Written evidence submitted by the University of Manchester (IGR0019)
House of Commons SciTech Select Committee: Innovation, growth and the regions inquiry.
This response is submitted on behalf of the University of Manchester by Professor Richard A.L. Jones FRS, Vice President for Regional Innovation and Civic Engagement.
- The University of Manchester and its role in regional innovation
1.1 The University of Manchester is the largest English research intensive university outside the Golden Triangle and the Greater South East. Since the foundation of its precursor institutions two hundred years ago, the University has regarded its role in supporting the economy of the City of Manchester and its region as being central to its mission.
1.2 The total economic impact of the University of Manchester is estimated at £7.3 bn for 2022-23[1], of which £3bn arises from its research and knowledge exchange activities, £1.6 bn from teaching and learning, £1.6bn from educational exports, and the balance from its impact on tourism and its own operating expenditures. The University Manchester’s 88 spinouts and 255 start-up companies produced an economic impact estimated at £360m, roughly half of which is realised in Greater Manchester itself. A further £220 million is associated with its contract research, consultancy services, IP income, business and community courses, and facilities and equipment hire.
1.3 The University has recently concluded a major review of its role in the regional economy, as a result of which it will be redoubling its efforts in this area and adapting its activities to emerging changes in the economic and political environment. It has launched a new capability, Unit M, to own and drive its regional innovation strategy. Unit M has a mandate to unlock the full innovation impact of the University on the region and the world around us by making the University’s world-class research, innovation assets and talent more accessible to all, and by developing new capabilities to help solve real world challenges. It will address key regional and national challenges in productivity, sustainability, and inclusion by working with partners to tackle all parts of the innovation challenge - from R&D to innovation adoption to talent and skills. The primary goal of Unit M will be to maximise the University’s impact on the region’s economy and society.
- How does the Government drive research and innovation in our regions?
2.1 R&D in the UK is highly geographically concentrated in the most prosperous, highest productivity parts of the country – the Greater Southeast (defined as London, South East, and East of England) (Forth & Jones, 2020). With 36% of the UK’s population, the Greater Southeast accounts for 55% of total R&D spending.
2.2 The latest data on the relationship between business and non-market sector R&D (i.e. R&D carried out in universities, government and charity institutions) is shown in figure 1. For the UK as a whole, there is 2.4 times as much business R&D as non-market R&D. It is believed that public sector R&D “crowds-in” private sector R&D, so one reading of this graph is to provide a sense of the return on public investment in R&D, in the form of the private sector R&D that leads to economic value.
Figure 1. Relationship between business and non-market sector R&D, expressed in per capita terms using ONS 2022 mid-year population estimates, and 2022 ONS GERD data[2].
2.3 In this interpretation, the position of the East of England represents an exceptionally effective innovation ecosystem, where a slightly above average public investment in R&D yields a very high return in business innovation activity. Scotland and London, on the other hand, are regions in which rather high public investments in R&D yield below average proportionate returns in business R&D.
2.4 The rest of the country is much less R&D intensive. In regions like the East and West Midlands, the North West and Northern Ireland, below average public investment in R&D yields above average proportionate returns, suggesting that these regions already have the absorptive capacity to grow their private sector innovation economies with further public investment. On the other hand, the Northeast, Wales and Yorkshire and Humberside are characterised by rather weak private sector innovation economies, where careful systematic interventions are likely to be needed to increase business R&D.
2.5 The UK Government has placed a return to economic growth as its highest priority. The UK’s weak growth in GDP per capita since the global financial crisis largely reflects a period of stagnant productivity growth, exacerbated by regional differences in economic performance that make the UK an outlier amongst developed nations (McCann 2020).
2.6 In particular, the UK has a distinctive problem in that its large, second tier cities – such as Greater Manchester, Birmingham and Glasgow – have productivities below the national average. This is in sharp contrast to comparator nations, where second tier cities are drivers of their national economies. HM Treasury analysis estimates that the UK economy is £77 billion – or 3.4% – smaller because of the underperformance of city regions outside the Greater South East[3].
