Written evidence submitted by the Royal Academy of Engineering (IGR0014)
Innovation, Growth and the Regions
Response to House of Commons Science, Innovation and Technology Select Committee inquiry
The Royal Academy of Engineering is the UK’s National Academy for engineering and technology. We provide progressive leadership for engineering and technology, and independent expert advice to government in the UK and beyond. We are grateful for the opportunity to submit a response to this inquiry, informed by the expertise of our Fellowship, which represents some of the nation’s best practicing engineers, including leading researchers, industrialists, innovators, and entrepreneurs.
The impact of engineering on the modern economy is profound – it accounts for the majority of businesses in 80% of the UK’s emerging economic sectors[1], 19% of jobs nationally[2] , and 32% of total national economic output[3]. Engineering is everywhere in the UK, but nowhere the same. Understanding engineering's role in different places is key to better leveraging engineering to drive prosperity and advance the UK’s technology, innovation and growth ambitions. As well as providing evidence and policy advice on regional innovation, the Academy is also committed to supporting innovators in their regions to overcome challenges and seize opportunities through our national network of regional Enterprise Hubs and our Regional Talent Engines programme. We have a track-record of supporting innovation, enabling our Enterprise Hub members to form a powerful, thriving, and supportive community. We run four programmes at multiple stages, from ideation to scaleup, with support for entrepreneurial engineers at different career points to help them translate their research into commercial business opportunities.
The Academy would be delighted to provide further information on the content of this submission, or to assist the Science, Innovation and Technology Select Committee in any way as it continues to consider these important issues. If you have any questions, please do not hesitate to contact the Academy via publicaffairs@raeng.org.uk.
Summary
Consultation
How effective are the government’s policies in supporting the innovation ecosystem across the UK’s nations and regions, particularly through commercialisation initiatives?
1.1. Over recent years there has been a welcome focus on supporting innovation ecosystems across the UK’s nations and regions. However, this has been accompanied by frequent changes to policy, strategy and funding initiatives and a lack of coordination within and between government departments. These frequent changes, and lack of coherence to overall approach, reduces the potential for positive impact in the short and long-term. Examples include the Science Innovation Audits which started in 2016 and terminated in 2019; the Strength in Places Fund that UKRI ran from 2017 until 2023; and the introduction of Innovation Accelerators in 2023.
1.2. There is a risk of unhelpful hyperlocalisation where small geographical areas compete rather than collaborate for funding and initiatives. Some schemes require activities to result in benefits within a local authority, which is a small geographical boundary and often an artificial one when it comes to R&D cluster and supply chains etc.
1.3. When the UK was in the European Union (EU), the European Regional Development Fund (ERDF), part of the European Structural and Investment Fund (ESIF), played a key role in supporting research and innovation in nations and regions across the UK. Its aims were to reduce economic disparity and foster innovation in underserved regions, with a focus on supporting SMEs. Of the £2.696 billion ERDF funds allocated in England between 2014 and 2023, £556 million were for university led projects[4] and nearly half of the UK’s Growth Hubs had received ERDF funding[5]. Upon departure from the EU, the UK lost access to this fund, and the UK Shared Prosperity Fund (UKSPF) was introduced as a domestic equivalent to ESIF. While the UKSPF shares similar objectives to the ERDF, it delivers significantly less funding for regional research and innovation activities in practice, creating a substantial gap in support of innovation and SMEs.
1.4. The spatial distribution of public investment in R&D across the UK was a focus of the last government with the 2022 Levelling Up White Paper commitment to increase the share of R&D funding outside London and the South East. The distribution of public R&D investment is a valuable policy lever to drive progress towards a more balanced picture. However, it’s also important to realise that the delivery of economic and social benefit from R&D is a slow and complex process, which in turn depends on having effective and efficient interfaces between academia and research organisations, industry, entrepreneurial communities, investors and policymakers – including at a regional level. Changing the distribution of R&D funding will not by itself deliver improvements in the lives of those in underserved regions, especially in the near term.
1.5. While local leaders and governments are often best placed to understand their regions, that does not mean they have the capability or mechanisms to access the knowledge required to develop strategic R&D policy. Mechanisms need to be developed to allow regional leaders and governments to understand national strategic research and innovation plans and priorities. Central coordination and building networks with specialists is key.
