Select Committee on Digital Skills - Report of Session 2014–15

Make or Break: The UK’s Digital Future

Chapter 4: The business environment

Part I: Connecting and supporting business

219.The UK already has a competitive advantage in some areas. For instance, the UK is renowned for its creative skills (see paragraphs 95–97). Paul Willmott from McKinsey & Company told us: “… the video games sector hardly existed 20 years ago but is now a substantial sector of the economy; it is actually larger globally than the movie industry. We in the UK have been a leading player.”417 For example, Framestore418, the world’s leading visual effects company, is based in London.

220.But this advantage is fragile, and threats include challenges within the talent pipeline, as well as low levels of spending on research.

221.Evidence showed that the UK is not sure where its next competitive advantage will lie. What we do know, however, is that entrepreneurship is booming, our most successful local areas include tech clusters (see paragraphs 242–261), and our research institutes are world-leading (such as Imperial College London’s high performance computing (HPC) facilities). For example, Antony Walker from techUK told us: “There are 340,000 new start-ups already this year [2014], according to StartUp Britain. All that change is enabled by digital technologies, so I think that is a huge tick for the growth and jobs agenda for the UK driven by technology.”419

Business support for small and medium-sized enterprises

“If we can digitise the other 50% of SMEs, we can drive the productivity of the UK economy … It is a massive prize”.420—Antony Walker, Deputy Chief Executive Officer, techUK

Box 13: Key Statistic: Small and medium-sized enterprises

  • Approximately 30% of SMEs do not have a website.421

222.We heard that SMEs drive innovation and growth, and that digitally empowering the UK SME sector could unlock £18.8 billion of annual revenue422 and stimulate the creation of 58,000 new jobs.423 There are, however, a number of challenges facing SMEs, which are holding this potential back. These fall under three broad categories: awareness, skills and finance.

223.As with individuals, SMEs require a certain core level of digital skills if they are to remain competitive and take advantage of the digital economy. The skills required by both organisations and individuals have been summarised by Go ON UK and can be found in Appendix 7. We were told that it was vitally important for SMEs to use digital technology, otherwise they would miss out economically. SMEs who made full use of the internet, and associated activities such as ecommerce, enjoyed particular benefits. According to research by McKinsey & Company, such SMEs grow faster, export more and create more jobs.424 Virgin Media said that digitally mature small businesses were three times more likely to grow than immature ones.425


224.One of the core issues specific to SMEs is a lack of awareness of the potential value and use of digital technology.426 Mr Walker said that awareness was a “major area of concern”, as there were huge opportunities to “digitise and therefore drive the productivity of those small companies”.427 When we visited Google Campus428 in September 2014 (see Appendix 8), it was stressed that one of the benefits of this initiative was that it helped provide SMEs with information on where to go for assistance, as well as making them aware and appreciate the opportunities of digital technology. The Google Juice Bar has travelled across the UK offering free advice to local business owners.429

225.Both Go ON UK and Virgin Media said that 92% of SMEs had access to the internet.430 We therefore find it astonishing that a third of SMEs do not have a website.431

226.Increasing the awareness of the value of digital technology could have a dramatic impact on SMEs. As an example, Mr Walker described how a small company worked with a local web developer to improve their online presence. The company spent £10,000 on upgrading their website and implementing ‘search engine optimisation’, which resulted in doubling their revenues in a year.432 Mr Walker said that “The first steps of getting on the ladder of being digital are not particularly difficult”.433 The UK Digital Skills Taskforce and TeenTech CIC suggested that the Government should therefore mount an awareness campaign about the need to improve digital skills among SMEs.434


227.Linked to the lack of awareness, the Government’s evidence said that 28% of SME employers reported that a general shortage of skills was an obstacle to their business success.435 Elix-IRR, for example, said: “In today’s knowledge economy talent is one of the main sources of competitive advantage but retaining the most skilled employees often remains a challenge for SMEs”.436 If SMEs are not made up of individuals with the right talent, knowledge and basic competencies, there would be a large proportion who would “not be able to participate in the digital economy”.437

228.RCUK used the Science and Technology Facilities Council’s (STFC) Sci-Tech Daresbury and Harwell Oxford as examples of high-tech campuses for SMEs to grow their ideas into profitable businesses (see Box 14).438 We visited the Hartree Centre in October 2014—one of the facilities at Sci-Tech Daresbury—where we saw first-hand the benefits of synergies between SMEs and research (see Appendix 8).

Box 14: Sci-Tech Daresbury and Harwell Oxford

At the Sci-Tech Daresbury and Harwell Oxford campuses, high-tech businesses of all sizes—from entrepreneurs with an idea, to established transnational companies such as Unilever looking for inspiration or to reduce costs and their time to market with new products—can harness the STFC’s facilities, expertise and resources, and those of its partners and other research-based or commercial organisations.

