Conclusions and recommendations
The background of the inquiry: history and circumstance
1. Higher value-added goods and services will be essential to the strength of the UK economy in the future. Encouraging the growth of such activities depends on a realistic and measured assessment of the United Kingdom's strengths and weaknesses. This does not mean refusing to acknowledge the very real economic difficulties which face the country. However, this should be balanced by more confident and better-informed acknowledgement of the economy's very real underlying strengths.
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Manufacturing
2. Any strategy for ensuring that the United Kingdom has a higher value-added economy must not look simply at new opportunities flowing from new technologies or new challenges, such as the move to a low-carbon economy, but must also identify, safeguard and build on existing manufacturing strengths.
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Services
3. Although we recognise and emphasise the importance of manufacturing, it is only part of the economy. In the manufacturing strategy
published in September 2008, the Government stated that "our future lies in a mixed and balanced economy with manufacturing and services reinforcing each other".
We agree. We should celebrate the fact that the United Kingdom is the second largest exporter of services in the world.
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Creative business: branding and design
4. Branding is an area where the UK creative industries are strong but which is talked about far too little in public debate. Government policy must sustain the creative industries that are responsible for the successful development of brands in the United Kingdom, and must protect effectively the intellectual property of the brands themselves.
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The higher value-added ecosystem
5. The United Kingdom cannot build a higher value-added economy on a single sector, or type of intervention. Many different factors come into play. For example, a wide range of skills is needed if we are both to sustain manufacturing and maintain our strength in services and the creative industries. Government undoubtedly has a role to play in creating the right environment for innovation, and responsibility for this spreads beyond the remit of the Department for Business, Innovation and Skills. However, central government cannot foster innovation alone. Local policy makers, academia and, above all, industry itself—of all sizes—need to be involved.
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Government policies
6. Over the last year, the Government has produced a succession of strategy and policy papers related to innovation and industry. Their proposals cannot be implemented by the Government alone. All those involved now need to ensure that the emphasis is on the actual delivery of policies designed to support innovation, rather than producing further policy documents.
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Central government
7. At this stage, although we make no comment on the inclusion of higher and further education within the new Department for Business, Innovation and Skills, we acknowledge the vital importance of improved skills to all British industrial sectors. We believe that the new department is a welcome opportunity to coordinate policy on innovation, and to ensure that policy is consistent.
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Research and development
8. The United Kingdom's relatively modest rates of R&D relative to GDP are in part the result of the structure of the United Kingdom economy. Indeed, the proportion of R&D financed by government is not out of line with many comparable countries. If the United Kingdom is to grow as a higher value-added economy, the policy challenge will be to encourage innovation, and to encourage companies to take advantage of the United Kingdom's strengths as a source of innovation. This includes promoting the strength of United Kingdom research and development capabilities, but also looking at innovation more widely.
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Wider innovation
9. It should be possible to produce wider measures of innovation than those currently in use, and we are delighted that the Government has asked NESTA to work on this. However, as well as knowing how the United Kingdom is doing internally, we need to be able to benchmark performance against other countries. We hope the Government will take a lead in encouraging the development of better international monitoring.
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Education and skills
10. It
is vitally important that British education and training is as
good as it can be, and we welcome the growing public debate about
the necessary steps to improve it. We are particularly concerned
about the continuing complexity of the skills system and the impact
this has on the smaller companies who wish to engage with it.
But ultimately, the skills available to the United Kingdom depend
on the individual choices made by individual students and workers.
They will create the demand for the training which will sustain
the higher value-added economy. They will only do so if they have
a realistic understanding of the opportunities available to those
with particular skills. They will also need to know that employers
reward the skills they say they need.
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Risk-taking and entrepreneurialism
11. The Committee recognises that a successful higher value-added economy is influenced by factors stretching across many government departments. The role of education in giving young people the confidence, ambition and skills to be creative and entrepreneurial is vital. The Committee welcomes the Government's proposals to extend and develop entrepreneurial training. The Committee also believes that it is important to teach children from a young age to take appropriate risks and not to fear failure. We recommend that the Government incorporates this into education on entrepreneurship.
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12. We also stress the importance of well-informed, up-to-date careers advice in schools to encourage children to consider careers in business—especially in engineering—and in entrepreneurship, alongside balanced advice about other careers. Careers advice in most schools appears not to be of the standard required to enable young people to make properly informed choices and we urge the Government to consider how this serious shortcoming can be addressed. If our economy is to continue adding value and competing successfully internationally, it is essential that young people understand the true range of opportunities open to them.
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13. Shifting the United Kingdom's culture to one which accepts that making progress may require taking risks, and that success is not always guaranteed, will take time, but will be vital to the future success of our economy. It will depend in large part on a more balanced approach from politicians and the media—two groups that too often seem to celebrate failure with more enthusiasm than success.
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The public sector
14. In
Innovation Nation, the Government announced that the National
Audit Office will be conducting a study into the role of risk
in public sector innovation.
We welcome this development. We have no desire to waste money, but progress requires risk-taking. Some of those risks will lead to a project's failure, in whole or in part. We believe that the United Kingdom's culture is too risk averse. This needs to change in the public as well as the private sector.
