Written evidence submitted by Campaign for Science and Engineering (CaSE) (IGR0008)

Response to the Science, Innovation and Technology Select Committee inquiry into: Innovation, growth and the regions 

About CaSE

The Campaign for Science and Engineering (CaSE) works to put science and engineering at the heart of the UK’s future. By offering responsive and non-partisan solutions, we aim to help research and innovation thrive in a way that improves people’s lives and livelihoods. We are an independent, membership body representing over 100 scientific organisations including businesses, universities, learned societies, and research charities as well as individual scientists and engineers.

Summary

How does the Government drive research and innovation in our regions?

Successful innovation clusters have local leaders that can pull people together and are empowered to drive things forward.

• Central and local government should work together to improve national coordination between local and national R&D priorities. This should be an important part of taking forward the proposals in the recent devolution white paper

R&D intensive businesses at the scale-up stage face challenges around access to financial support and R&D infrastructure across the UK.

• The Government should regularly review and update the thresholds to its investment schemes to ensure they remain relevant to the current investment landscape
• The Government should consider how access to infrastructure could be subsidised or develop ways of bringing in joint funding with industry to reduce the upfront cost

How does research and innovation in our regions drive growth and prosperity in those regions?

Investing in regional R&D can play a significant role in delivering a more research and innovation intensive UK, attract inward investment and create opportunities for new jobs and industries across all parts of the UK. One of the barriers to attracting R&D investment in specific places is a lack of regional branding.

• Places should be supported in highlighting and promoting their strengths to international investors through building a reputation and brand
• Local authorities, mayoral and regional governments are well positioned to convene a diverse mix of local stakeholders to articulate a distinct R&D narrative for their area

It is important to create a UK environment that is collaborative rather than competitive between regions.

• National and local funding agencies should seek to create opportunities that foster a sense of collaboration rather than competition

How is research and innovation diffused or supported to drive productivity and growth in the regions, wherever it may come from?

Regional capacity building is an important but often overlooked requirement.

• Ensure availability and access to R&D and innovation infrastructure able to support all stages of the pathway to commercialisation
• Provide continuity of R&D funding to sustain capacity, skills, collaborations and culture shifts
• Businesses should be involved in the design and development of Local Skills Improvement Plans

To deliver their role in the R&D ecosystem effectively, universities must be supported to achieve long-term financial sustainability.

• It is imperative that the UK and devolved Governments support UK universities to achieve long-term financial sustainability

What is the relationship between investment in innovation and economic growth, both regionally and nationally?

There is extensive evidence that public investment in R&D provides significant economic returns. The commitment by the Government to spend £20.4bn on R&D in 2025-26 is very welcome.

• The Government should continue to commit to ambitious, long-term, and sustainable investment in R&D to ensure that the UK is a leader within the G7 on R&D investment

1. How does the Government drive research and innovation in our regions?

• How effective are the government’s policies in supporting the innovation ecosystem across the UK’s nations and regions, particularly through commercialisation initiatives?
• How should devolution be harnessed to support innovation across the regions and nations, and what role should local government play in supporting research and development?

CaSE’s recent report Backing Business R&D recommended that while the UK Government needs an overarching national strategy for R&D, it is important to provide regions with the funding and the freedom to enact effective policies at a local level, including about local innovation programmes. Our evidence shows the pilot Innovation Accelerators programme has been successful in strengthening local innovation ecosystems and improving local capacity for R&D and innovation. It is therefore welcome to see that the Government has committed to extending the programme.

However, within the accelerators, central government has exercised significant control over decisions, for example in signing off on investment and projects, and challenging each business case. While some amount of oversight is necessary, excessive oversight uses up a lot of time and resource, which would be better spent developing expertise to support regions in their capacity to drive things forward. Also, it is usually the case that local leaders know the needs of their area better than central government.

This is a long-standing theme – in our 2020 report, The Power of Place, we highlighted that local leadership is important in driving forward each region’s strategy and enabling the effects of R&D investment to directly benefit the local community. We recommended that local leaders should be given autonomy to set the direction for local R&D and innovation.

Universities play a crucial role, especially in regional settings, as a focal point and anchor for regional research institutions and clusters. In establishing a network of research organisations, universities can help bring in funding to collaborative endeavours that individual companies would otherwise be unable to access. It is important that this is not lost as universities face significant financial pressures.

Successful innovation clusters also have local leaders that can pull people together and are empowered to drive things forward. We recommend that:

• Central and local government should work together to improve national coordination between local and national R&D priorities. This should be an important part of taking forward the proposals in the recent devolution white paper.