1.6. Spinning out is a key mechanism to accelerating the commercialisation of university research. The government commissioned Independent Review of University Spinout Companies[6], outlined 11 recommendations to accelerate the commercialisation of university IP and help improve the creation and growth of university spinout companies. These recommendations should continue to be implemented.
1.7. In addition, to effectively support spinouts, it's crucial to understand the realities of the spinout landscape across regions. Our annual Spotlight on Spinouts[7] report offers a comprehensive analysis of IP and commercialisation trends across the UK. The report highlights the regions where spinouts are making a significant impact. Unsurprisingly the ‘golden triangle’ is consistently strong, but other regions show strengths as well, notably Belfast, Edinburgh and Glasgow.
1.8. The British Business Bank (BBB) is a key lever to address structural funding failures in the UK. However, there is a perception that they are no longer fulfilling their remits of ‘backing innovation’ and enabling longer-term investment in innovative UK companies as well as they once did. This also applies to their Nations and Regions Investment Funds. We call for a greater focus on and accountability of the BBB in supporting the growth of innovative deep tech companies, especially beyond life sciences firms. They must have appropriately specialist skilled investors.
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?
1.9. Lack of coherence is a weakness of the UK’s innovation system – engineers and engineering companies find strategic engagement across UK government organisations frustrating, fragmented and siloed[8]. This makes the UK less attractive for businesses to invest in, especially in contrast to packages of tailored support and stewarding offered by other countries. Improving coherence is key to harnessing devolution to support innovation. Sustained strategies that align actions across regulation, funding, fiscal policy, infrastructure, skills and the government’s convening power will be needed. This requires extensive engagement and alignment across central government departments, devolved governments, regional and local institutions and industry to ensure actors can collaborate and cooperate and so are mutually reinforcing rather than competing.
How do factors such as the tax system, regulatory frameworks and standards influence the success of start-ups, spinouts and other innovation-driven businesses?
1.10. Fiscal policy stability and certainty are key to influencing investment decisions. Consistency is the key to building confidence among investors and innovators, empowering risk-takers, and encouraging founders to take the next step in the development of their idea. The Enterprise Investment Scheme (EIS) and Seed Enterprise Investment Scheme (SEIS) have been transformative to improving the UK’s startup ecosystem. R&D tax reliefs play a crucial role in increasing available finance to small innovative companies. Unlike innovation grants allocated to specific projects, this allows them to respond to emerging business opportunities and threats as they arise, including through further R&D investment. Returns from R&D tax reliefs can be a lifeline in periods of challenging cash flow.
1.11. There is inconsistency in the language used across regulations and standards, making it difficult for innovators to navigate standards and regulations produced by different bodies. There is a role for the Regulatory Innovation Office to facilitate cross sectoral coordination and make it easier for innovators to navigate the system. This may require standardised terminology and collaboration to build unified understanding.
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?
1.1. Despite being third in the world for venture capital investment, the UK is proportionally weak at scale-up investment, particularly in comparison to the US. This is especially a concern for ‘deep tech’ companies (i.e. companies with technologies grounded in innovative engineering and cutting-edge scientific advances), for whom the common scaling challenges are felt more acutely. Narrowing the financing gap compared with the US is a priority. While early-stage investment is relatively healthy in the UK, it remains more challenging for deep tech companies who are unable to promise rapid returns on investment like those that can be achieved in software companies. The Mansion House Reforms are welcome. The speed at which these reforms materialise and start making a difference will be key to accelerating growth of UK high-tech companies.
1.2. Deep tech companies, especially those not operating in established sectors, require more UK investors with specialist knowledge. The Academy’s Science and Technology Venture Capital Fellowship, funded by the UK government’s Department for Science, Innovation and Technology and delivered in collaboration with Imperial College London, seeks to provide knowledge and leadership development, paired with experiential learning, mentoring and networking opportunities to support the development of a strong talent pipeline in science and technology venture capital investment in the UK. Schemes such as this can develop a cohort of investors with the knowledge and networks needed to raise and deploy venture capital into science and technology ventures.