2.7 There is wide agreement that poor productivity growth reflects a long period of insufficient capital investment, including investment in intangibles of which R&D is an important part (Coyle, van Ark & Pendrill 2023).
2.8 A more detailed analysis of the cause of the productivity slowdown ascribes it largely to a slowdown in innovation (Goodrich 2022), defined in broad economic terms as the contributions of intangible capital and growth in total factor productivity. These slowdowns have been most pronounced in knowledge, technology and digital intensive activities, such as pharmaceuticals and telecommunications.
2.9 The products of research are widely available and their benefits can be felt worldwide, so why does it matter where it is done? The crucial issue is not so much where fundamental science is done, but how knowledge is diffused and converted into economically valuable new products and improved processes. For this, access to the skills and research infrastructure that come with public research funding may be as important as early access to new scientific results.
2.10 The argument for dispersing public R&D facilities and investments arises because knowledge spillovers are localised; knowledge intensive clusters arise from formal R&D collaborations, agglomeration effects (large companies relocating to be near public R&D centres), entrepreneurial activity, informal knowledge exchange and the benefits to innovation-intensive firms of having high densities of skilled workers. The spatial scale of these localised effects is roughly defined by a commuting distance (see e.g. Hausman 2022).
2.11 It's important to qualify this with a recognition that geographical proximity is not the only type of proximity that matters. In particular, multi-site and multi-national technology intensive firms offer another powerful route for dispersing knowledge (Crescenzi et al, 2016). Interregional collaborations may also be important and effective (Ortega-Argilés and Yuan 2024), so improving connectivity with London and other centres of public R&D may yield benefits.
2.12 The need for partnerships between regions is recognised by the University of Manchester. Our partnership with the University of Cambridge, with the support of our two Mayoral Combined Authorities, will see the two universities work together, along with their city partners, to attract new inward investment to the UK, support companies to scale up, and strengthen investor networks. Our partnership with Liverpool will drive forward growth in priority regional clusters including industrial biotechnology, materials and manufacturing, and creative industries.
2.13 Nonetheless, a recent, influential analysis of the weak growth of economically lagging parts of the UK (Stansbury, Turner, & Balls 2023) identifies a failure of public policy to support innovation clusters outside the Greater Southeast as one of four binding constraints on growth, together with poor transport infrastructure, a relative shortage of STEM degrees, and the suppression of internal mobility due to a dysfunctional housing market.
- How effective are the government’s policies in supporting the innovation ecosystem across the UK’s nations and regions, particularly through commercialisation initiatives?
3.1 As the UK’s regional imbalances in economic performance have become more politically salient, there have been some experiments in place-based R&D funding.
3.2 The “Strength in Places Fund” was announced in 2017 in the Industrial Strategy White Paper. This was a competitive fund administered by Research England, which allocated £316m in two funding rounds to 12 projects, subsequently discontinued by UKRI.
3.3 The 2022 Levelling Up White Paper announced targets for increasing public R&D outside the Greater Southeast, and introduced a pilot programme for “Innovation Accelerators”, with £100m to be divided between West Midlands, Greater Manchester and Glasgow, to support innovation programmes aligned with those city regions’ economic strategies. These programmes will come to an end in April 2025, but a one year continuation was announced in the Autumn 2024 budget.
3.4 Innovate UK has assigned £80m for its “Launchpad” programmes, focused on developing regional clusters of sectoral strength. EPSRC has allocated £45m for “Place based Innovation Acceleration Accounts”, for programmes bringing together small scale interventions that promote commercialisation or adoption of new technologies in specific locations.
3.5 Although these represent some interesting experiments, it is worth stressing that the quantities of funding involved are not material in the context of the overall UK science budget – UKRI’s 24/25 budget was £8.9 bn. In addition, there has been a recurring tendency to run programmes for too short a period for there to be a realistic expectation of achieving anything substantial.
- 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?
