Written evidence submitted by John Yates (IGR0013)

This submission focuses on one small, but critically important, component of the UK’s innovation and growth landscape: the High Value Manufacturing Catapult (HVM Catapult). It argues that a radical, but low cost, reform of its governance, financial accountability, and core purpose, could see a conflicted and struggling organisation serving central government needs, re-purposed as a powerful, place-based network of innovation R&D assets that would stimulate growth in the devolved regions of England and the nations of Wales and Scotland

Launched in 2011 by the Coalition Government as the forerunner to the wider Catapult network, the HVM Catapult was itself a repurposing of six existing Technology and Innovation Centres (TICs), the oldest of which, predated the new network by more than two decades. The origins of these existing TICs owed less to national policy than to the indigenous strengths, capabilities and needs of the places that gave birth to them.

The Warwick Manufacturing Group (WMG), founded in 1980, retains its strong umbilical ties with automotive industry in the West Midlands; the composite skills of the NCC took off alongside the aerospace industry in Bristol with Airbus, AgustaWestland, GKN Aerospace, Rolls-Royce and Vestas, as its founding partners. Likewise, the Advanced Manufacturing Research Centre with Boeing, founded in 2001, grew from ground rich in manufacturing and materials excellence with a small but vibrant cluster of top flight machining companies. While the Centre for Process Innovation (CPI), founded in 2003, draws on the deep chemical processing roots of the North East and, like the other HVM Catapult members, it now has offshoots in 17 locations around the UK.

Hermann Hauser: The Current & Future Role of Technology and Innovation Centres

The HVM Catapult story begins shortly before the General Election in May 2010, with the publication of a report by Hermann Hauser that was to shape the thinking of the incoming Coalition Government. In it Hauser declared: “I propose that the UK develops ..an elite group of Technology and Innovation Centres, that aim to exploit the most promising new technologies, where there is genuine UK potential to gain competitive advantage. This will help deliver the new industries, with transformational economic impact, of the future.”

In short, Hauser envisaged these new centres – first branded as Clerk Maxwell Centres and then Alan Turing Centres, before becoming Catapults – operating very much like the Fraunhofer Institutes in Germany. They would identify the very best science and technology ideas emerging from our universities and commercialise them to create, what the report’s commissioner Peter Mandelson dubbed “new industries, new jobs.”

Like the Fraunhofers on which they were modelled these new Catapult centres were to be independent R&D institutes free from direct university ownership and control, that would work with the best and brightest brains in the UK and internationally to create new businesses, products and processes; just as Hauser had done when he co-founded the Cambridge tech spinout ARM in 1990, which was sold in 2016 to SoftBank for $32 billion.

However, despite its explicit early mission to “ bridge the gap between UK research and industry, translating research into innovative products and services” and more recently to “translate ideas into commercial reality, driving original research to the market” the HVM Catapult has never behaved like a Fraunhofer Institute in commercialising ideas emerging from the UK’s high performing research universities.

One often used measure of such commercialisation activity, and one which is adopted by the Fraunhofers, is the number of patents an institute files and the number of start-ups and spinouts it forms. The wider Fraunhofer-Gesellschaft network latest annual report shows it has shareholdings in 83 companies, where tech transfer is key. The total carrying value of the shareholdings, including shares in affiliated companies, stands at €31.5 million.

In the same year, Fraunhofer Venture provided support to 71 new spin-off projects and 23 new spin-offs were established. It also reported 50 new start-ups and a dedicated innovation incubator to accelerate this. In the same period, it filed 521 patent applications; the equivalent of two patents per working day.

These are impressive numbers. In any comparison between Germany and the UK, it  should be recognised that the HVM Catapult comprises centres in just 17 locations and a staff of around 3,700, whereas the Fraunhofer network consists of 71 institutes with a full time staff in excess of 32,000. But this clear size difference does not explain why the HVM Catapult, has recorded no patents in its “annual reviews” since its formation in 2011.

According to HVM Catapult officials at its Midlands headquarters, the organisation does not log patents filed by its six centres ( there were until very recently seven, but the University of Sheffield closed on of them down late last year). The individual centres, likewise, do not routinely log these useful indicators of how they “translate ideas into  commercial reality.”

Instead, the metrics cited in the Innovate UK funded, HVM Catapult’s annual ‘reviews’ give little indication as to its success in bringing new products to market, or in creating new businesses that can be scaled up and brought to IPO. In place of patents, trademarks, spin outs and start-ups, it reports that its centres have “worked with” 5,801 companies“ but provides no measure of the added value this work has created for the companies they have worked with. It does say that 3,496 of these companies were SMEs. But again, in marked contrast to the auditing rigour, and challenging, purpose-driven metrics that go hand-in-glove with being a well-funded Fraunhofer facility with a long-term future in Germany, in the HVM Catapult reports provide few if any meaningful measures of the impact it has hand on the companies it works with.

In short, the HVM Catapult is not and never has been the UK’s equivalent of the German Fraunhofer network and without a seismic change to its culture, capabilities and governance, no amount of additional state funding will enable it to deliver the outcomes provided in Germany.