1.3. While several funding programmes exist to support research commercialisation, these are not always joined up. This lack of continuity can create funding gaps and obstruct the innovation process. For instance, Innovate UK, the BBB and British Patient Capital deploy financial mechanisms to support innovative companies from proof of concept to scale, while the UK Infrastructure Bank focuses on infrastructure. These organisations should work together to identify gaps in existing support to meet the scale of need and the distinct challenges deep tech companies face, and design mechanisms to address them. By creating a roadmap of support for scaling deep tech companies, cliff-edges can be removed, weak spots fixed and funding initiatives joined-up where appropriate. The roadmap should be used to signal the UK’s ambition to investors and deep tech companies, as well as making navigation of the UK’s support system simpler.
1.4. Late-stage R&D is a key part of the innovation process and accounts for the majority of R&D that businesses do. It comprises the activities required to take a proof of concept or prototype through to commercial application, ultimately delivering new products, processes, technologies and services to market. But existing UK support for late-stage R&D is not meeting businesses’ needs and is considered poor compared to competitor countries[9]. Many businesses choose global locations for these high value late-stage R&D activities, from multinationals with multiple R&D sites to mobile innovative SMEs with growth ambitions. There is a choice to be made – enable companies to take bold risks in the UK, or they will go elsewhere.
1.5. The availability of skilled people is a major factor influencing the success of innovative engineering companies. Being able to hire the right people with the right skills at the right time is vital.
1.5.1. The UK engineering skills base is of good quality, but quantity is a limiting factor: more engineers with a broader range of expertise, such as environmental awareness and greater data skills, are needed across the full spectrum of engineering, from basic electronics through to emerging fields such as artificial intelligence (AI). The UK already faces an engineering skills shortage and demand is expected to rise over the next decade.
1.5.2. Entrepreneurship skills are also critical, to increase the likelihood that innovators are able to successfully commercialise their ideas. The government commissioned Independent Review of University Spinout Companies[10] called for access to entrepreneurship training for PhD students. Entrepreneurship skills training should also be considered for other groups, such as non-academic founders and students in further education colleges.
1.5.3. As the success of new innovative engineering companies is dependent on the availability of a skilled workforce, they often depend on a diverse, international workforce. Visa regimes need to be proportionate and affordable, especially for small engineering technology companies, to ensure they can access global talent.
1.5.4. Skills shortages will continue to evolve, and it is crucial to have an education and careers system that responds to changing labour-market needs. Therefore, the National Engineering Policy Centre, led by the Academy, has called for a National Engineering and Workforce Strategy to equip the UK with the skilled workforce needed to ensure innovative engineering companies can access talent and succeed. This must deliver a long-term holistic plan encompassing all education stages, including reskilling and upskilling, to deliver a diverse engineering profession equipped for the future[11].
1.6. Ensuring innovators have access to R&D infrastructures is key to facilitating translation and accelerating commercialisation. The specific infrastructure to achieve this can be expensive for a company to invest in alone. Increasing the provision of high-quality open-access infrastructure for scale-up and commercialisation in priority subsectors should be considered. While the UK does have some open-access infrastructure, more needs to be done to ensure this is fit for purpose for use by industry, in terms of availability, accessibility, affordability, compatibility with industrial and commercial standards and processes, and is staffed by skilled personnel. There are also lessons UK facilities can learn from ‘problem-solving organisations’/ ‘intermediate institutes’ such as Fraunhofer (Germany) and VTT (Finland), which successfully bridge the gap between R&D and commercialisation.
1.7. Different subsectors of engineering have specific infrastructure needs. For instance, deep tech companies require significant capital and complex and extensive infrastructure. The Academy is undertaking a project to assess whether the infrastructure needs of deep tech scale-up stage companies in the UK are being adequately met, and determine if interventions are needed to promote their growth and development. The project will take a cross-cutting approach, looking at evidence for infrastructure availability and requirements across the multi-sector deep tech landscape and assessing any overlapping infrastructure needs and common scaling challenges. The project is underway and will deliver insights throughout Summer 2025.
How effective are regional innovation hubs and clusters in supporting regional growth and prosperity for local communities?
2.1. Place-based investment to support research and innovation can deliver distinctive benefits at both local and national level. For example:
2.1.1. It is easier to achieve alignment across different policy interventions, levers and actors at regional level, which can in turn underpin the development of effective clusters with national significance. E.g. the Belfast Innovation District and the Glasgow City Innovation District
2.1.2. Place-based investments can leverage local relationships and insights to reach parts of the system/deliver functions that are hard to access, such as driving innovation adoption in SMEs. E.g. in the Made Smarter adoption pilots
2.1.3. Some interventions are facilitated by/dependent on existing infrastructure and/or geographical features – including targeted skills capacity building (e.g. Cumbria as a focal point for nuclear skills development due to location of Sellafield) or the creation of living labs and testbeds (e.g. autonomous vehicles testbed around UKAEA headquarters in Culham).