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Clusters
15. Strong academic institutions can play a key role in supporting valuable clusters of innovative industry. In the best examples, academics, entrepreneurs and public institutions understand and value one another's contribution. It is impossible to mandate such cross-fertilisation between universities and industry, but a great deal can be done to support it, by providing collaborative facilities, by supporting technology transfer and simply by promoting networking. Collaborations of this kind, formal or informal, offer a great deal to all parties concerned, and we have seen that universities, financial institutions and industry can all play an active part in supporting them. Public authorities should be aware of the benefits of this kind of clustering, and should actively look for ways in which they can act as catalysts to encourage it.
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Collaborative research
16. Recognising and building on the research strengths both of the United Kingdom as a whole, and of particular areas, will be essential to sustain a higher value-added economy. In principle we strongly support developments such as the proposed UK Centre for Medical Research and Innovation.
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17. We applaud the development of centres of excellence such as Quantum Technology Partnership, and its approach of fostering collaboration among existing institutions rather than duplicating effort.
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Technology Strategy Board
18. The Committee supports the role of the TSB and its re-focus on driving innovation. We believe that the TSB can play a strong role in helping industry, especially developing sectors, to develop a higher value-added economy. The TSB should work on behalf of the Government to help to foster an enterprise culture within which risks can be taken and where fear of failure does not hinder innovation. However, although it is tackling a broad remit with enthusiasm, the TSB is a small organisation. We will be keeping the extent to which its remit is too broad, or its resources are adequate, under review.
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19. It is clear that there has been significant progress on university-business collaboration since the Lambert Report in 2003. It is also clear that much more needs to be done. Since this is a matter of building relationships between individual institutions and companies, progress will necessarily be slow. We are encouraged by the success of knowledge transfer partnerships, but recommend that the process of applying for such partnerships should be made faster and simpler.
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Innovation vouchers
20. The Committee recognises the vital importance of the small business sector to innovation in the private sector. We therefore welcome the recognition of the success of Innovation Vouchers as one way of achieving a better dialogue between SMEs and universities. We consider their effectiveness should be kept under review, and further support for them be given, if appropriate.
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Mission-led innovation
21. The Committee considers that mission-led projects can encourage greater innovation. However, as we saw at DARPA, such approaches work best in a culture which does not fear failure and which is not subject to obsessive accountability requirements. The Committee believes this method must be embraced and encouraged more by the Government and recognised in future policy formulation. Innovation will, by its very nature, always be elusive in a bureaucratic culture.
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R&D tax credits
22. On balance, the evidence available suggests that R&D tax credits have been successful and that they are becoming more so as awareness of them grows. Businesses take time to adjust to new policy instruments, so this increased awareness is not surprising. We recognise, then, that the policy needs time to produce its full effects, and welcome the Government's commitment to a full evaluation in due course. However, although we support the principle that business needs some basic certainty about the incentives available, this should not prevent improvements to the tax credit scheme before then. We particularly urge the Government to look at ways in which the scheme could be made more accessible to SMEs by reducing both the eligibility thresholds and the complexity of the scheme.
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23. The Committee strongly agrees that innovation is much broader than R&D and that wider innovation should also be encouraged. Nonetheless, we would be cautious in making radical changes to the R&D tax credits scheme, which is currently seen as a success, particularly before it has been properly evaluated. However, we strongly encourage the Government to think about how it might better encourage innovation beyond the current support for traditional R&D and particularly, how it will encourage innovation in the service sector.
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Intellectual property
24. The Committee welcomes the fact that responsibility for IP within government will lie with the new Department for Business, Innovation and Skills. All too often, intellectual property is seen as synonymous with patenting; one of the tasks of the department should be to raise awareness of the variety of ways in which such property can be protected.
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25. We believe that the British Library Business and IP Centre is providing an exemplary service to the SMEs and entrepreneurs of the capital and we would like to see this model replicated throughout the United Kingdom. The Committee recommends that the Government secure the Centre's long term funding to enable it to provide a service to business people across the United Kingdom and provide funding for similar centres in key business hubs within the United Kingdom.
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Public procurement
26. The Committee highlights the vitally important role for public procurement in stimulating innovation in the United Kingdom. The Government has an obligation to use the large amount of money that it spends each year on public procurement to stimulate innovation. We welcome the Government's promise to accept the Glover Committee recommendations and look forward to monitoring the results this produces for SMEs.
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27. We welcome the OGC's guidance on innovation and procurement; the difficulty will be to ensure that departments and individual officials really understand the ways in which procurement can support innovation, and are supported in using procurement policy in this way. It will require the public sector, and those who monitor its effectiveness, to take a balanced approach to risk, rather than simply reaching for the tried and tested way of doing things, because it is safer.
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Small Business Research Initiative
28. The Committee welcomes the establishment of the SBRI in the United Kingdom and hopes that it will play its part in fostering a true spirit of innovation. The Committee also recommend that the Government use a larger part of the public procurement budget to invest in riskier, high payoff projects that will help to stimulate a change of culture within government departments and in the UK economy. Such a policy may be considered courageous in the prevailing climate, but the example of DARPA in the USA shows the value of such courage.
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Access to finance
29. We welcome the launch of the UK Innovation Investment Fund, although only time will tell whether the investment from the Government will leverage all the money required.
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The future of the higher value-added economy
30. The
Government needs to take a leading role in being prepared to experiment,
to take more risks, to spread best practice, and to monitor and
fund initiatives that are shown to work well. It must also be
prepared to put in place a policy framework which supports successful
industry, as well as encouraging new businesses to begin. We acknowledge,
however, that this is a difficult task. We believe that the Government
is saying many of the right things; it now needs to make sure
its many policy documents are translated into action. (Paragraph
130)
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