4.1 The scale and persistence of the UK’s geographical imbalances in R&D spending – and wider economic performance – suggest that there is a need to do something differently - doing the same thing will produce the same result, with no significant impact on regional economic imbalances. We believe that there needs to be a more explicit consideration of place in innovation policy, and devolved authorities should play a larger role.
4.2 In England, we believe that the appropriate level of government to be involved in supporting research, development and innovation (RD&I) should be regional authorities at the level of established Mayoral Strategic Authorities and the new Strategic Authorities announced in the Devolution White Paper. The most natural place for Strategic Authorities to influence the RD&I system is at the innovation end, where the relationship with private sector RD&I activity is closest, rather in blue-skies research.
4.3 Strategic Authorities can bring a more fine-grained understanding of their own economies and innovation ecosystems to innovation policy than is possible for national agencies, and they also have important convening powers for bringing together local government, HE and other public research establishments, with business.
4.4 Strategic Authorities can, in addition, coordinate support for innovation with its other capabilities, such as planning, skills, transport, and support for inward investment.
4.5 The Atom Valley Mayoral Development Zone provides an example; this is one of Northern England’s highest potential sites for high value manufacturing, in the boroughs of Rochdale, Oldham and Bury. The University of Manchester is working with partners, including local FE colleges and national institutions such as the National Physical Laboratory and the High Value Manufacturing Catapult, to develop the skills and innovation investment proposition. The University is working closely with the GM Combined Authority and Local Authorities as they develop transport infrastructure and a planning framework, to realise a common vision for a high value industry cluster generating inclusive economic growth, in what is currently one of the most economically disadvantaged parts of Northwest England.
4.6 There are barriers standing in the way of Strategic Authorities realising their potential as informed and influential actors in regional innovation systems. There is currently very uneven capacity for underpinning analysis and, in places, limited understanding amongst local and regional politicians of the importance of innovation for regional economies. Greater Manchester is relatively mature in these dimensions, with the Combined Authority and local authorities working closely with regional universities and business groups through organisations such as Innovation GM. Other regions will need to be supported to build this capacity.
4.7 Notwithstanding the increased role that Strategic Authorities should play, there is still a need to join-up activities across wider regions and the whole nation. There remains an important role for co-creation of local innovation strategies and programmes with national agencies such as Innovate UK and other parts of UKRI, learning lessons from the Innovation Accelerator pilot. Where industry clusters transcend political boundaries, Strategic Authorities need to work together to support these clusters. The emerging collaboration between GM and Liverpool City Region in support of their shared life sciences and speciality chemical clusters provides an example.
- 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.
5.1 The commercialisation of R&D by universities occurs by a number of routes. Most focus has recently been placed on spin-outs and licensing based on protectable intellectual property. Here key barriers include access to finance – especially for universities outside the Golden Triangle, and the difficulty spin-outs have in scaling up to a size that can make a material difference to local economies.
5.2 However, partnership with large corporates at the technology frontier remains a crucial vehicle for commercialising technology, and it is important that these kinds of partnerships remain incentivised (EPSRC’s “Prosperity Partnerships” scheme provides a good example).
5.3 SMEs are an important part of the economy, though on average their productivity is lower than larger multinationals. New mechanisms and institutions need to be found to support innovation diffusion into those SMEs that have an appetite to grow and implement new technology, building on successful schemes such as Innovate UK’s Knowledge Transfer Partnerships. In GM, the ERDF-supported “Bridging the Gaps” programme, run by UoM’s Graphene Engineering Innovation Centre, was a very successful intervention, now unfortunately wound down due to the disappearance of EU structural funding.
5.4 To address the challenges that researchers and businesses face in spinning out and scaling up new technology-intensive businesses, there is a need for policies that tackle a wide range of challenges (e.g. availability of skills/talent, finance, diffusion capabilities, building networks etc) in a coordinated way to strengthen regional innovation ecosystems. There has been a tendency to introduce policies that are nationally defined and narrowly focused on one or two challenges without any real consideration of how they interact with other interventions, or how they address the different mix of challenges faced by different places. This can lead to disjointed programmes, wasteful duplication, and complete gaps in delivery capabilities in some places (for example, there being no Catapult Centre in Greater Manchester).
