There exists the concept of a valley of death that prevents the progress of science from the laboratory bench to the point where it provides the basis of a commercially successful business or product. The future success of the UK economy has been linked to the success of translating a world class science base to generate new businesses with the consequent generation of UK jobs and wealth. For decades Governments have sought to promote technological innovation and ensure that the UK benefits from its world class science base. The current Government has made several changes to the innovation landscape and therefore we considered this an opportune moment to consider whether government policy was moving in a positive direction.
A troubling feature of technology companies in the UK is how many are acquired by foreign owners where the subsequent jobs and wealth are generated outside the UK. Evidence to the Committee indicated that there are several reasons for this. These businesses take time to develop and to become profitable in an environment where financing is focussing more on quick returns and on less risky investments. We consider it key that the Government ensure that sufficient capital is available and recommend that the proposed bank for business, possibly in partnership with the Business Growth Fund, be used to promote a bond market for medium sized businesses, thus providing growing small businesses with an additional source of funding. We also recommend that the Government investigate the potential to require funds to have a proportion of European SME equities.
We consider it important that investors have a better understanding about technology investments and that the Government ensure that investors have ready access to information that would encourage their interest in technology based investments. The amount of information available would, in our view, be improved by the restoration of both the R&D Scoreboard and Bank of England monitoring on the availability of finance to SMEs.
The broader fiscal context is extremely important, especially for smaller companies. We considered that there needs to be a mechanism to support SME's who do disproportionately badly from the current R&D tax credit scheme. Indeed the Government needs to distinguish in its innovation policy between small and medium enterprises: a single SME category is too broad. We had some concerns that VAT might in some cases hinder commercialisation activity and urge the Government to iron out any such issues.
The Technology Strategy Board is becoming the focus for government innovation policy and we considered the portfolio of funding mechanisms and facilities available for them to support innovation and growth. We were concerned about the access of small firms to large scale test and experimental production facilities. We considered that the Technology Strategy Board and other commercialisation activities needed to ensure projects were properly supported in issues of manufacturing capability. We recommended that Government consider how they can resource the TSB to provide local level advice to technology businesses. The Small Business Research Initiative (SBRI) and the SMART Award scheme would appear to be successful initiatives but lack sufficient funds to meet the demand from companies. We consider it vital that the Catapults are made to work but have concerns that they may be pushed to become self-financing too quickly.
We recommend that that TSB produce a review of regulatory burdens on technological innovation in the UK that includes a roadmap of how that regulatory reform might be used to drive innovation and which institutions should take the lead.
While our academic research is the jewel in the crown of UK innovation activity, we have some concerns about how universities interact with the commercialisation of research. We would like to see how well changes to the Higher Education Innovation Fund improve commercialisation activity; whether there is a need for greater amounts of proof of concept funding in the sector; and challenge the institutions to become more accommodating to non-traditional backgrounds among their academic staff. We have concerns that driving an innovation agenda too aggressively through universities may have diminishing returns with regard to commercialisation and risk damaging the academic research that is working well. It is crucial that the Government has a coherent plan on how to engage the research base (people, facilities and intellectual property) with the innovation agenda. The Government's objective should be to create a commercial demand for university engagement to which they are already primed to respond.
The Government's ambition to increase innovation activity will depend on its willingness to engage and speculate in that activity. A key feature of that speculation should be leading the way by investing in small technology businesses through its procurement policy. The Government will need to upskill its staff on how to better exploit government procurement for this purpose; better utilise the NHS in driving biomedical advances and ensure centres of excellence, such as the Crick Institute, proactively engage with business. We also recommend a Minister in HM Treasury be given responsibility for the delivery of procurement-driven benefits identified by the Department for Business, Innovation and Skills.
Finally there is a need for a clear vision from the Government to provide businesses confidence to make R&D investments. Without a definite commitment from Government about which sectors it intends to fund, business is more reticent about making its own financial commitment. A clear strategy for the future should aid the higher levels of business related research and development from businesses in the UK.