Business-University Collaboration - Business, Innovation and Skills Committee Contents

4  Contributing to a UK Innovation Strategy

A strategic approach to business-university collaboration

56. In January 2014, the Government produced the following assessment of the strengths and weaknesses in the UK's science and innovation system:[114]

Table 1: Analysis of main strengths and weaknesses of UK science and innovation system, taken from BIS benchmarking analysis.

This analysis found effective university collaboration with R&D intensive businesses, but limited collaboration between universities and SMEs more broadly. It concluded that "this may explain some of the low levels of innovation among SMEs".[115] Furthermore, it stated that this low level of innovation amongst SMEs "is likely to be a significant drag on productivity".[116]

57. We recommend that the forthcoming Science and Innovation Strategy address each key relative weakness of the UK's innovation system, as outlined in the BIS Benchmarking Analysis. The Strategy should identify and explain which Government policies, programmes and incentives are designed to tackle those weaknesses, and explain how the effectiveness of those interventions will be measured, monitored and evaluated.

58. As the Government prepares its Science and Innovation Strategy, there is a need for clarity on how its policies will utilise the strengths of universities across Scotland, Northern Ireland, Wales and England within a UK-wide strategy. Businesses operate across the UK, so coordination with devolved administrations is required to ensure coherence in the innovation support system.

Measuring success: the R&D scoreboard

59. The R&D scoreboard was a BIS-produced annual record of R&D spend in private companies. The scoreboard monitored the 1,000 UK companies that invested most in R&D, and the 1,000 global companies that invested most in R&D, and compared the two. Production of this document was discontinued in 2010. Since then, there have been calls for its reintroduction, in order to help monitor this field.[117]

60. The Minister told us that scrapping the scoreboard had saved approximately £500,000 a year.[118] He also said that statistics outlining R&D spend by the private and public sectors in the UK were freely available from other sources. The R&D scoreboard therefore "was not the only statistical insight into research and development spending". For that reason he argued that no one was "massively disadvantaged by not having it".[119] However, when he gave evidence, he was unable to set out clearly the level of R&D spend.[120]

61. Many of the Government's major initiatives are aimed at increasing R&D activity in the UK and encouraging investment in a wide portfolio of sectors and technologies. It is important that the Government has a respected and impartial way to evaluate the success of such initiatives. This is particularly significant at a time of constrained public spending.

62. We recommend that the Government reintroduce a means of monitoring R&D activity, a function previously fulfilled by the R&D scoreboard, in order to measure progress in its R&D initiatives. Use of the scoreboard, or similar indicators, should be built into mechanisms for measuring progress in implementing the forthcoming Science and Innovation Strategy.

The structural gap in R&D spend

63. According to the National Audit Office, R&D is "historically the most cited metric of innovation in an economy".[121] Overall investment in R&D by government, industry and others can be measured by considering total investment as a percentage of GDP. This is known as the R&D intensity. Figure 2 gives an international comparison of R&D intensity. In 2012, the UK's gross domestic expenditure on research and development was £27 billion, approximately 1.72 per cent of GDP. In contrast, the US spends around £250bn (2.8 per cent of GDP) on R&D per annum. France and Germany consistently invest more than 2 per cent of their GDP in R&D.[122]

Figure 2: International comparison of spending on R&D as a percentage of GDP in 2011, taken from NAO analysis, p39

64. This comparatively low position internationally follows "a sustained period of national disinvestment in R&D" in the UK.[123] The Sheffield Political Economy Research Institute states:

In 1979 the UK was one of the most research-intensive economies in the world. Now, amongst advanced industrial economies, it is one of the least.[124]

UK spending as a percentage of GDP has therefore been falling. [125] This is at a time when many other countries have been increasing their investment in this field. The EU Innovation Scorecard is a comparative assessment of the innovation performance of EU Member States. According to that Scorecard, the UK's performance is slipping: from 5th position in 2010[126] to 8th position in 2014.[127] The UK's pattern of spending therefore contrasts to the growth seen in R&D spend in other OECD and EU countries (Figure 3).[128] Therefore, not only is the UK's investment in R&D relatively low in international terms, it is also declining. [129]

Figure 3: R&D intensity of selected economies over the period 1980-2011, expressed as Gross Expenditure on R&D as a fraction of GDP. Source: Sheffield Political Economy Research Institute

65. Will Hutton, Chair of the Big Innovation Centre, told us that the UK has constructed a "medium-to-low R&D intensity economy", which meant that "when you are trying to leverage public expenditure, the counter parties for that are harder to find".[130] Professor Richard Jones, Pro-Vice Chancellor for Research and Innovation at the University of Sheffield, also highlighted the fact that the "weak link" in the system was industrial R&D.[131] This was attributed to short-termism in the private sector, as companies were "looking to offload costs on to the university sector and looking for incredibly short buyback periods for paybacks".[132] Professor Alan Hughes, Director of the Innovation Research Centre at the University of Cambridge, explained that R&D work in the private sector:

    […] is fantastically concentrated in the hands of a small number of firms. The strategic decisions by those firms are absolutely critical to the matching of any public sector R&D. […] The whole of the independent SME sector in the UK accounts for less than 4% of our R&D effort. There is a real order of magnitude problem in thinking that SMEs are going to do something dramatic. The other aspect is the internationalisation of our largest R&D spenders. It is not as if they are reducing their R&D expenditures, but the proportion that UK-based multinationals are investing in overseas R&D has risen relative to their domestic R&D.[133]

66. Professor Hughes also told us that there was clear evidence that the UK's "excellence in scientific research crowds in resources from the private sector", meaning that "if you spend on public sector R&D […] the willingness of the private sector to pay is high".[134] Increasing public investment in R&D can therefore drive virtuous circles of private investment and innovation "as quality of research attracts international talent, which in turn attracts global companies-all of which results in further advances in both new knowledge and exploitation".[135] This was confirmed by the Government's recent analysis of the effect of public sector support for innovation, which stated that:

    Direct public investment in R&D to support innovation leverages extra investment from the private sector. Each £1 of public investment in collaborative R&D is estimated to offer a […] return of £6.71 before taking spillover effects into account. Direct public investment in R&D also leads to a long run increase in firms' absorptive capacity.[136]

67. The EU's Europe 2020 "growth strategy for the coming decade" sets a 3% objective for R&D intensity, which is translated into national targets in many EU countries.[137] The UK has not adopted this target.[138] However, the Secretary of State for Business, Innovation and Skills has described 2.9% of GDP as "the indicative level necessary for the UK's future economic success".[139]

68. We recommend that the Government aims for 3 per cent of GDP to be spent on R&D by 2020. This aim should be built into the Science and Innovation Strategy as a long-term objective and as an indication of the UK's commitment to building capability in this area.

Stability in the innovation ecosystem

69. The importance of stability in the system of support for innovation was a reoccurring theme in evidence to the inquiry. We heard that stability and continuity were "essential" to allow universities and industry "to build up knowledge and experience of the schemes".[140] Instead of "endless"[141] new schemes being invented, we heard that businesses "crave"[142] continuity. Indeed, John Latham, Vice Chancellor of Coventry University, attributed the relative success of Germany's innovation system to the "longevity, flexibility and stability" of its initiatives.[143]

70. This has also been recognised by the Government's own analysis of the UK innovation system, which reported a perception amongst businesses that the UK "tends to make frustratingly frequent changes" to innovation support mechanisms.[144] The Minister acknowledged that stability of initiatives was important, stating:

    There is a great temptation for Ministers to come up with a new scheme, get a new name and a new logo, launch it and have a celebratory lunch to congratulate all concerned. It may be enjoyable, but a logo, a launch and a lunch is not the way that I would proceed.[145]

71. We agree with the Minister that greater stability in the innovation support system is required. We expect the forthcoming Innovation Strategy to deliver on the desire from businesses and universities for a long-term commitment to, and increasing stability of, mechanisms to support innovation and business-university collaboration.

114   BIS, Insights from international benchmarking of the UK science and innovation system, January 2014, p7  Back

115   BIS, Insights from international benchmarking of the UK science and innovation system, January 2014, para 114 Back

116   BIS, Insights from international benchmarking of the UK science and innovation system, January 2014, para 134 Back

117   Science and Technology Committee, Eighth Report of Session 2012-13, Bridging the valley of death: improving the commercialisation of research, HC 348. Back

118   Q370 [Greg Clark] Back

119   Q372 [Greg Clark] Back

120   Q374 [Greg Clark] Back

121   National Audit Office, Research and Development funding for science and technology in the UK, June 2013  Back

122   BIS, Insights from international benchmarking of the UK science and innovation system, January 2014, para 4 Back

123   Sheffield Political Economy Research Institute, The UK's innovation deficit and how to repair it, October 2013, p2 Back

124   Sheffield Political Economy Research Institute, The UK's innovation deficit and how to repair it, October 2013, p3 Back

125   HoC Library, Standard Note SN/SG/6967. 2014 Back

126   European Commission, Innovation Union Scoreboard 2010, 2011 Back

127   European Commission, Innovation Union Scoreboard 2014, 2014  Back

128   Figure 3 taken from Sheffield Political Economy Research Institute, The UK's innovation deficit and how to repair it, October 2013 Back

129   CaSE, Policy briefing: Science and Engineering Investment, p2 Back

130   Q2 [Will Hutton] Back

131   Q158 [Professor Jones] Back

132   Q11 [Will Hutton] Back

133   Q4 [Professor Hughes] Back

134   Q10 [Professor Hughes] Back

135   BIS, Insights from international benchmarking of the UK science and innovation system, January 2014, p30 Back

136   BIS, Estimating the effect of UK direct public support for innovation, 2014, p19 Back

137   European Commission, Europe 2020 targets: research and development, accessed November 2014 Back

138   National Audit Office, Research and Development funding for science and technology in the UK, June 2013, p37 Back

139   Speech by the Secretary of State, 22 July 2014 Back

140   The Institute of Cancer Research (BUF61) Back

141   Q14 [Alan Hughes] Back

142   Q202 [Dr Hutchins] Back

143   Q184 [John Latham] Back

144   BIS, Insights from international benchmarking of the UK science and innovation system, January 2014, para 116 Back

145   Q380 [Greg Clark] Back

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Prepared 28 December 2014