5.5 The University of Manchester’s Turing Innovation Catalyst (funded through the Innovation Accelerator) is an example of an intervention that takes an ecosystem approach to address multiple market and non-market failures that hold back the development of GM’s AI cluster in a coordinated way, and Unit M will scale this approach up further.
- 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?
6.1 Clusters occur when firms operating in broadly similar technology areas, sharing a skilled labour market, supported by specialised institutions for skills development and innovation, choose to locate in a single geography. The importance of clusters for economic growth has been recognised since the time of Alfred Marshall.
6.2 The Industrial Strategy Green Paper placed considerable emphasis on clusters, and we broadly support this approach. However, we draw attention to the importance of spillovers between sectors, likely to be particularly important for big city agglomeration economies. For example, in GM, new business opportunities are likely to open up through the interaction of GM’s very strong AI/Digital sector with its healthcare and materials/manufacturing sectors, and policy should aim to strengthen these interactions, as well as supporting individual sector-based clusters.
- How can regional Cluster growth can best be measured, mapped, and monitored to help inform local leadership and evidence-based policymaking in Whitehall?
7.1 Emerging sectors aren’t always well covered by existing datasets; there is a need to use and develop new techniques for gathering information (e.g. AI/web-scraping methods, real-time industrial classifications etc), as well as qualitative information. The Productivity Institute, based at the University of Manchester & supported by ESRC, is an example of a research initiative whose aim is to support this goal with data and analysis.
7.2 The DSIT Clusters Map[4], is a data-driven exercise to identify geographical innovation clusters across the UK. This is a useful data source for identifying areas of existing sectoral strength, though it should be recognised that the data underpinning the map remains experimental, so there is a need to continue to develop and improve this.
7.3 Considerable data gaps remain, especially for private sector R&D and innovation, and ONS should continue to develop its methodology for characterising BERD[5] with greater sector and geographical granularity, working with other government datasets such as the HMRC R&D tax credit data.
- Would unlocking investment at scale for innovative science and technology companies support regional growth, and how could this be done?
8.1 The fundamental way in which regional economic growth can be achieved is through increasing the volume and scale of innovative firms producing high value goods and services, often through the application of science and technology.
8.2 Routes to increasing the volume and scale of innovative science and technology companies in a place include:
- Supporting ambitious firms in a place’s existing business base in their aspirations to improve their existing products and processes, and find new markets;
- Increasing the number of start-up and spin-out companies, and – crucially – supporting them to scale up and grow in places in the UK;
- Attracting inward investment from multinational companies operating at the technology frontier, which can act as anchors for developing innovation ecosystems.
8.3 The public sector can play an important role in developing regional innovation ecosystems through its procurement and commissioning power. In GM, the move of the BBC to Salford Quays provides an example of the way a conscious effort to stimulate the start-up / scale-up ecosystem in the creative and digital sectors (e.g. through place-based quotas) can succeed. Given the growing prominence of digital approaches to public sector innovation, a public sector presence could be used as a powerful driver of regional innovation economies (through upskilling, stimulating / attracting supply chains, etc).
8.4 Place based interventions can centre around major investable development sites, building on institutions for developing skills, innovation diffusion and R&D. For example, in Manchester’s city-centre, SISTER is a £1.7 bn joint venture between The University of Manchester and Bruntwood SciTech, which will transform the University’s former North campus into a 4 million sq ft globally competitive innovation district.
- Should there be region-specific innovation and growth policies, and what should local government’s role be in this?
9.1 As shown in section 1, the UK’s R&D landscape is highly geographically imbalanced, with a preponderance of public spending concentrated in the parts of the country that are already most productive. This means that large parts of the nation are left with innovation systems that lack the ability to absorb and implement the new technologies that would improve the productivity of firms and the regions where they are located.
