FST JOURNAL

Each person will have their own sense of why the Innovation Strategy matters. For me, it is about the opportunity and the imperative to capture more UK value from the fantastic insights that come out of our research base and indeed the global stock of knowledge. In other words, making sure that our strengths, including the research of which we are rightly proud, actually translate into benefits that people experience across all parts of the UK and society. 

The Strategy marks three important developments. Firstly, it sets out a specific and emphatic focus on innovation within Government. The UK will never achieve the most impactful innovation policy if it is treated as an appendage of research policy, which has sometimes been the case in the past.

Secondly, this is a whole-of-Government strategy for innovation. A myriad of policies influence our innovation performance. This is the first UK strategy that takes a systems view of innovation. Thirdly, we have a much more empowered Innovate UK, which is absolutely vital for us to punch our weight in innovation.

The core of the Innovation Strategy is an aspiration to grow the investment in R&D by business. It is worth just taking a moment to look at where the UK is now. Business investment in R&D is highly concentrated, both in terms of company and sector, across the Top 100 UK companies (Table 1). The top 5 UK enterprise groups account for 17%, and pharmaceuticals, automotive and aerospace account for around 40% of business investment in R&D in the UK.

(Source: Business enterprise research and development UK: 2019, ONS)

So alongside growing the base of companies that invest in R&D, which is clearly essential, we also need to watch rather carefully what today’s big spenders are planning, because they have a large part to play in reaching the UK’s 2.4% target. Without them, this will be particularly challenging.

A much higher proportion of business R&D in the UK is financed by the rest of the world than is the case for most of our peers and around half of business R&D performed in the UK is by foreign-owned businesses. It is, of course, a great thing that we can attract so much inward investment but it also emphasises that businesses make their decisions about where to invest in R&D on a global basis. That is true for UK companies as well: just because they started here, it does not mean they will continue to invest in R&D here.

Pharmaceuticals, automotive and aerospace account for around 40% of business investment in R&D in the UK.

Furthermore, the UK has a much lower proportion of R&D funding going into late-stage development, i.e. the R&D that takes you from prototype to product, than countries such as the US, Israel or Japan. That matters because this type of funding is expensive and ‘sticky’ – companies often create manufacturing facilities, and so forth, alongside this type of investment, which become a key driver of job creation, especially in less well-served regions.

Taken together, these observations point to the importance of really understanding how the UK offer stacks up against other countries that compete to host business R&D investment, especially in late-stage R&D.

The Royal Academy of Engineering has been seeking to address this very issue over the past few years. Table 2 summarises what senior R&D budget holders across a wide range of companies have said about UK strengths and weaknesses. There are many great things about the UK: we have an amazing quality of R&D talent, even if quantity and diversity (certainly in engineering) are not sufficient. While there is always scope for improvement, the environment for collaboration with both other businesses and universities is actually pretty good. There are areas where we fare less well, though, such as our ability to provide a joined-up  offer across Government and to leverage public procurement to drive innovation.

Table 2. The UK as a location for R&D
Building on strengths	Action needed
Engineering workforce	Late-stage development and demonstrators
Innovation funding	Public procurement
Non-financial innovation support	Joined-up Government approach
Collaboration with universities	Ownership and financial structures
Collaboration between businesses	Innovation in engineering services
Tax incentives	Innovation across sectors

(Source: Royal Academy of Engineering, 2018)

The Innovation Strategy provides a really good launchpad, both for building out from the strengths and tackling the areas where we are currently less competitive. I am especially keen that we see the positive intentions from Whitehall on procurement are followed through in terms of improved innovation outcomes. 

The UK is a small country; California is about 1.7 times our size geographically. Yet we are very rich in innovation assets.

The customer journey

In implementing the Strategy, the Government needs to consider the customer journey faced by businesses. The UK is a small country; California is about 1.7 times our size geographically. Yet we are very rich in innovation assets, including universities, Public Sector Research Establishments (PSREs), corporate R&D centres, science and industrial parks, advanced manufacturing  capabilities, NHS, vibrant communities of start-ups, and living labs.

Contrary to popular belief, these innovation assets are quite widely distributed across the UK. We still have work to do in several areas, not least to build the technical workforce that will be needed to power the innovation economy, and also to improve equitable access to jobs and opportunities associated with it. We also need to think about the customer journey for businesses seeking to navigate that system.

However, if we get that right, we will have an utterly compelling offer to global talent and investment. The UK can be an innovation super-cluster: a place to access extraordinary talent, and a world class research and innovation base within a safe, responsible, trusted and trustworthy environment – and as part of an inclusive community.