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Industrial Strategy Challenge Fund needs results-focussed ‘overhaul’ to deliver for UK economy and taxpayer

30 April 2021

The Industrial Strategy Challenge Fund (ISCF) was set up to help “address some of the complex issues” the UK economy faces, including long-term low productivity and living standards. Managed by UK Research and Innovation (UKRI) under the Business department (BEIS), it is designed around four ‘grand challenges’: future mobility; clean growth; artificial intelligence and data; and the ageing society.

The ISCF is a key element in achieving the government’s ambitious target for the UK to spend 2.4% of GDP on R&D by 2027, but “this was challenging before the outbreak of COVID-19 and is more so now”. BEIS has not yet made clear how it will meet the target, and is “insufficiently focused on what it is expected to deliver in terms of benefit to the UK”. 

The Committee has “concerns about the Fund’s clarity of purpose including the multiple projects now being funded”. By January 2021 over 1,600 projects had benefited from funding of £1.2 billion to support innovation in some of the most complex issues faced by the UK.  Businesses and other bodies have contributed almost £600 million in “co-investment”, but the Committee says the financial support “is currently concentrated in certain parts of the country and larger organisations have recently received an increasing proportion of funding”. The Committee is concerned this risks undermining future performance by overlooking ideas from elsewhere and smaller businesses.

Although UKRI can point to good performance in beginning to tackle the various chosen challenges and in involving industry in the selection of challenges to support, its objectives for the Fund overall are input focused. Government must “track the number of jobs delivered over time against job creation ambitions if it is to properly demonstrate its economic impact”.

Structural issues in the Fund’s design - such as a lengthy approvals processes and the industry ‘co-investment’ requirements - similarly “need an overhaul if it is to play an important role in helping re-build the UK economy post-pandemic”.

 In 2018, the latest year for which data are available, the UK spent £37 billion on R&D: the equivalent of 1.7% of its GDP. This is well below the OECD average of 2.4% and the level achieved by other OECD countries. Germany for example spent 2.9% of its GDP on R&D in 2018. 

In 2019, BEIS announced that to achieve government’s target of 2.4%, both public and private R&D investment would need to rise to around £60 billion each year. The government has committed to increasing public investment in R&D to £22 billion by 2021-25. UKRI asserts that meeting the target is challenging but “plausible”.

Meg Hillier MP, Chair of the Public Accounts Committee, said:

“The message on the ISCF is a recurring one for too many programmes across Government - they are too focussed on inputs, on ticking boxes and distributing funds, rather than on outcomes. Throwing more taxpayers’ money at the UK’s notorious, long term productivity and opportunity problems, yet again without a clear, integrated plan or measures of proof that it’s working, reinforces the strong and unfortunate impression of ‘government by announcement’. Show us the government by results.”

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