9.2 To correct this, it will be necessary to introduce more region-specific innovation policies, supported by Strategic Authorities in England, and their equivalents in devolved Nations, as discussed in section 4.
- How is research and innovation diffused or supported to drive productivity and growth in the regions, wherever it may come from?
10.1 In the UK, Universities play a centrally important role in creating and diffusing new knowledge. Currently the UK is an international outlier in the high fraction of public sector R&D that is carried out in universities (Jones 2022). The current precarious financial position of the HE sector, and the fact that R&D is carried out by universities for substantially less than its full cost, with the deficit filled by cross-subsidies from other activities (especially teaching overseas students) means that the UK’s research base is currently at risk.
10.2 We acknowledge the important role of innovation diffusion and the need for universities to do more, in collaboration with other regional universities, and the FE sector, to build strong innovation ecosystems in our cities. Interventions such as the Higher Education Innovation Fund, and the pilot Regional Innovation Fund, from Research England, EPSRC’s Place Based Impact Acceleration Account, Innovate UK’s Launchpad programme, have been helpful in supporting these activities and should be widened and extended.
- 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?
11.1 There needs to be a broader understanding of the various ways in which investment in science produces economic benefits; there has been a tendency to rely on an overly linear model of science impact which neglects important factors such as the role of innovation diffusion, the importance of the absorptive capacity of regional economies, and the wider benefits of a technically skilled and educated workforce.
11.2 A recent Royal Society report on Science and the Economy (The Royal Society, 2024) provides a framework for thinking about the diverse ways in which scientific research can have economic impacts, and identifies some of the data gaps which currently limit assessing this.
11.3 There does not need to be any trade-off between interventions that strengthen national and local economies – the development of regional strengths can also support the delivery of national strategic priorities. For example, Greater Manchester has the potential to play a major role in developing national capabilities in important priorities such as defence and security, life sciences, and AI.
- To what extent do Catapults support technology diffusion, and drive both national and regional growth?
12.1 National organisations such as the High Value Manufacturing Catapult and the National Physical Laboratory have a role to play in driving regional economic growth, and should seek to widen their geographical footprint in collaboration with institutions in city-regions.
12.2 Research from the Productivity Institute (O’Sullivan, Jones, & Anzolin 2024) highlights some gaps in the mandate of Catapult Centres, in comparison with institutions for innovation diffusion in other countries. Their current mandate has a relatively narrow focus on collaborative R&D with business at intermediate technology levels. Nonetheless, some Catapult Centres, such as AMRC, WMG, NCC, and CPI, have gone beyond their explicit mandate to embrace other functions important for developing regional innovation capacity.
12.3 In other developed nations such as the USA, Japan, Singapore and Germany, one finds intermediate Research, Development and Innovation (RD&I) institutions whose explicit mission is to develop national or regional capabilities. In these institutions, there is an understanding that new technological knowledge is not sufficient for industrial competitiveness and economic value capture. Economic value arises from the matching of industrial capability, through the development of technology, workforce and supply chains, to the windows of opportunity presented by societal needs and technological progress.
12.4 This role in the UK could be fulfilled by creating new institutions, or by developing existing ones, with an explicit mandate to develop regional innovation capacity. This is likely to be most effectively done through collaboration between HEIs, Catapult Centres and local FE colleges.
- How well are universities and businesses coordinating efforts to develop and commercialise research, including the role of spin-outs and collaborative R&D projects?
13.1 By focusing more on cooperation and less on wasteful competition, universities can accelerate national growth. In Greater Manchester, the Civic University Agreement between the five universities in GM, which has been supported by the Mayoral Combined Authority, provides a strong example of collaboration. Concrete actions from this collaboration include sharing expertise across the institutions’ technology transfer offices, and the development by their business schools of joint programmes to support management training in regional SMEs. Collaborations are now being widened to support GM’s FE colleges, with the support of Innovate UK’s Further Education Innovation Fund, to integrate them and their employer networks more closely in the regional innovation system.
13 January 2025
References
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