• How do factors such as the tax system, regulatory frameworks and standards influence the success of start-ups, spin-outs, and other innovation-driven businesses?
• What challenges do innovation-focused researchers and businesses face in spinning-out or scaling-up, such as accessing venture capital, infrastructure and intellectual property rights.

Maintain R&D tax reliefs

R&D tax reliefs play a vital role in supporting innovative companies in the UK. R&D tax credits have recently suffered from instability due to a series of changes, which has been unhelpful. Recent successive policy changes to R&D tax credits, including the level at which they are set, has led to a lack of clarity and certainty for businesses. It is welcome that the Government recognises the importance of predictability within the tax system, with the publication of the Corporate Tax Roadmap and a commitment to maintain the UK’s R&D tax reliefs offer. 

Provide financial support for scale-up businesses

Evidence from CaSE’s report Backing Business R&D shows that financial support for R&D intensive businesses at the scale-up stage is a particular issue. The ability to access the right type of finance at each stage of development is critical to enable R&D focussed businesses to scale and grow. It is welcome that the Government has committed to making it easier for start-ups and scale-ups to access external sources of financial support, including extending the Enterprise Investment Scheme (EIS) and Venture Capital Trust (VCT) schemes to 2035.

Medium sized R&D-led businesses, which form a large part of business-driven R&D activity in the UK, often lack the necessary support. Series B funding was reported to be a significant challenge in the UK – while there are many funding pots, these are often not large enough. There are also sector-specific challenges related to this, for example for deep-tech companies there are often no ‘price setters’ who know how to value a deep-tech company post-Series A funding. The lack of financial support at these stages of development means that the UK often fails to keep many medium sized businesses.

A related challenge is the investment thresholds for UK Government venture capital schemes. EIS, Seed Enterprise Investment Scheme (SEIS), and VCT, are designed to encourage investment in higher-risk, early-stage innovative businesses. The amounts that venture capital trusts can invest using the schemes are based on thresholds that can limit the amounts available within Series B rounds of funding for businesses. We recommend that:

• The Government should regularly review and update the thresholds to its investment schemes to ensure they remain relevant to the current investment landscape.

Support access to infrastructure

Evidence from our report Backing Business R&D shows that there are challenges around access to the R&D infrastructure across the UK that supports businesses to scale and grow.

Of particular concern is the shortage of specialised space for early-stage businesses that require larger spaces as they scale-up. This lack of facility space is well documented in the biotech industry. This is a particular issue in the Golden Triangle (Cambridge – Oxford – London), with a critical shortage of specialist laboratory space for life sciences businesses. Lack of access also extends into other highly technical R&D intensive industries, such as chemistry and the physical sciences, as well as other regions of the UK.

Early-stage businesses are unable to commit to longer leases and will often have rapidly changing needs as they grow. A further missing scale-up infrastructure capability is the intense competition for space in the final production stage of product development, which can lead to smaller enterprises taking their economically valuable production activity abroad.

It is positive that the Government has taken steps to address availability of specialised space in changes to the revised National Planning Policy Framework that make it easier to build R&D facilities, including laboratories.

Furthermore, access to existing scale up facilities presents challenges. It can be prohibitively expensive for businesses to access facilities that support commercialisation. There are also challenges around cross-sector (e.g. university-business) infrastructure access. Smaller businesses often lack the administrative expertise to manage the agreements and subcontracts required to establish access to university infrastructure and negotiate intellectual property (IP) arrangements. Equally, university institutions may lack the commercial awareness to effectively manage the IP contribution to business collaborations arising from their assets.

We recommend that:

• The Government should consider how access to infrastructure could be subsidised or develop ways of bringing in joint funding with industry to reduce the upfront cost.

Ensure agility and capacity in the regulatory system

Evidence from our report Backing Business R&D found that in several sectors, regulation is failing to keep pace with new and emerging developments in technology. Regulators themselves often do not know how a new technology would fit within existing regulatory requirements, since a new and emerging technology is ahead of what a regulator has seen before.

Regulatory gaps and uncertainty can be challenging for both businesses and investors to navigate. Therefore, ensuring that regulation is adaptive and flexible to keep pace with innovation is crucial. We also heard from CaSE members that looking for efficiencies in the process rather than scaling back regulation would be helpful to support innovation.

