opportunities in Pillar Three (Innovative Europe). Being multi-beneficiary and aimed towards businesses respectively, Pillars Two and Three were not as straightforwardly covered by the UK Government’s Horizon Europe Guarantee as Pillar One (Excellent Science) which covers single beneficiary response-mode schemes that support excellent basic and frontier research.

49.    SFC will seek to support the Scottish sector to rebuild collaborative partnerships with EU researchers. In AY 22/23 SFC utilised Scottish Government funding to develop the Saltire Emerging Researcher Scheme which funds European exchange programmes for doctoral students and early career researchers. It was intended to promote mobility between Scotland and European research partners with the aim of strengthening existing, and seeding future, research relationships.

50.    The loss of EU Structural Funds is also a concern for universities, particularly those in rural areas for whom this funding was an important source of support for building R&D capacity. This will not be mitigated by the UK Government’s replacement for EU Structural Funds, the UK Shared Prosperity Fund (UKSPF).

11 Horizon Europe: letter to Prime Minister - gov.scot (www.gov.scot)

Annex A – SFC Research Funding

Table 1 below shows the total amount of funding SFC has been allocated from the Scottish Government budget in each academic year since 20-21, with the percentage increase from the previous year. It also shows how SFC allocated that sum to its three core funding programmes: Research Excellence Grant (REG), Research Postgraduate Grant (RPG) and University Innovation Fund (UIF).

As the table demonstrates, for the AY23-24, SFC has taken the entirely of the 1.8% uplift from the Scottish Government and placed this into the UIF. REF and RPG have been maintained at AY 22-23 levels.