The campuses, both run as joint ventures between the public sector and private sector property development partners, currently host over 230 enterprises and support more than 5,000 jobs.

Early stage businesses are able to gain easy access to a range of angel networks and venture capital organisations looking to invest in the earliest, and riskiest, stages of technology companies.

Companies also get regular opportunities to attend valuable networking events through a programme of business breakfasts, knowledge sharing and professional development events. Being active members of the campus communities enables SMEs to make and leverage new connections. Many companies are actively collaborating with the STFC, universities or other companies. At Sci-Tech Daresbury, for example, around 57% of companies are working together on projects, generating a value in terms of new sales or cost savings of £1.2 million.439

229.Virgin Media explained how the barrier to accessing talent was stunting potential growth: “The Centre for Economics and Business Research listed the prohibitive costs for SMEs in gaining technically trained staff capable of undertaking large scale data analysis as the primary barrier to the UK realising the £42 billion opportunity associated with SME adoption of data optimisation.”440


230.SMEs by their very nature will have less financial capital than larger organisations. Marcus Mason from the British Chambers of Commerce told us: “… an issue we hear about all the time is access to finance and having the right finance in place to allow SMEs to grow and get the investment they need to become world-leading firms”.441 We were told that this was holding back businesses from expanding “where growth is a viable option”, thereby hindering potential economic growth for the UK. Given that “micro-firms” account for “most businesses across the country”, this is particularly concerning.442 It was suggested that the British Business Bank443 could receive increased funding and be given a remit to work directly with SMEs to support the financing of smaller firms.444

Awareness raising and industry partnerships

231.Analysis of our evidence showed that awareness-raising and industry partnerships were the best approaches to tackle the majority of SMEs’ issues, particularly at the local level. Appendix 5 provides some examples of initiatives aimed at supporting SMEs in this regard.

232.Mr Mason highlighted the role of Chambers of Commerce in sharing knowledge between businesses.445 As thousands of businesses are members of Chambers across the country, collectively employing millions of people, it was argued that these were the most appropriate places to bring businesses together and develop the infrastructure and skills of local businesses. We heard the example of Norfolk Chamber of Commerce, which ran a series of events on digital skills bringing in some of its local businesses to deliver workshops and talks on the latest technological and digital advances. This provided the rest of the local business community the opportunity to exploit those advances and grow.446 Networking was also supported by Barclays Bank, which suggested that the Government could work with business to identify best practice for SMEs to draw upon.447

233.Another proposal was for the establishment of specialist SME coaching in UK online centres. TalkTalk argued that online centres should receive increased funding from the Government, which could then be used to “address the skills needs of start-ups and SMEs”.448 Examples of how online centres could achieve this included short courses and drop-in sessions focused on coding, online marketing and promoting businesses through social media.449

234.The Government also suggested accessing external advice could help SMEs overcome many barriers, stressing it would be important to articulate the benefits of being digital and fully exploiting the internet “more clearly”.450

235.David Pollard from the Federation of Small Businesses noted that the Government was not doing enough to support SMEs. He said that Government programmes “always go for the sexy, high-profile ones like finding the companies that are going to grow by 20% or 30% per annum”, but that there were no local programmes looking at “local problems”.451 Mr Pollard pointed out that it was LEPs that were beginning to get more involved in skills and business support, and that they were “the natural people … to put together programmes of this nature that can help businesses”.452

236.There was consensus that LEPs were a good mechanism for increasing awareness amongst SMEs and helping them to overcome the various barriers.453 The Government, for example, highlighted that evidence from existing SME digital skills programmes delivered by LEPs and their partners showed that a portfolio of activity—including face-to-face advice, seminars, group workshops, exhibition events, portals, case studies and action planning events—was effective in engaging SMEs and improving their digital skills.454 The Government cited Manchester Growth Hub estimates, which suggested that by June 2015 the total number of companies engaged through their Digital Growth Service would be 395, with an increased expected GVA of £8,559,300.455 Part II on regional ecosystems and clustering provides more detail on the role of LEPs (see paragraphs 240–277).


237.Our evidence agreed it was important for SMEs to be able to scale-up, but few were able to suggest how this could be successfully achieved. This problem was best summarised by Mr Walker: “… while we have focused on start-ups and SMEs, we have not really focused on what it takes to get more scale-up companies to scale but also to get them to stay in the UK and not move to the US or other markets”.456

238.The Digital Youth Academy and Pera Training made the compelling suggestion that more needed to be done to promote the development of “bespoke vehicles” such as Apprenticeship Training Agencies457 to enable micro-businesses and SMEs to upscale quickly “through alternative recruitment models”.458 The Digital Youth Academy and Pera Training explained that if employers were able to take on resource quickly and at a reduced risk, this would help support effective growth.459 It is our view that apprenticeships are a fundamental building block of the future labour market (see paragraphs 136–149), enabling companies to recruit and train workers in the skills they need to be competitive in the changing world. It is vital that all businesses, particularly SMEs, are supported to offer apprenticeships.