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Innovation diffusion and devolution: the missing link

UK productivity has flatlined since 2008. Had it remained on trend, today’s average wage would be £11,000 higher than a decade ago. But this average hides deep and dangerous disparities across the country. Britain is one of the most regionally divided economies in the modern world, with huge inequalities and imbalances not just in productivity and incomes but also in education, health and well-being between London and the South East and the rest of the country.  This mix of low growth and rising inequalities is a toxic combination that is poisoning politics and social cohesion.

Over the last three decades there have been more than 50 different new bodies and schemes created by Westminster and Whitehall to find an antidote.  All have failed. Leading to the conclusion that the UK’s over-centralised state is a big part of the problem rather than the solution, and that a radical rebalancing of the excessive power of London-centric institutions in favour of our diverse cities and towns in the regions is essential if we are to overcome these inequalities.

Labour and Conservatives both agree, centralisation is holding the UK back, and that greater devolution, long-term ‘missions’ and investing in innovation clusters are the building blocks of the solution. The King’s Speech talked of greater devolution to “enable our towns and cities to thrive by strengthening mayoral powers, giving local leaders the tools to kickstart their economies.”

One of those tools is R&D spend, which has long favoured London and the South East. The work of Neil O’Brien in the Levelling Up White Paper went some way towards shifting the geographic focus of R&D to one that addresses spatial disparities and how investment at high-potential clusters like Birmingham, Manchester and Glasgow could boost national growth, without redistributing funding away from the Golden Triangle.

But is increasing R&D spend on northern universities going to move the productivity dial and significantly improve rates of innovation? The record suggests not. Universities are not designed to be engines of innovation and economic growth. Small teams and individuals within them can be very entrepreneurial and innovative, and their skills need to be exploited to the full, but the institutions themselves tend to be conservative, risk averse and bureaucratic.

As Lord Willets says in his paper The Road to 2.4%: “Our world-class universities are one of our greatest national assets. But having them so dominant distorts our national R&D because of the distinctive incentive structure for university academics – the emphasis on academic publication as the crucial measure of performance, for example. It is one reason for our poor performance in applying research and using it to grow big new companies. We need to do two things: we can try to change the culture in universities in some specific respects, but above all we need to promote more applied R&D outside the university”

In their long paper on “intermediate institutions” Eoin O’Sullivan, Richard Jones and Guendalina Anzolin argue  for a wider role  of the Catapult network “in building regional and sectoral innovation capabilities” alongside “technology diffusion” to regionally clustered value chains. They also add that this “would need an explicit reform of their core roles and the criteria for establishing new centres, together with new funding streams to support these activities”.

A similar view was expressed in the Council for Science and Technology  August 2019 letter to the Prime Minister, to the Prime Minister that made clear the connection between technology diffusion and productivity improvements. It noted that “Firms in the long tail are those that have not implemented existing technologies. The issue in this context is a lack of technology diffusion (the spread of existing technologies) rather than a shortage of innovation (the creation or new and better tools or methods). The term “diffusion” may be taken to imply a passive process, but in fact it should be pursued actively.”

Urgent need for change

The existing HVM Catapult structure:

• Fails to drive innovation at the right level to re-balance/level up the UK economy
• It has no direct mission to deliver regional economic growth/productivity/skills
• Focuses activity on de-risking innovation in high performing OEMs, not the long tail of regional SMEs who are the links in global supply chains
• Is sector/technology based rather than place-based, yet
• Ties the Catapults to place-specific higher education institutions which:
• Creates conflict of missions between owners (universities) and investors ( government and private sector partners) – witness closure of the Nuclear AMRC by Sheffield University
• Slows the pace of innovation and adoption – especially in manufacturing
• Militates against regional expansion/coordination due to territorial institutional rivalries
• Hinders HVM Catapults building best-in-class R&D teams from HE across the UK world
• Creates confusion among key actors:
• There are seven CEOs in the HVMC alone, excluding the centre CEO – they compete with one another for central funds, challenge funds which is costly and wasteful
• At local level these CEOs are essentially heads of group within a university faculty
• The overall HVMC CEO has little direct control over the CEOs in the seven centres
• Principal public funder Innovate UK has eight CEOs to talk to in HVMC and six Vice Chancellors
• Private sector industry boards in each centre, who direct and fund many of the larger projects, have no power or authority within the organisation
• Devolved Mayors and local growth institutions, who are often asked for financial support on projects, likewise have little influence over the Catapults/universities. Yet:
• Catapults are often the major innovation actor/accelerator in their patch.
• The thirds model, which works well in the Fraunhofer network, has become a gaming exercise, in the UK encouraging bad behaviour that turns HVM Catapults into publicly funded consultancies competing with the private sector.

Ideas for a change and reform

This section comprises early thoughts and provocations on how a re-purposed network of HVM Catapults could best be designed to stimulate regional economic growth, driving productivity in underperforming core cities with direct, ring fenced funding for place based, industry led, innovation and effective tech and skills diffusion.

