High level changes in government

Proposed reforms to the UK research and innovation landscape, coupled with the UK’s decision to leave the EU, has led to speculation around how commercialisation and capitalisation of UK discoveries may be impacted. In May 2016, the Government White Paper Success as a knowledge economy set out plans to include the UK’s innovation agency Innovate UK in the newly established overarching body for research, innovation and knowledge exchange – UK Research and Innovation (UKRI). The UK Higher Education and Research Bill which will bring these reforms to life is currently under consideration in the House of Commons and recently passed its second reading; these changes are discussed in an earlier blog post.

The new Prime Minister, Theresa May, has announced that an industrial strategy is a priority for her Government. This was firmly established with the creation of the Department for Business, Energy and Industrial Strategy (BEIS) which replaces the Department for Business, Innovation and Skills (BIS). Greg Clark was appointed Secretary of State for BEIS, and Jo Johnson is now the Minister responsible for University, Science, Research and Innovation.

It remains to be seen whether the creation of BEIS means future innovation policy will take a more industry, challenge-led focus. A Commons Select Committee inquiry into Government’s industrial strategy has been launched this week. It aims to investigate what the government means by an industrial strategy and how interventionist this should be, taking into account views from the private sector on what businesses might want from a revamped approach.

State of play

BEIS have published findings from the 2015 UK Innovation Survey which covered the period 2012 to 2014 and found that the overall proportion of innovators has increased across the UK since 2013. The survey paints a useful picture of the factors which can constrain or facilitate innovative activity across sectors. Innovative activity is defined as the following:

  • Introduction of new or significantly improved products, goods or services
  • Engagement in innovation projects not yet completed or abandoned
  • New and significantly improved forms of organisation or practices
  • Investment in R&D, training, machinery and equipment linked to innovation

In the UK, 53% of businesses are now innovative, up from 45%, and all four constituent countries of the UK have increased their innovative activity. However, there is room for improvement, particularly to address significant firm size and regional disparities. Large businesses are more likely to engage in innovation, with 61% being innovative versus only 53% of small businesses, and this ‘innovation gap’ between large businesses and SMEs has not narrowed since the last survey in 2013.

England is the most innovative constituent country of the UK with 54% of English firms engaging in innovative activity, followed by Wales (51%), Scotland (50%) and lastly Northern Ireland (45%). Regional disparities are also documented within England; while nearly all regions of England saw increases in their levels of innovation there is once again a significant gap between the most innovative region at 65% (Yorkshire and the Humber) and the least at 43% (South West).

Access to finance, currently the topic of its own Select Committee inquiry, remains a problem for UK innovation. The top five self-reported constraints to innovation were related to cost and market; ‘availability of finance’ was the most often cited constraint (17%) followed by ‘direct innovation cost too high’ (15%).

EU Member States' Innovation Performance

EU Member States’ Innovation Performance. © European Union, 1995-2016

International comparisons

The UK is 9th in this year’s European Innovation Index – with innovation performance at 15% above the EU average in 2015, it is classed as a strong innovator. These results have steadily improved and the UK’s overall performance relative to the rest of the EU has been on the rise since 2008. During this time, the UK has seen the most improvement in the proportion of ‘Innovative SMEs collaborating with others’ with growth of 11% in this area. However, ‘Venture Capital investments’ have seen a decline by 6.7% and this is likely a contribution to the observed overall 3.6% decline in ‘Finance and support’.

Change on the horizon

Innovate UK has responded to recommendations from the Dowling Review by slimming down its competitions and funding streams to make it easier for SMEs to navigate. This is an important development given SMEs make up 99% of the UK economy. If Innovate UK can work more effectively for the benefit of growing SMEs, the economy could see real impact. Innovate UK has also announced the appointment of Regional Managers who will spend six months kick-starting greater strategic relationships between Innovate UK and its stakeholders. These Regional Managers will work with the Devolved Administrations to increase accessibility and visibility across the UK signalling the potential for a narrowing of regional innovation disparities.

Further positive reforms include Innovate UK beginning work to map innovation capability in each region against sector priorities. Combining this evaluation with the results from the new Science and Innovation Audits (SIAs), should give government a real opportunity to maximise the potential and capability of regions through design of a cohesive industrial strategy. A second wave of SIAs was announced this week at the EuroScience Open Forum.

There is no doubt that universities could also play a major role in developing and implementing an Industrial Strategy. The potential and importance of universities in developing local growth was detailed in a report by the University Alliance The role of universities in local growth and productivity. The report outlines how government could take a more hands on approach, utilising the influence that a university can have on a local economy by treating universities as active partners.

Reason for optimism

If each of these moving parts come together successfully, the UK could see a real long-term strategy for economic growth. Combining support and evaluation from Innovate UK, SIAs and universities could enable Government to design cohesive national and regional strategies for research and innovation allowing innovators and SMEs to access sources of finance more effectively.