239.Barriers holding back SMEs from reaching their full potential include their low awareness of the opportunities presented by digital technology, limited access to the necessary talent pool and skills, and challenges in accessing adequate finance. The Government has a responsibility to coordinate and facilitate the right conditions for business; but the development of knowledge and support needs to be driven by local and other networks, for example through Chambers of Commerce, UK online centres and Local Enterprise Partnerships.

Part II: Regional ecosystems and clustering

“Where are the next tech cities coming from?”460—Dominic Field, Partner & Managing Director, Boston Consulting Group

Regional differences

240.Regional and sub-regional economic disparities are well documented,461 as are differing levels of expertise and investment within and between areas at all levels, including local, regional and pan-regional. Access factors such as broadband coverage and digital literacy levels interplay with the complex dynamics of local business and labour markets. Some regional economies are well in advance of others; for instance in the value of the local economy, the number of apprenticeship starts and the predicted share of employment (see Chart 2), and in identifying and growing regional specialisms (see Appendix 5). This means different areas have unequal starting positions when competing in the new digital world. See, for instance, Appendix 12, showing the proportion of non-users of the internet across all UK regions.

241.In addition, evidence from the Northern Ireland Government462 cited the ‘Knowledge Economy Index Report 2014’, which compared the growth of the UK’s respective regional knowledge economies between 2009 and 2014 (see Chart 3 below).463 The report also found a correlation between the relative size of each region’s share of the knowledge economy, and GVA per capita.

Chart 3: UK regional growth in the Knowledge Economy Index, 2009–2014464

Chart 3: UK regional growth in the Knowledge Economy Index, 2009–2014


“… every city has its own DNA, every city has its own history, every city has its own legacy”.465—Chris Mairs CBE, Chair, UKForCE and Chief Scientist, Metaswitch Networks

242.We heard much evidence on the importance of clusters—groups of companies grouped around a particular industry in a specific location or area. Clusters have always formed around particular sectors and industries.466 ‘Tech’ clusters are increasingly in the news, but the line between traditional and tech clusters is becoming blurred as digital affects more industries.

243.We were told that tech clusters are linked with innovation.467 For instance, Professor Tony Venables told us: “… this [clustering] seems to be a particular feature of innovation including that in the digital sector”.468 It is widely accepted that innovation effects competitiveness and inequality; a report by the WEF found that innovation influenced the “competitiveness divide” across Europe.469

244.Companies in all industries have always formed clusters. Professor Venables told us that activity tends to cluster for the following reasons:


“It is sometimes suggested that ICT will lead to the ‘death of distance’ … This seems not to be the case: face-to-face communication remains important, partly to build trust in relationships, and also in activities (such as innovation) where ideas are complex and fast moving and it is important to be ‘in the loop’”.471

246.The importance of location was supported by other evidence, which showed specific regions such as London, Manchester, the South East and the M4 corridor, as having a strong concentration of digital industries.472 Research by the National Institute of Economic and Social Research showed that digital industries were spread unequally around the UK (see Figure 1), and Professor Nick Bostrom from Oxford University told us: “… in the UK there might be one or two clusters that will be hotbeds of innovation but other parts of the country are left behind”.473

Figure 1: Concentration of digital companies across the UK474

Figure 1: Concentration of digital companies across the UK

247.This causes labour market relocation. The Association for Learning Technology said: “Successful UK regions and counties import a considerable proportion of their specialist technology workforce. Less successful ones export.”475 Evidence from Humber LEP agreed: “… many students are recruited directly on graduation into major employers from outside the region, and internationally in some cases. In some cases, over 50% of graduates on a given course leave the region”.476

248.While there is evidence of clusters emerging around large companies when they relocate (for example Microsoft’s move to Seattle), there is also evidence of new industries emerging to take advantage of local talent (for example the Silicon Roundabout tech cluster in East London, supported by Tech City UK). Research has also demonstrated evidence of a link between local human capital levels (as well as the proximity to universities) and the emergence of digital industries.477

249.Much of our evidence focused on the possibility of developing more technology clusters, in part to drive the UK’s economic competitiveness and also to combat inequality between regions and to take advantage of regional strengths. This is in the context of potential huge labour market shifts across the UK.

250.Evidence from Gerard Grech of Tech City UK, which supports the UK’s most successful cluster, outlined some of the pre-conditions present in the formation of tech clusters: “… there are four crucial components in building a successful tech cluster. They are: local leadership committed to digital growth and an existing digital community; local infrastructure, including transport, broadband and property; access to finance, both seed capital and growth capital; and finally, a talent pool”.478 Other evidence was in agreement.479 These core pre-conditions can be summarised as: human capital (skills); infrastructure; money; and leadership. We heard evidence on clusters which began (a) following a significant employer—such as the BBC’s move to the North West (MediaCityUK), (b) around a core industry—such as Sci-Tech Daresbury or (c) in the midst of concentrated skills—such as Tech City in East London (see Box 15). The existence of an ‘anchor’—that is an institution or industry around which a cluster can form—seems important.