It is encouraging that the Government has recognised the importance of adaptive regulation to support innovation. CaSE was pleased to see the Government’s announcement of a new Regulatory Innovation Office (RIO) to support regulators, provide regulatory certainty and reduce delays around new and emerging technologies, which aligns with the recommendations in our report Backing Business R&D. It is also positive that the new RIO will ensure greater join up between government departments to address the cross-cutting nature of emerging technologies, something which we also called for.

An area that requires urgent attention is how regulators are resourced to carry out their functions. Lack of regulatory capacity can lead to costly delays for businesses, which is a particular issue for smaller businesses. It could also have an impact on business confidence in the UK regulatory environment. External experts are well placed to diagnose the health of their own sectors and propose solutions. We recommend that:

• The Government should support regulatory capacity by leveraging the expertise of business schools in the university sector or cross sector groups made up of academics and industry experts to complement regulatory teams.

How does research and innovation in our regions drive growth and prosperity in those regions?

• How effective are regional innovation hubs and clusters in supporting regional growth and prosperity for local communities?
• How regional Cluster growth can best be measured, mapped, and monitored to help inform local leadership and evidence-based policymaking in Whitehall.
• Would unlocking investment at scale for innovative science and technology companies support regional growth, and how could this be done?
• Should there be region-specific innovation and growth policies, and what should local government’s role be in this?

Investing in regional R&D can play a significant role in delivering a more research and innovation intensive UK and create opportunities for new jobs and industries across all parts of the UK. It is positive to see the Industrial Strategy green paper recognise the role of R&D and innovation in driving regional economic growth, and the Government’s ambition to ensure the benefits of R&D are felt across the UK, as there is evidence that the public sees R&D as an asset to their regions and communities.

CaSE has carried out extensive research into public attitudes, which now comprises nine nationally representative polls surveying more than 30,000 people along with 20 focus groups across the UK. This has demonstrated strong appetite and interest in R&D and emphasised the importance of strengthening connections at a local level:

• In all regions, a majority said it was important their region carries out a lot of R&D, peaking at 79% in the North East. Across the UK, respondents who felt this way were motivated by local jobs (71% of those who said it was important) and inwards investment (64%). Notably, 18-24 year olds were less likely to say that R&D would generate new local jobs (60%) or bring investment to their area (47%). (July 2022)
• 66% would support a new research lab being built in their local area, roughly equivalent to support for a new school or wind farm. Of those, 62% said it would benefit the local economy and 60% said it would bring more well-paid jobs to their area. (February 2023)
• 65% wanted to hear more about R&D being done in their area, with interest being higher among those under 45, and those in socioeconomic group AB. (July 2022) 

Support regions in building a brand

Our report the Power of Place highlighted that one of the barriers to attracting R&D investment in specific places is a lack of regional branding.

CaSE has previously identified that long-term relationships and connections between organisations in a place can build a reputation and ‘brand’. While some places may see a reputation emerge organically, all areas should think about how to tap into local identity when talking about their unique combination of R&D assets and strengths. Developing a brand can deliver broad benefits both through building public support and creating awareness among potential R&D investors.

Places should be supported in highlighting and promoting their strengths to international investors through building a reputation and brand. A small number of leaders can have considerable impact in the branding of a place. Manchester is an example of how leaders are able to work both locally and at national level to pitch the region’s brand in a compelling way.

CaSE’s Backing Business R&D report recommended:

• The Government should support regions to market their strengths and capabilities to attract inward investment. DSIT’s UK innovation Cluster Mapping Tool is a promising step towards building on existing R&D excellence and develop regional branding for innovation, by helping private investors identify and support local R&D firms situated in areas of regional strength. Maintaining and promoting this resource will be essential.

CaSE’s People and Places report recommended:

• Local authorities, mayoral and regional governments are well positioned to convene a diverse mix of local stakeholders to articulate a distinct R&D narrative for their area. This should involve the perspectives of local residents, draw on data available about the local area and consider existing local identities.
• R&D funders should provide resources and encouragement for organisations working in local clusters to work towards a local R&D identity. This will ensure that local public awareness and support is a valued measure of impact. Funders should support local groups in different ways, including offering additional resources to support existing geographically linked clusters and establishing new funding schemes to support grassroots clusters.

Support inter-regional collaboration

Our report Backing Business R&D found that it is important to create a UK environment that is collaborative rather than competitive between regions. This includes nurturing partnerships between regional stakeholders such as civic bodies, universities and businesses to co-produce, attract investment and deliver for a region.