2.2. Not all issues faced by innovators in the UK are universal, and regional issues need local presence to address them. The Academy is acutely aware of this, and has formed a regional network of Enterprise Hubs to support innovators and build an understanding of the challenges and opportunities in local ecosystems. Following the success of the London based Enterprise Hub in 2013, we recognised that if we are to unlock the UK’s innovation capability and capacity then we need to be serious about working with entrepreneurs outside of London and SE England. Since 2020, we have established further Hubs in Northern Ireland (Belfast), Wales (Swansea), Scotland (Glasgow) and most recently in June 2024 in Liverpool and Newcastle, with plans to open a further three Hubs in 2025/26.. Fully accessible and available to ambitious, high-potential entrepreneurs, these regional Enterprise Hubs connect them to the wide-ranging funding programme and global network of engineering and tech entrepreneurs, finance providers, Fellows of the Academy and other key ecosystem stakeholders. By providing specialist support to entrepreneurs and SMEs and giving them access to the Academy’s network via a regional base, the Academy helps them achieve their ambitions faster and prosper further, which in turn enriches the entire innovation ecosystem and brings nationwide economic benefits.
2.3. While funding is essential to supporting innovation, practical training and support are equally important. In light of this, in 2021 the Academy launched the Regional Talent Engines Programme, a six-month pre-accelerator programme for early-stage founders, including experienced engineers looking for new opportunities, in Northern England, Northern Ireland and Wales to transform ideas into new engineering startups. The programme includes training held in central locations in Belfast, Swansea, Leeds, Liverpool and Newcastle and is designed to provide experienced engineers/technologists with the practical support needed to help refine their innovation. By the end of the programme, they will be ready to seek further support for or pitch for investment to bring their innovation to market. Since Regional Talent Engines was launched, we have invested in training and mentoring to help 114 early-stage founders gain £15 million further startup funding and create 100+ new jobs.
How regional Cluster growth can best be measured, mapped, and monitored to help inform local leadership and evidence-based policymaking in Whitehall.
2.4. Each locality has its own unique set of innovation opportunities and challenges. To map these localities, the Academy commissioned the Engineering, Economy and Place[12] report, which delivers a place-based understanding of engineering across the UK. By combining indicators that look at the engineering economy, engineering enterprise and place economics, a typology of five categories and seven sub-categories has been developed. This removes a barrier to describing the local and national role of engineering, and highlights that engineering is present across economies and places of all shapes and sizes. The engineering economy takes a different role and exhibits different features in each, whether it is the volume of engineers, the level of innovation activity, the economic output delivered by businesses or the diverse sectoral activity. In doing so it broadly supports the government’s characterisation of Clusters and offers a more granular typology to draw from. The report aims to improve understanding of the types of engineering economies present across the UK and acts as a helpful starting point for decision-makers looking to understand their own engineering economy.
Should there be region-specific innovation and growth policies, and what should local government’s role be in this?
2.4.1. Analysis of the metrics in the 2023 Engineering Economy and Place[13] report independently demonstrates that not all issues faced by engineers in the UK are universal and reinforces the importance of a place-based approach, in which local leaders can discover and articulate the nuances of their engineering economy. Having a better understanding engineering's role in different places enables exploration of how places can better leverage engineering to improve prosperity and advance the UK’s technology and growth ambitions. In some places engineering is already strong and could be enhanced. In some places the economy is weak and through its engineering economy, could be enhanced. Below are some key insights from the report:
2.4.1.1. While acknowledging that R&D and innovation is an important characteristic of clusters, it shouldn’t be overweighted. Engineering Economy and Place provides insight on the balance of employment in engineering R&D and practice, and on jobs in the engineering economy for non-engineers. Unsurprisingly, simple conclusions cannot be reached. High concentrations of R&D roles do occur in areas where you might expect them – London, the South East and in many large UK cities, but also in the East Midlands, Cheshire, the South West and South Derbyshire. However, this isn’t a prerequisite for engineering to be a significant contributor to the economy, with the potential for future economic growth. For example, the ‘Local Engines’ in Engineering Economy and Place are areas where engineering plays a very significant role in the local economy, providing at least 25% of overall employment. Some of these places have large engineering businesses which are major employers and have high GVA output, while others have concentrations of engineering businesses but have not been able to transfer this into more significant economic benefit.