Box 15: Successful clusters

MediaCityUK, Salford480

MediaCityUK was formed following the BBC’s 2004 announcement of its intention to move to the site in 2006.

Now home to major BBC and ITV departments, the University of Salford and over 80 businesses across the creative and digital sectors, MediaCityUK is recognised as one of the most innovative developments in the UK.

The research work at MediaCityUK draws on the expertise of over 40 research centres across 10 academic schools. Its research actively seeks to include businesses from large companies, such as Adobe, Avid, BT, Cisco and the BBC, to smaller companies, particularly those in the digital and creative industries who want to co-create new ideas, products and services in a neutral open innovation environment.

A University Technical College (UTC) dedicated to providing 14–19 year-olds with education in the core curriculum combined with the right skills to access careers in the digital, media and creative industries will open in September 2015. All UTC graduates will be guaranteed a place on a university course so long as they meet the minimum entry requirements.

Tech City, East London

Tech City or ‘Silicon Roundabout’ “… is named after the distinct Old Street roundabout that sits at the heart of the hub and has been leveraged by the UK Government through its Tech City UK initiative. Tech City UK launched in 2010, to support the growth of the technology cluster in East London and has since expanded to become one of Europe’s largest digital initiatives that collaborates with the digital community, government, educational establishments and business to support the growth of digital businesses across the country.

“The area’s success has enticed global giants such as Google and Microsoft to set up shop in the tech hub. Other companies include Facebook, Intel and a wealth of new startups such as design consultancy BERG, currency transfers service Transferwise and business card service MOO, [which] clearly feel that being a part of such an innovative and thriving community will only enhance their chances of success. There are a host of UK universities including UCL [University College London] and Imperial College London who are also getting involved by becoming academic partners within projects based in the cluster”.481

251.Tech City UK outlined the Government’s role in identifying tech clusters. We welcome this action; so far 21 clusters have been identified across the UK.482 Witnesses were, however, unable to tell us what happens after a cluster has been identified. We say more about this in paragraphs 272–274.

252.The role for the Government and local leaders lies in early identification of emerging clusters and in providing targeted support.

253.As digital is pervasive across most industries, most companies will rely on digital technologies to operate and grow, alongside their core business. Martin Wolf of the Financial Times told us: “I regard it as almost a joke that if you think of the two industries that are most changed by this they are the IT sector itself and the finance sector.”483

254.A number of our witnesses highlighted places across the UK where the historical strengths of the area had been married up with digital technologies, thereby driving growth. For instance, we heard of the medical technology cluster and the innovation hub in Leeds (as well as growing digital industries). See Box 16 below and Appendix 5 for further examples.

Box 16: Case Study: Leeds key industry clusters

Leeds Innovation Health Hub

The city has developed a Leeds Innovation Health Hub (LIHH), which uses some of the city’s unique assets to develop work and attract inward investment in health, innovation and associated digital technologies. The aims of LIHH are:

  • to achieve improved health and social care outcomes for the population of Leeds;
  • to maintain and further enhance the international reputation of Leeds as a centre of excellence for innovation in health and medical technology; and
  • to attract inward investment and encourage local enterprise and business opportunities through innovation in health and medical technology.

The core assets in the city include: national health organisations; three universities; thriving private businesses from the health sector; patients, families and communities; and coordinated partnerships working across health and social care in a large UK city.

The core areas of focus for delivery from the hub are: medical technologies; health informatics; and engaging communities.

Digital electronics

The Airedale Digital Corridor has a combined turnover equal to that of Cambridge. It is home to a significant cluster of market-leading digital and electronic firms, including Pace, Filtronic, Echostar Europe, Radio Design, Teledyne Defence and Bradford Technology.

The Advanced Digital Institute supports innovation in this sector by providing expertise in digital TV, smartphone technology, telehealth and telecommunications infrastructure.


Leeds City Region is home to a significant gaming industry and global players, including Team 17, Rockstar, Dubit and Four Door Lemon. Well-known games developed in Leeds City Region include Max Payne and several instalments of the best-selling Grand Theft Auto franchise. The sector is supported by industry-led games network, Game Republic.484

255.The strength of the UK is an aggregation of the power of its regional economies. To be competitive we must nurture regional specialisms. We do not know where our next big industry will come from. In this digital age the UK must be agile enough to give timely support to business opportunities.

The importance of universities in clusters

256.We previously analysed the importance of university research in influencing the changing technological landscape, driving competitiveness, and in responding to labour market need. The UK is a world leader in innovation (see paragraphs 150–153); the UK must harvest that leadership and translate it into practice, or risk losing its competitive edge.