Place-based collaborative networks between different types of organisations can support longer-term planning in a region and support collaborative opportunities in R&D. This can include links between civic bodies (such as combined authorities), local organisations and universities and businesses involved in R&D. For example, the Oxford Road Corridor in Manchester is a partnership between universities, the NHS, businesses, and the property company Bruntwood. Another example is the Northern Health Science Alliance, which brings together ten universities and nine research intensive NHS Trusts in the north of England. These partnerships have brought together relevant stakeholders and helped to support longer-term planning for their regions.

The Government should support collections of places with related R&D strengths to work together and explore collaborative opportunities to attract investment for a region.

We recommend that:

• The Government and funding agencies should design large scale inter-regional collaboration into national strategic planning and funding calls, rather than encouraging competition between regions. Inviting multiple regions to bid for the same pot can invite competition where regions may naturally complement each other. By engaging with different regions or clusters early and establishing how they might use their regional strengths to work together, within a fixed funding allowance, it would avoid the need for regions to retrofit collaboration into competitively acquired project funding.

CaSE recently piloted an approach that aimed to work with local R&D-relevant organisations to collaboratively develop a clear, compelling public facing identity for R&D in the area. The pilots – which took place in Stevenage, Greater Manchester and Northern Ireland – demonstrated local appetite and enthusiasm among local actors to support the creation of local coalitions. Additionally, it emphasised the need for sufficient time and resource to be allocated to help them establish common goals.

CaSE’s People and Places report recommended:

• National and local funding agencies should seek to create opportunities that foster a sense of collaboration rather than competition. This could include funding for national networks. National and local R&D organisations should take opportunities to create cross-sector networks to support collaborative opportunities for place-based R&D engagement as well as research itself. R&D institutions, universities, funders and local organisations should collaborate to establish mechanisms that champion excellence. This will ensure that those who act as local R&D messengers or advocates are recognised and incentivised for their work and demonstrate its value more widely.
• Local coalitions of R&D and non-R&D organisations should identify and embrace new ways to work together. Groups should lean into natural commonalities and connection points, looking for links that may reach outside of traditional regional areas. They should collaborate on place-based messaging that goes beyond individual organisations’ usual asks and identify opportunities to frame messaging around challenges rather than disciplines.

3. How is research and innovation diffused or supported to drive productivity and growth in the regions, wherever it may come from?

• What more can be done to ensure that innovation investments deliver tangible outcomes for both local and national economies, in terms of productivity and growth, and how should this be assessed?

Regional capacity building is an important but often overlooked requirement. For a region to benefit from R&D investment it needs to have capacity to carry out R&D. Building R&D capacity requires different types of funding and investment.

CaSE’s report Backing Business R&D recommended actions that can further strengthen local innovation ecosystems to improve R&D investment opportunities across the UK and support the regional diffusion of innovation. Our work emphasised that it is important to connect and scale innovation capacity in regions to ensure they are ready and prepared to benefit from innovation support.

Structural funds

Following the UK’s departure from the European Union, the UK no longer receives EU structural funds. A significant proportion of these funds have historically been allocated for research and innovation, helping to support a wide array of projects building research capacity across the UK. Some regions were more reliant than others on this type of funding. For example, EU structural funds significantly contributed to developing research capacity and infrastructure in Wales. The Learned Society of Wales has shown that the per capita contribution of ERDF to research and innovation in Wales was €125 per capita: five times the UK average of €23 per capita. When EU structural funds were replaced by the Shared Prosperity Fund there was much less focus on funding for R&D capacity building and many successful programmes came to an end. Without this type of funding, it is difficult for less research-intensive areas of the UK to benefit from the economic growth that investment in R&D provides.

Ensure availability and access to infrastructure

Not all regions benefit from the presence of existing R&D and innovation infrastructure able to support all stages of the pathway to commercialisation or the civic leadership structures to drive forward on the innovation agenda. While many places have strong universities, they can lack a translational research institute that can fill a gap in the translation pathway.

Provide continuity of R&D funding

Continuity of R&D funding is needed to sustain regional capacity building. A lack of long-term funding means that capacity, skills, collaborations and culture shifts that have been built up over the course of a project or programme are not sustained when funding runs out. Long term regional funding can also allow local authorities to incentivise international businesses to establish sites in their region and, ultimately, conduct growth-stimulating production activity there, benefitting the regional and UK economy.

Address the uneven regional availability of skills

An important factor in attracting and supporting local innovative businesses is the availability of highly skilled people. Businesses are more likely to decide where to operate because of the availability of skilled workers.

