ENTREPRENEURS
R & D SPEND
Completing the innovation jigsaw . The UK lags on R & D spend and funding for small , innovative companies – but the government is joining up the pieces to complete the picture
The pieces of the UK ’ s innovation jigsaw – from our world-class universities , robust intellectual property framework and increasingly favourable ambience for angel investment – all appear to be on the table .
Yet there remain nagging indications that they have not yet been joined up to complete the picture of a landscape of enormous potential .
The UK is already a global tech power : our software , IT and telecoms generate more than 4 % of gross value added ( about £ 59bn ) and our creative exports (£ 17.3bn ) are the highest per head globally . We also dominate our neighbourhood : of the 47 European “ unicorns ” – private technology companies valued north of $ 1bn – more than a third are based in Britain , says investment bank GP Bullhound .
But large and impressive as these figures are , our command of the market is small by comparison with its potential size : the estimated added value of internet of things services globally , for example , is set to reach £ 1.4 trillion a year and data could create more than $ 300bn of value over the next decade .
Sums on this scale put into perspective why innovation is crucial to our future prosperity , not least by helping businesses unlock productivity : according to the Royal Academy of Engineering , innovative businesses grow faster , fail less , do better during downturns , and drag up the performance of their neighbours .
Yet when it comes to R & D , Britain ’ s investment landscape is uneven and we still invest less than many rival economies .
According to the 2015 Global Innovation Index ( GII ), while the UK ranks 2nd globally for its overall innovation performance , it is much weaker on a range of market indicators : 21st in terms of gross expenditure on R & D ; 24th in gross domestic expenditure on R & D financed by business itself ; 16th in terms of the ease of getting credit ; and 12th in terms of venture capital deals as a proportion of GDP .
Countries like Japan , Korea , the US , Germany and France responded to the 2008 crisis by upping investment in R & D , while the UK ’ s budget fell . There is also a perception that they may be more
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WHY GOVERNMENTS CHOOSE TO SUPPORT INNOVATION IS A NO BRAINER – IT HAS BEEN ESTIMATED THAT AN EXTRA £ 1 OF PUBLIC R & D FUNDING GIVES RISE TO AN INCREASE IN PRIVATE FUNDING OF UP TO £ 1.60
effective at extracting economic value from our ideas than we are ourselves .
While the investment environment for innovation and entrepreneurship in the UK also has strengths – the Enterprise Investment and Seed Enterprise Investment Schemes ( EIS and SEIS ), for example , have been extremely popular
– lack of access to financing for SMEs remains a major concern . For too many businesses inclined to innovate , funding is still a key issue .
According to the UK Innovation Survey 2015 , the most important barriers to innovation reported by businesses remain the availability of finance and its high cost .
UK Business Barometer surveys of SMEs from 2015 suggest unambiguously that external sources of finance – business angels , venture capital funds etc . – are still almost negligible as a source of funding . The vast majority of SMEs are relying on savings , overdrafts or credit cards . Bank lending criteria for SMEs are restrictive and innovation in financial services – particularly AltFin – has a long way to go .
According to the UK Innovation Survey , 40 % of innovative businesses report having co-operation arrangements with other parties on innovation-related activities , mostly with industry although 23 % co-operated with universities or higher education institutions .
Moreover , government is becoming far more proactive in innovation policy .
Why governments choose to support innovation is a no brainer – it has been estimated that an extra £ 1 of public R & D funding gives rise to an increase in private funding of up to £ 1.60 .
Government support is also essential for skills development – a key issue rarely out of the news and restated most recently in June by MPs on the Commons science and technology committee , who said our digital skills crisis costs the UK economy some £ 63bn a year .
The British government has certainly not been sitting on its hands . At the heart of its strategy is Innovate UK ( formerly the Technology Strategy Board ) which since 2007 has invested £ 1.5bn in innovation , with a further £ 1.5bn from business and partners .
Innovate UK ’ s Catapult centres are already delivering concrete returns : its High-Value Manufacturing ( HVM ) Catapult , for example , generates net benefits of £ 15 from every £ 1 of core public funding . Its partnership in missions with UK Trade & Investment ( UKTI ) has proved a highly effective way to help early-stage businesses accelerate growth overseas .
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