Industrial Strategy: dramatic changes to innovation policy

It’s fair to say that R&D is the priority of the new Industrial Strategy, both in terms of emphasis and in terms of cash. Indeed, R&D spend is set to increase to 2.4% of GDP by 2027, with an extra £2.3bn spend over what was originally planned for 2021/22 (in total, an extra £7bn over five years).

This is not small change. But what does it mean in practice for high-growth companies, and the institutions that back them?

Innovate UK

As we might expect, a portion of this money is headed to Innovate UK, the government’s grant-giving body that supports small businesses working in new areas. IUK will receive an extra £44m in grant funding this year (2017/18), which it can then give out in grants to startups and other high-growth enterprises.

IUK will also be piloting altogether new ways of funding innovation:

1. A £50m Innovation Loans scheme over the next two years, aimed at the “most promising projects in viable businesses on the cusp of commercialisation, but not yet ready to access loans from commercial lenders”

2. An Investment Accelerator, to bring in seed equity alongside grant funding by matching the most innovative early-stage businesses with investors.

These are both encouraging signs for young companies, and we look forward to seeing their effects.

Innovate UK will also be working with the new Business Basics Programme, alongside Be the Business and local/industry leaders, to encourage all SMEs to adopt best practices and new technologies, and to improve productivity.

UK Research & Innovation

This is a new organisation entirely, and it will primarily operate a large fund. According to the white paper, UKRI will invest around £8bn per year by 2020 in the “highest-quality research and innovation across the UK”.

UKRI will bring together the seven Research Councils, Innovate UK, and the funding element of the Higher Education Funding Council for England (HEFCE). It’s designed to join up the funding landscape for science, research, and innovation – with a view to commercialising all resulting technologies.

 The body will also create a new Knowledge Exchange Framework, to benchmark how well universities are fostering knowledge sharing and research commercialisation. The importance of ‘impact’ in the Research Excellence Framework, a way of analysing higher education institutions, is increasing from 20 to 25% in the next assessment round – in brief, an incentive for universities to devote more resources to commercialisation.

UKRI will govern a new, competitive, £115m fund (the ‘Strength in Places’ fund) to support areas with science and innovation strengths, and firms which have a ‘strong impact on local productivity’. Finally, all laboratories in receipt of significant public funding will now be expected to support local economic growth, and build partnerships with local businesses.

HEIF

HEIF, the Higher Education Innovation Funding body in the UK, which is devoted to deepening universities’ relationships with businesses (and local partners like LEPs), will receive an extra £40m per year moving forwards.

This is set to reach a total of £250m by 2020-1, and will be used to fund additional knowledge exchange and other interactions – on a performance-led basis – between universities and the rest of the UK.

With so much additional capital and so many additional resources devoted to innovation, high-growth enterprise, and knowledge exchange, innovation in the UK is an exciting space to watch.