This place based, R&D and industry led approach would:

• Focus as much on the long tail and creating indigenous supply chains as on OEM champions – this is a role that Made Smarter was meant to address but has failed to achieve. Melting MS into a reformed, place- based HVMC is integral to creating a much more joined up approach to tech adoption
• Identify, expand and deepen place-based competencies and capabilities
• Drive the skills agenda – matching talent to opportunity
• Align national industrial strategy to regional capabilities.

To do this the following steps are essential:

• The existing six HVM Catapults – and a revived seventh, the Nuclear AMRC – should be made immediately independent of university ownership
• These large hub institutions and their satellites in other regions, should be broken down into smaller teams tasked with a single mission to raise manufacturing productivity in their region.
• These teams would include:
• Technology diffusion:
• turbocharging global supply chains ( the frontier firms)
• raising productivity in the long tail
• Technology development in sectors relevant to the regional strengths
• Developing inhouse IP to convert to spin outs and start ups
• Design for manufacture – supporting early stage product and process development
• Identifying future partners – inward investment opportunities
• Supporting skills development and training – through working with local SMEs
• The reformed HVM Catapults would have no CEOs. They would follow the Fraunhofer model in being led by a highly talented Research Director and an equally talented Commercial Director.
• The latter would be drawn from the industrial partnerships of the HVM Catapults
• These would then select the best fit Research Director – whether from in region or not.
• The Research Director and Commercial Director would report to a board comprised chiefly of industry partners with representation from the Mayoralty and education and training institutions.
• The HVM Catapults would have legal teams to ensure patents, licenses and IP developed in-house provide secure income from licences, or to turn these patents into spin outs

In short, the reformed HVM Catapults would be independent applied innovation bodies – what Jones et al call “intermediate institutions’ – focused on driving productivity improvements in their region. They would be primarily led by industrial partners, who would design the technology and diffusion road maps for the region, in consultation with other stakeholders including local and devolved authorities, local universities, education and training advisers and industrial trade bodies. 

This approach is in line with the recent A New National Purpose: Innovation Can Power the Future of Britain report by the Tony Blair Institute which concluded that:

“Catapults should be broadened in role, given greater independence, diversified in target, and expanded in number so they can act as devolved hubs of regional development. The catapults should be a granted regional role including skills and local development.”

For this to happen requires one other major reform – that of finance. The Select Committee should consider an inquiry that looks at the hundreds of competitive funding streams currently administered by national government and what the benefits/savings might be of combining these into single, ring fenced pots, for the place based, reformed HVM Catapults. This could include amalgamating Innovate UK funding – which currently has a small local dimension and presence, along with Made Smarter, which is already delivered locally via local councils and mayoralties but with little liaison with HVM Catapult. The industrial digitalisation development and diffusion role would become part of the reformed network, removing the need for external consultancies often from out of region. By funding the place based R&D Catapults through this ‘single pot’ approach this could:

• Remove wasteful and expensive plethora of sometimes conflicting funding calls pushed out from Whitehall and UKRI/Innovate
• Empower devolved administrations with the tools to better design, develop and deliver local growth strategies focused on manufacturing and advanced manufacturing that harmonise with national government Industrial Strategy – which should be a much shorter and more focused document.
• Focus regional actor attention on really understanding what they are good at, and then doing it on purpose by bringing industrial partners into leadership roles in the combined authorities ( a hybrid of beefed up LEPs and pared down RDAs, with very precise deliverables and KPIs.
• Scrutiny of the latter could happen at the regional level with strategic reviews being handed to Parliament ( as per RDAs) to assess performance against national targets
• Help Whitehall identify weakness and competency gaps in the region’s and take measures to address this quickly; eg moving staff from London ( Treasury, DSIT, DBT, Education) to the regions to provide professional support, mentoring and advocacy across central government
• Ensure skills deficits and gaps are identified as place-specific rather than generic, and that local colleges and universities are tasked with working with industry to upskill the population to align skills delivery with market demand.

This is very much a return to the origins of the original place based network, prior to amalgamation in 2011.

“The AMRC, identified and played to the indigenous technical knowledge strengths of the private sector in a region blighted by de-industrialisation. The key message here is that this is a ground up approach to R&D driven innovation; it started local and went global. It was not a top down, Whitehall imposed strategy. We started with what we had; we worked closely with local industry; this gave us a deep and wide understanding of their capabilities and their challenges; the challenges we turned into R&D projects; the talents and capabilities we took to the market to win customers and inward investors.”

If government wants a mission led approach to boost productivity and inclusive growth it could do worse than set the newly reformed HVM Catapults, devolved Mayors and First Ministers a ‘moon shot task’: “solve the industrial and manufacturing productivity challenge in your regions.” Better still, national government should eschew a detailed Industrial Strategy and set mission target of growing the national manufacturing base to 15%.  And it could task The Treasury, for too long an opponent of regional policy and growth, with ensuring that it happens.

13 January 2025