257.Chris Mairs from UKForCE told us: “Establishing new clusters is entirely possible with the right infrastructure, the key things being good transportation links, very good communication links and one or two key players in there to start, which is either a strong university or a very strong tech company”.485 Government initiatives such as Catapult Centres486 and the Big Innovation Centre487 bring together some of the conditions described by Mr Mairs at national level by joining up ideas with on-the-ground practice in a single space. Innovate UK describes Catapult Centres as “a physical centre where the very best of the UK’s businesses, scientists and engineers work side by side on late-stage research and development—transforming ‘high potential’ ideas into new products and services to generate economic growth”.488 The Government has made efforts to tie some of these centres to regions: “… the Digital Catapult that we have just launched [in Kings Cross, London] has also launched with three regional centres. One of them is in Bradford, because it has a cluster of health technology companies. Brighton is another good example”.489

258.We welcome the existence of those Government initiatives. We believe, however, that more needs to be done. We heard compelling evidence about the role of the higher education sector in leading regional ecosystems and supporting the development of new clusters490—a form of local catapult. A university has access to people, infrastructure, money and leadership (as outlined in paragraph 250 above), as well as ideas. Mr Wolf gave some examples of clusters with strong university links: “… you have the Boston cluster and you have the San Francisco cluster and that is because of the universities. I have long believed that in the long term we are going to find that our universities are the most important regional development institutions in our country”.491

259.Both of the above examples are in the USA. Guy Levin of Coadec agreed that the American model worked better than the UK’s: “… in the US there are far better links between universities such as Stanford and MIT [The Massachusetts Institute of Technology] with local digital clusters. You have that in the UK too with UCL [University College London] and Cambridge with their local tech cluster, but that could be massively improved upon”.492

260.We note that Mr Levin indicated only two UK universities. Several witnesses gave examples of other good university links. For instance, Paul Hynes, the Vice Principal at George Spencer Academy in Nottingham, told us: “… we are very tightly linked to a very good university, Nottingham Trent University that leads our local region”.493 See Box 17 below for an example from the city of Bristol.

Box 17: Bristol City Council and the University of Bristol

Bristol is a leading Smart City, and has a considerable track record in digital industries. The Council has strong links with a number of sectors, including with the University of Bristol.

Two university-led projects include:

  • SETsquared Centre: an incubator for high-tech, high-growth start-ups; and
  • Engine Shed,: a container for multiple assets of the innovation ecosystem.

SETsquared has “… accelerated about 160 companies in the high-tech, creative and digital sector—more in the high-tech end of creative and digital but, nonetheless, supported the high-tech ecosystem and encouraged … promoted the concept of entrepreneurialism which itself has had an impact on innovation—and also raised the profile of the city”.

Engine Shed has “… a broader focus than high-tech; so we’re also interested in creative and digital and we are working with other organisations to help focus activity. So we’re doing work with the high-tech sector group of the LEP, the creative sector group of the LEP and working with schools to help encourage young people into the creative and digital sectors”.494

261.The value of these university links is evident, but these strong examples only serve to highlight the lack of partnerships in other UK areas. Again, it seems that local partnerships are piecemeal and regional success in this area is based somewhat on luck and individual efforts. The UK is missing a coordinator.

The role of Research Councils and Innovate UK

262.As outlined by the WEF in Box 18 below, well-funded scientific research institutions enable academia to reach out to business networks. Research Council funding is key to this.

Box 18: Innovation in Switzerland: the World Economic Forum

“This year [2013] marks Switzerland’s fifth year at the top of the Global Competitiveness Index (GCI) rankings. The Global Competitiveness Report has long singled out Switzerland for its extraordinary competitiveness levels. What is the formula that makes this small European country so successful? …

“Innovation is not just about coming up with new products—it is also about doing things differently. For this to happen, the entire innovation ecosystem, which consists of a set of closely intertwined and reinforcing factors, is critical. In the case of Switzerland, an excellent innovation ecosystem has been a significant part of making the country an attractive place to work for highly qualified people. Its well-functioning labor market and excellent educational system provide the fundamentals for innovation to prosper, instigating the close relationships among enterprises, universities, and research institutes that have made the country a top innovator. Its scientific research institutions are among the world’s best, and the strong collaboration between its academic and business sectors, combined with high company spending on research and development, ensures that much of this research is translated into marketable products and processes reinforced by strong intellectual property protection. This robust innovative capacity is captured by its high rate of patenting per capita, for which Switzerland ranks 2nd”.495

263.Evidence from Imperial College London showed one of its barriers to developing regional links to be “Efficiency measures placed on research funding from Research Councils”.496 The College went on to emphasise the risks of a lack of investment in universities: “… universities and research institutes need to work together to set up collaborations; clusters of peer institutions in close geographical proximity and covering a range of subjects are a good approach”.497

264.This point seems particularly important. Imperial College London is ready and willing to set up subject-led, geographic-based clusters, but is being prevented from doing so by existing funding mechanisms. If these proposed clusters were set up in conjunction with local communities, they would be well-placed to drive regional economies. There is a clear opportunity here; universities, with their regional connections, are well-placed to identify local specialisms, turning academic ideas into on-the-ground initiatives.

