Scientists spend 40% of their time chasing grants according to some estimates. Suppose they spend 20% of their time doing something else, such as teaching. That means they spend no more than 40% of their time doing research.
If universities simply paid their faculty a salary rather than giving them a hunting license for grants, the faculty could spend 80% of their time on research rather than 40%. Of course the numbers wouldn’t actually work out so simply. But it is safe to say that if you remove something that takes 40% of their time, researchers could spend more time doing research. (Researchers working in the private sector are often paid by grants too, so to some extent this applies to them as well.)
Universities depend on grant money to pay faculty. But if the money allocated for research were given to universities instead of individuals, universities could afford to pay their faculty.
Not only that, universities could reduce the enormous bureaucracies created to manage grants. This isn’t purely hypothetical. When Hillsdale College decided to refuse all federal grant money, they found that the loss wasn’t nearly as large as it seemed because so much of the grant money had been going to administering grants.