Why the government’s Innovation Strategy must not become a missed opportunity

by Joseph K. Clark

Although the total amount of money invested in research and development (R&D) in the UK has increased from £17.6bn in 2000 to £37.1bn in 2018, the UK has a well-known problem with innovation. Namely, the proportion of UK GDP spent on R&D has barely risen at all, from 1.6% in 2000 to 1.7% in 2018.

This is a problem because increasing spending on innovation is vital for economic growth, with a strong link between product and service innovation and revenue growth. Investment in innovation also drives productivity growth – between 2000 and 2008, Nesta estimated that 51% of labor productivity growth came from investment in innovation, with 19% of this coming from investment in intangibles such as training, marketing, software, and design.

Innovation Strategy

As we recover from the impacts of the Covid-19 pandemic, increased investment in innovation will be vital for our recovery. Yet, at the same time, growth in innovation spending has slowed while the cost of the invention has risen. For example, companies now need, on average, 18 times more researchers to achieve the doubling of computer chip density than in the early 1970s.

These are problems and issues that the government’s recently published Innovation Strategy recognizes. The strategy articulates the benefits that innovation can bring to the UK economy and society in the process.

The strategy sets its ambition to reverse the sluggish increase in innovation spending, aiming to make the UK a global innovation hub by 2035. Pointing to key metrics such as the Global innovation index, the World Bank’s Ease of doing the business survey, and OECD monitors of innovation activity, the government clearly defines how stakeholders judge its success.

For TechUK’s members, the problem is well defined, and the focus on critical metrics is welcome. However, while there are some good announcements in the strategy – such as new visa routes for high-potential individuals, a new way for scaleup workers, and a revitalization of the innovator route – the process leaves several major decisions unresolved, particularly around how the government will use “innovation missions” and a focus on strategic technologies to improve the UK’s innovation performance.

The Innovation Strategy can be a catalyst for bold thinking and explicit action in the UK’s approach to innovation and R&D. fundamentally; this means building a system that allows businesses to see straightforward returns on investment in innovation. Doing so will require focusing on innovation missions and strategic technologies and creating room for innovation that will see new products brought to market.

When focusing on innovation missions and strategic technologies, the government will need to work closely with the sector to ensure a clear understanding of the nascent industries in the UK, which, with support, could be accelerated from centers of excellence to global champions. This will require a careful balance, avoiding picking winners by committee, instead of gathering evidence to strategically back and support winners already on the up and with the capacity to grow.

Building markets for innovation means rethinking more broadly what innovation means in the modern economy. Productivity growth is driven by investment in intangibles, yet this kind of investment is poorly served by the current R&D system. R&D tax credits cannot currently be claimed against critical innovation enablers, such as cloud computing, data, and analytics. This issue needs to be urgently looked at, yet no details were given in the Innovation Strategy.

Currently, the strategy leaves too many important decisions to later resolution when action is needed now, and agility and speed are of the essence if we aim to make the UK a global innovation hub by 2035.

The UK’s Vaccine Taskforce, Ventilator Challenge, and broader response to the pandemic have put innovation’s social and economic benefits at the forefront of the public consciousness in a never-before-seen way. To build on the solid foundations of the strategy and capture this renewed spirit of the invention, the government needs to engage closely with the UK’s most innovative businesses, listen to their proposals and act fast to deliver.

The good news is that the government is pressing at an open door, with TechUK members and other sectors across the economy eager to work with them to ensure the innovation strategy is a success. If we work together, government and industry, we can make the UK the Innovation Nation.

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