2.4.1.2. A small number of places have nationally significant engineering specialisms but are struggling to translate these into high value outputs. The concentration of industry in these places (like Hartlepool, Redcar and Gosport) suggests that it should be a strength to capitalise on locally, but the wider economic performance indicates challenges in the wider enterprise environment. These places are likely to need tailored support to realise greater potential of their industrial strengths.
2.4.1.3. There are several places in the UK with very highly specialised concentrations of engineering businesses, often connected to strong industrial heritage, but structurally weaker economies. For instance, coastal town communities experience complex, multifaceted socioeconomic challenges that are less directly connected to R&D infrastructure. These places require targeted support to capitalise on a dense industry foundation that should be an asset.
2.4.1.4. Connections between city-centre R&D activity and engineering in surrounding city regions and towns encourage high value engineering and innovation. The benefits from connection should be further leveraged. For instance, London and the South East have a strong gravitational pull on high-value, innovative engineering in the UK, but there is still potential for them to expand their proximal regional connections.
2.5. Attractiveness of place and quality of life will have a considerable influence on a region’s ability to attract and retain engineering entrepreneurs and innovative businesses. Local government has a role to play in enhancing this attractiveness, for instance through access to healthcare, good local schools, accessible green spaces and transport infrastructure. These are important components that will influence where engineering entrepreneurs choose to establish themselves and their businesses.
How well are universities and businesses coordinating efforts to develop and commercialise research, including the role of spinouts and collaborative R&D projects?
3.1. Well-connected communities across industry, academia and government focussed on a shared technology or goal can help identify the needs of different stakeholders and opportunities. These can then be rapidly mobilised to provide consistent access to expertise and experience to support informed decision-making. These interfaces should be relatively permeable, and the networks and organisations that provide a bridging capability, such as public sector research establishments and catapult centres, must be optimised. A ‘connect-and-convene’ approach that engenders a sense of ownership and commitment among those all involved is preferable to a ‘command and control’ approach.
3.2. Greater support for adoption and diffusion is needed. Made Smarter, a programme which focuses on driving digital adoption in SMEs in the manufacturing sector in the North West, is a good example of an effective local support mechanism. Initiatives such as this can help cultivate a local community of digital technology providers, developers, users and manufacturers to enable more targeted messaging and relatable success stories. By understanding the local context, such programmes can offer tailored support packages spanning technology and business advice, guidance for skills development, leadership development and funding opportunities.
4.1. The Academy is well placed to help decision-makers unlock the potential of all UK regions and would be delighted to provide further information on the content of this submission, or to assist the Science, Innovation and Technology Select Committee in any way as it continues to consider these important issues.
13 January 2025
[1] Engineering, Economy and Place, Royal Academy of Engineering, 2023
[2] Engineering Footprint Update March 2024, Engineering UK, Engineering Council, Royal Academy of
Engineering, 2024
[3] Engineering, Economy and Place, Royal Academy of Engineering, 2023
[4] Failing to protect innovation funding risks ‘levelling down’, Universities UK, 2024
[5] Evaluation of the Growth Hubs 2015-2020, Department for Energy Security and Net Zero, 2022
[6] Independent Review of University Spinout Companies, Department for Science, Innovation and Technology and HM Treasury, 2023
[7] Spotlight on Spinouts 2024, Royal Academy of Engineering, 2024
[8] NEPC response to Invest 2035: The UK’s Modern Industrial Strategy, Royal Academy of Engineering, 2024
[9] Increasing R&D investment: business perspectives, Royal Academy of Engineering, 2018
[10] Independent Review of University Spinout Companies, Department for Science, Innovation and Technology and HM Treasury, 2023
[11] NEPC response to Invest 2035: The UK’s Modern Industrial Strategy, Royal Academy of Engineering, 2024
[12] Engineering Economy and Place, Royal Academy of Engineering, 2023
[13] Engineering Economy and Place, Royal Academy of Engineering, 2023