When leveraging regional strengths, it is important to consider the relationship between local skills provision and research activity. Our discussions suggested that skills availability and development is an integral factor in building up regional capacity for innovation. However, we also identified the need for sector engagement in addressing uneven regional distribution of R&D activity and workforce.

The R&D workplace is rapidly evolving due to a range of factors, such as digital advancements and pro-sustainability agendas, which are changing the types of skills that employers need. Proximity to universities can be a strong selling point for business locations, yet the specific skills shortages that businesses face are not always communicated effectively to the education institutions that train the local graduate talent pool.

Efforts to grow regional R&D capacity will therefore require close collaboration with local industry stakeholders alongside strengthening local skills policy and provision pipelines. It is important to ensure that businesses are involved in the design and development of Local Skills Improvement Plans, an initiative funded by the Department for Education, to better match training provision to employer skills demands.

Education providers need to be more flexible and open to business collaborations to ensure that graduates have skills that are valuable to local businesses.

• How well are universities and businesses coordinating efforts to develop and commercialise research, including the role of spin-outs and collaborative R&D projects?

University-business partnerships play a powerful role in defining a local innovation ecosystem and promoting a region. Our briefing Universities: a crucial component of UK R&D demonstrated that universities provide a range of benefits to businesses that can support the commercialisation of R&D.

• Infrastructure and Facilities: Research equipment and facilities are often highly expensive and not easily affordable by businesses, particularly small start-ups and scale ups. In recent years, there has also been a scaling down of R&D capability within some larger businesses, creating a growing need for access to university facilities and equipment to support business R&D.
• Convener and Arbitrator: Universities play a crucial role, especially in regional settings, as a focal point and anchor for regional research institutions and clustering of expertise. In establishing a network of research organisations, universities can help bring in funding to collaborative endeavours that individual companies would otherwise be unable to access.
• Talent and Skills: Universities provide a talented pool of researchers that organisations can tap into, providing access to ‘on demand’ expertise from university staff through a variety of different flexible engagement models, such as funding a university-based PhD student or seconding specialist researchers. The porosity that co-funded staffing between private and university led-R&D projects provides can also de-risk the hiring and staffing prospects for both companies and employees, particularly with SMEs.
• De-risking Research and Innovation: Universities have a crucial role in de-risking the research and innovation pipeline. These institutions often take early, high-risk ideas to the point of validated proof-of-concept technology, at which point companies are more willing to carry the innovation forward to market.

Universities are under significant financial pressure, with substantial gaps in their current R&D funds, stemming from short falls in both public and charitable funding provisions. To deliver their role in the R&D ecosystem effectively, universities must be supported to achieve long-term financial sustainability. Universities are so intertwined in our research ecosystem that we can’t begin to predict the full cost of losing their R&D contribution at the regional and national level.

Companies and service providers that rely on the supply of R&D and innovations that universities provide will simply go and find it elsewhere rather than stay in the region, or even in the country, and lose it.

We recommend that:

To retain this vital resource, it is imperative that the UK and devolved Governments support UK universities to achieve long-term financial sustainability.

What is the relationship between investment in innovation and economic growth, both regionally and nationally?

• Is the £20.4 billion research and development budget delivering value for money and economic growth, and what metrics should be used to evaluate its effectiveness?

There is extensive evidence that public investment in R&D provides significant economic returns, with a time lag. Investment in public R&D increases private sector output and productivity, leading to significant rates of return, likely in the range of 20-30%. Public investment in R&D also crowds in significant levels of private sector investment in R&D. Recent estimates show that in the UK, each £1 of public R&D stimulates between £0.60 to £1.10 of private R&D investment in the short term, and between £3.09 to £4.02 in the long term. The commitment by the Government to spend £20.4bn on R&D in 2025-26 is very welcome.

While there have been welcome increases in public sector commitments to invest in R&D, to maximise the returns on public R&D investment, it is crucial that the UK policy environment has the measures needed to encourage further business investment (see response to Question 2). The most recent ONS business enterprise research and development (BERD) data shows that business R&D investment in real terms (constant prices) has fallen in the last two years and was the same in 2023 as it was in 2018. This is concerning especially when approximately two-thirds of R&D in the UK is carried out by businesses and this contribution is crucial to meeting ambitions of a more research-intensive UK and driving growth in the UK economy. Our report Backing Business R&D sets out a series of measures that will help build an attractive environment for R&D-led businesses. We recommend that:

• The Government should continue to commit to ambitious, long-term, and sustainable investment in R&D to ensure that the UK is a leader within the G7 on R&D investment.

10 January 2025