265.We question whether the Research Councils and Innovate UK need to think about digital change in a more general sense. RCUK were confident they had “responded by establishing various initiatives, such as the cross disciplinary Digital Economy (DE) Theme”.498 Innovate UK told us although this theme supported inter-disciplinary research, a problem was: “… faculty boundaries don’t lend themselves to crossing of disciplines; the business school has no history of talking to the computer science department or the history faculty, and academia seems to discourage the multidisciplinary academic that tries to progress a career with a foot in two camps”.499 This echoes the disjointed approaches to digital we have witnessed throughout our inquiry, and does not support the promotion of cross-sector working.

266.Research Councils aim to:

“… support excellent research, as judged by peer review, that has an impact on the growth, prosperity and wellbeing of the UK. To maintain the UK’s global research position we offer a diverse range of funding opportunities, foster international collaborations and provide access to the best facilities and infrastructure around the world”.500

267.They are therefore closely connected with the higher education system, and are well informed about ground-breaking innovations. The Government recently announced the Nurse Review of Research Councils, in part to examine: “How … the Research Councils [should] take account of wider national interests including regional balance and the local and national economic impact of applied research”.501 We would suggest that Sir Paul Nurse gives particular consideration to the digital economy in his review.

268.In our view there is a gap in the structural support for university-regional partnerships. Innovate UK is well-placed to identify, fund and coordinate regional opportunities for academia-industry partnerships and could do more.

269.Research Councils are also well-placed to identify strengths in local universities and connect them with the regional area. Individual Research Councils should be given more power to do so.

Joining-up in the regions

270.Regions themselves are of different sizes and organisational structures. RCUK therefore told us: “LEPs have the ability to take a regional view on the best opportunities for the development with the region based and existing assets and future needs of the communities. The STFC Hartree Centre is engaged with the Liverpool LEP …”.502

271.We received evidence on the good work of Leeds LEP and Sheffield LEP.503 Evidence from Humber LEP said it drove the area’s digital agenda, in conjunction with the university and further education sector. The LEP offer, however, is not consistent across the UK; meaning that their role in identifying and supporting regional economies is variable.

272.For example, there seems to us to be a gap after a potential cluster is identified in a region. When pressed on this point, the Minister of State for Culture and the Digital Economy, Ed Vaizey MP, told us:

“To take a hypothetical situation—it has not happened yet—where we say that a particular cluster really needs a boost because we have this critical mass of companies and the LEP is just not engaging, you would probably see us as a ministerial team, if I can put it that way, looking at ways in which we could get the LEP to recruit more skilled people to help us, because we would need the LEP’s help. What I am saying is that there is no prescriptive solution. It might involve working with the council or direct negotiations with the LEP. I think that would be how you would address an issue like that, but it is quite a tight group; all of us are effectively focused, with BIS and No. 10, on supporting those clusters.”504

273.This concerns us; there could be a good opportunity for a region or sub-region. If the LEP is unable to respond to this opportunity, as far as we can make out, nothing happens.

274.There was a suggestion that funding from the EU could be used to support regional development.505 The Government told us it had already made “£330m of skills capital funding available to LEPs as part of the Local Growth Fund, providing local areas with a powerful lever for increased influence over the FE [further education] and skills sector”.506 This is welcome, but it does not give protection to those LEP regions which are at risk of falling behind. As the Minister of State for Skills and Equalities, Nick Boles MP, told us: “… I do not want a hopeless or perhaps otherwise focused LEP to be a barrier to this happening”.507

The role of the Government

275.Witnesses outlined the potential role for the Government in connecting regions and sharing opportunities throughout the UK. Baroness Shields, the Government’s Digital Adviser and Chair of Tech City UK, outlined what the Government had done to grow the regions:

“Everything from the R&D tax credit to the Patent Box508, which is an absolutely brilliant concept, are things that allow more money to come in and give people the comfort that they should take the conviction of their ideas all the way forward and invest their time and energy in building businesses from the ground up.”509

276.There are some good initiatives here, but all the Government’s hopes seem to be pinned on attracting investment. Evidence showed that a wider, more strategic role for the Government would be necessary. For instance Mr Wolf said: “… if the British Government were to say, ‘We are going to make a rather big effort to ensure that relevant scientific and technological research activities and their interface with business do not all end up in the Oxbridge-London triangle’, that would be a perfectly reasonable thing for them to think about”.510

277.Growth within different areas of the UK cannot be Government-directed, nor should it be. Much expertise lies with local authorities and Local Enterprise Partnerships (LEPs). Light-touch coordination from the central Government would help facilitate reciprocal learning. It is the Government’s role to intervene if local structures, including LEPs, are not working.

