What does the new industrial strategy mean for you?
Government-sponsored industrial strategies in the UK have rather fallen out of fashion since Margaret Thatcher was elected in the late ‘70s with free market policies. So you might have missed the launch of the Industrial Strategy in November last year. It’s the UK government’s innovation initiative to address our growing productivity gap and encourage research and development (R&D) investment. I attended a Westminster Forum to learn more about this initiative and how our clients – both in the UK and around the world – might be affected.
The UK’s investment in R&D lags behind that of many other developed economies when measured as a percentage of gross domestic product (GDP). The Industrial Strategy is therefore supported by the government’s stated commitment to increase expenditure from 1.7% (OECD 2015) to 2.4% of GDP over the next decade – and reach 3% in the longer term.
At the heart of the Industrial Strategy are five foundations which are underpinned with a range of initiatives that will be administered by a new organisation – UK Research and Innovation (UKRI) – which launches in April with a £5bn budget initially, rising to £8bn in 2022. UKRI brings together the seven Research Councils, Innovate UK and a new organisation – Research England. Its remit includes the development of a new international strategy to encourage and grow cross-border collaboration that will head off concerns over Brexit. Whilst attempting to simplify the landscape, the conference participants – drawn from industry, academia and the public sector – expressed concerns over the complexity and bureaucracy associated with the new entity.
The new approach accepts that industrial strategy needs a focus on what the white paper calls ‘grand challenges’ – major social needs which can give direction to private sector investment and help strengthen UK supply chains. The government has chosen four: artificial intelligence and data; clean (i.e. green and low-carbon) growth; mobility (electric and driverless vehicles, etc.); and our ageing society (health and social care).
So, at the macro level, we can hope for the UK to develop into the world’s most innovative economy – the stated goal of the Industrial Strategy. In the meantime, what does this all mean to you? Well, it’s a long-term strategy being played out, and our clients are typically focused on commercial objectives set around innovation pipelines. Therefore, more immediate interest may lie in access to funding and expertise.
If you’re operating in one of the ‘grand challenge’ areas, you can expect increasing opportunities to work on themed projects aligned with the challenge goals, where UKRI is set to allocate £725m. These projects aim to foster collaboration and partnerships between research organisations and business, partly through increased funding for outreach programmes. More generous funding for ‘younger companies’ is another aim, with matched funding from partnering venture capital firms. There is also talk of a new £2.5bn investment fund to be administered by the British Business Bank – and an increase in R&D tax credits to 12%. The scope and value of the new programmes is still being finalised but further details are expected to be available in April. Our contacts at UKRI suggest that Innovate UK will remain as the main funding vehicle.
Our experience in accessing these funding programmes shows that you need to invest time in understanding and navigating these initiatives to get the best out of them. There is constant change in the government departments that administer them, which means the processes can be clunky and the staff that populate them can be unfamiliar with the success criteria for funding and how commercial businesses typically operate. These problems may well be compounded by the current reorganisation – challenging questions from the floor of the conference certainly suggested this was the case.
The Catapult centres have been running for five years now and have received a mixed reception. Ernst and Young was commissioned to undertake an independent review last year, which concluded that the centres are not being managed effectively – both by government and within the individual centres. Kevin Baugham, deputy CEO at Innovate UK, said there was “some need to step up their game”. However, our experience is that the centres are asset rich and hungry for work. Again, you need to invest time in identifying capability and engaging with the centres to get the best from the relationship, and it’s helpful to understand the political and funding environment within which they operate.
The newly formed Research England has funds which are primarily focused on academic institutions. However, our contacts are indicating that its remit may also extend to encouraging collaboration with industry, with funded programmes to support this goal.
Unsurprisingly, Brexit featured in many discussions, with a number of delegates highlighting the negative impact of uncertainty on their businesses or research funding. Heading off the challenges of Brexit is a central plank of the Industrial Strategy and this includes £300m allocated for attracting world-class talent to the UK for associated projects. The new interventionist strategy should be good news for our clients around the world as it aims to create an environment within which CDP can continue to thrive.
The Industrial Strategy has laudable goals, aligned with the interests of many of our clients. To be truly successful, it will need to address the limitations of previous initiatives by reducing bureaucracy and increasing engagement with industry. To this end, we have lobbied UKRI to use tools familiar to innovators and draw on a ‘user-centred design’ approach for the roll-out of its programmes. Let’s see how innovative government can be when encouraging innovation!