418 Framestore is a British visual effects company based in Soho near Oxford Street in London. In 2014, Framestore won an Oscar Academy Award for Achievement in Visual Effects for the film Gravity. See: [accessed 2 February 2015]

420 Ibid.

421 Cabinet Office, ‘Government Digital Inclusion Strategy’ (April 2014, updated November 2014): [accessed 3 December 2014]

422 Written evidence from Elix-IRR (DSC0046), Go ON UK (DSC0079) and Virgin Media (DSC0100)

423 Centre for Economics and Business Research, Data equity: Unlocking the value of Big Data (April 2012): [accessed 10 December 2014]

424 Q 68 (Paul Willmott) and written evidence from Go ON UK (DSC0079). See also: McKinsey & Company, Internet matters: The Net’s sweeping impact on growth, jobs and prosperity (May 2011): [accessed 10 December 2014]

425 Written evidence from Virgin Media (DSC0100)

426 For instance, see written evidence from RSE (DSC0030) and Elix-IRR (DSC0046)

428 In 2012 Google established its ‘Campus’ to equip entrepreneurs and start-ups with the resources they need to develop and grow. Their mission is: “… to create an environment that encourages innovation through collaboration, mentorship, and networking”. The Campus is equipped with high-speed WiFi, a cafe, frequent networking and speaking events, and co-working space. The Campus is funded, facilitated and managed by Google, in collaboration with partners. See: [accessed 2 February 2015]

429 Google Juice Bar is a series of free seminars and workshops aimed to empower small business owners and aspiring entrepreneurs gain the necessary skills to get the most out of their digital marketing and boost their online presence. For instance, see: Newcastle City Council, ‘The Google Juice Bar is coming to Newcastle’: [accessed 5 February 2015]

430 Written evidence from Go ON UK (DSC0079) and Virgin Media (DSC0100)

431 Cabinet Office, ‘Government Digital Inclusion Strategy’ (April 2014, updated November 2014): [accessed 3 December 2014]

433 Ibid.

434 Written evidence from UK Digital Skills Taskforce and TeenTech CIC (DSC0101)

435 Written evidence from HM Government (DSC0084)

436 Written evidence from Elix-IRR (DSC0046)

437 Q 55 (David Pollard)

438 Written evidence from RCUK (DSC0055)

439 STFC, ‘Campuses: the ideal environment for high-tech innovation’: [accessed 15 December 2014]

440 Written evidence from Virgin Media (DSC0100). See also: Centre for Economics and Business Research, Data equity: Unlocking the value of Big Data (April 2012): [accessed 10 December 2014]

443 British Business Bank: [accessed 5 February 2015]

444 Q 67 (Marcus Mason), written evidence from IET (DSC0049) and HM Government (DSC0084)

446 Ibid.

447 Written evidence from Barclays Bank (DSC0047)

448 Written evidence from TalkTalk (DSC105)

449 Ibid.

450 Written evidence from HM Government (DSC0084)

452 Ibid.

453 Written evidence from NIACE (DSC0088)

454 Written evidence from HM Government (DSC0084)

455 Ibid.

457 Apprenticeship Training Agencies (ATAs) are specifically designed to support employers who wish to take on an apprentice but are unable to in the current economic climate. The distinctive feature of this model is that it is the ATA who acts as the apprentice employer and who places them with a host employer. The host employer pays the ATA a fee for the apprentices’ services; this fee being based on the wage agreed with the host and the ATA management fee. See: [accessed 2 February 2015]

458 Written evidence from Digital Youth Academy and Pera Training (DSC0029)

459 Ibid.

461 Written evidence from David Chan (DSC0007), OECD (DSC0016), ALT (DSC0057), Go ON UK (DSC0079) and supplementary written evidence from BBC (DSC0112)

462 Written evidence from Northern Ireland Government (DSC0125)

463 NISP CONNECT, Knowledge Economy Index Report 2014 (October 2014): [accessed 21 January 2015]. The report defines ‘knowledge economies’ as follows: “Knowledge economies are comprised of individuals, companies and sectors that create, develop, hone and commercialise new and emerging ideas, technologies, processes and products and export them around the world. In order to maintain their competitive advantage, these companies constantly strive to remain at the forefront of their industry by recruiting highly skilled individuals, investing in R&D, innovation, encouraging creativity, marketing and seeking out new markets.” (page 7)

464 Source: NISP CONNECT, Knowledge Economy Index Report 2014 (October 2014): [accessed 21 January 2015]. “The Knowledge Economy Index is a composite index in that [it] includes all twenty one of the indicators listed in table one of the report. It is calculated using the weighted average growth rate of each of the indicators from 2009. Weights are detailed in Annex C of the report.” (page 14, footnote 5); “The index is an indicator of the overall performance of the Knowledge Economy and has been adopted by DETI [Northern Ireland Department of Enterprise, Trade and Investment] as one of the independent measures of progress in the recently published Innovation Strategy.” (page 14)

466 Q 121 (Karen Price) and written evidence from Professor Tony Venables (DSC0114)

467 For instance, Q 30 (Professor Nick Bostrom)

468 Written evidence from Professor Tony Venables (DSC0114)

469 WEF, Enhancing Europe’s Competitiveness: Fostering Innovation-driven Entrepreneurship in Europe (January 2014): [accessed 2 February 2015]. “The Global Competitiveness Report 2013–2014 analysis … shows that Europe’s competitiveness is far from even, with a sharp competitiveness divide between a highly competitive Northern Europe outperforming Southern and Central-Eastern Europe. This divide is particularly strong in innovation performance, one of the key drivers of competitiveness for Europe, given its advanced stage of economic development and the imperative to focus its production on high value-added, innovation-rich products and services.” (page 7)

470 Written evidence from Professor Tony Venables (DSC0114)

471 Ibid.

472 Written evidence from City & Guilds (DSC0044)

474 By travel to work area. Compiled using digital economy standard industrialisation classification codes. The top 10 travel to work areas: London (51,491 companies); Manchester (4,737); Guildford and Aldershot (4,489); Luton and Watford (3,908); Reading and Bracknell (3,823); Wycombe and Slough (3,648); Bristol (3,233); Birmingham (3,116); Brighton (2,992); and Crawley (2,751). Source: NIESR, Measuring the UK’s Digital Economy with Big Data (2014): [accessed 18 December 2014]

475 Written evidence from ALT (DSC0057)

476 Written evidence from Humber LEP (DSC0060)

477 See Deloitte, London Futures: Agiletown: the relentless march of technology and London’s response (November 2014): [accessed 30 December 2014]

479 Q 30 (Professor Bostrom)

480 University of Salford, ‘What is MediaCityUK?’: [accessed 19 January 2015]

481 Red Brick Research, ‘The Buzz of the Silicon Roundabout’: [accessed 2 February 2015]

482 Tech City UK, Tech Nation (February 2015): [accessed 6 February 2015]

484 Written evidence from Solace and Leeds City Council (DSC0124)

486 Catapult centres were launched in 2010 as a means of joining up research and outputs; their intent is to capitalise on the UK’s leading position in research, specifically to boost the UK’s innovation sector. See: [accessed 2 February 2015]

487 The Big Innovation Centre, launched in September 2011, exists to make the UK a global open innovation hub, to build a world-class innovation ecosystem, and to re-balance and grow the UK economy. It brings together some of the world’s leading companies with key institutions from across the policy landscape, all united by a commitment to innovation. It will carry out business-oriented research, taking emerging ideas and backing them with evidence. With support from all political parties, the Big Innovation Centre will make recommendations on how the UK can become a global innovation hub and transform the UK economy. See: [accessed 2 February 2015]

488 Catapult: [accessed 30 December 2014]

489 Q 254 (Ed Vaizey MP)

490 Q 6 (Martin Wolf), Q 213 (Baroness Shields), written evidence from RCUK (DSC0055) and Humber LEP (DSC0060)

493 Q 165. See also written evidence from Solace and Leeds City Council (DSC0124) and Bristol City Council (DSC0126)

494 Written evidence from Bristol City Council (DSC0126)

495 WEF, The Global Competitiveness Report 2013–2014 (2013):–14.pdf [accessed 18 December 2014]

496 Written evidence from Imperial College London (DSC0122)

497 Ibid.

498 Written evidence from RCUK (DSC0055)

499 Written evidence from Innovate UK (DSC0070)

500 RCUK: [accessed 21 January 2015]

501 BIS, Terms of Reference for the Nurse Review (2014): [accessed 30 January 2014]. Of relevance the review also asks: “Are the right arrangements in place to ensure optimal funding for research that crosses disciplinary boundaries?” and “What are the gaps or holes in the funded portfolios of the research councils?” (page 1)

502 Written evidence from RCUK (DSC0055)

503 Q 36 (Kevin Baughan), Q 196 (Gerard Grech), Q211 (Baroness Shields), written evidence from Humber LEP (DSC0060), HM Government (DSC0084), Samsung Electronics UK (DSC0092), Dynamo North East (DSC0107) and Solace and Leeds City Council (DSC0124)

505 Q 102 (David Hughes) and written evidence from Sunderland Software City (DSC0063)

506 Written evidence from HM Government (DSC0084)

508 The Patent Box enables companies to apply a lower rate of Corporation Tax to profits earned after 1 April 2013 from its patented inventions. See: [accessed 2 February 2015]