Written evidence submitted by the West Midlands Combined Authority (IGR0054)

Science & Technology Select Committee Call for Evidence: Innovation, growth and the regions

The West Midlands Combined Authority (WMCA) welcomes this opportunity to provide evidence to this crucial Select Committee evidence hearing. The WMCA is proud to be an Established Strategic Authority. Since 2017, we’ve solidified our position as a testbed for advanced devolution across England, this evidence shares key lessons learned and sets out why devolution needs to go further.

Summary:

With this mounting evidence supporting devolution, the Ministry of Housing, Communities, and Local Government publishing the English Devolution White Paper (EDWP) in December 2024. The EDWP sets out a framework for the future establishment of new Strategic Authorities whilst recognising the progress made by “Established Strategic Authorities” (such as the WMCA) who will receive their first Integrated Settlement in April 2025.

Crucially, the EDWP commits to “develop a future regional innovation funding programme” recognising the considerable progress in regional innovation partnership working with Strategic Authorities like the WMCA. Building on the partnership with the Department for Science, Innovation and Technology (DSIT) and Innovate UK, a bespoke innovation settlement will ensure that the region delivers not only for the local innovation ecosystem but also for the national economy.

In answering the committee’s questions, we have focussed our response on the following four key areas:

1. The Importance of the West Midlands Innovation Economy:

• R&D investment: The region generates over £3bn in private sector R&D expenditure annually, with the West Midlands experiencing the second highest growth in business investment in R&D in the UK between 2022-2023.
• Innovation clusters: The West Midlands has a strong private sector research investment base, particularly in automotive and advanced engineering, with emerging capabilities in Medtech, Cleantech, and creative clusters.
• Innovation settlement: Co-creating an ambitious Innovation Settlement with DSIT, based on partnership and lessons from the Innovation Accelerator programme, will ensure that the region delivers not only for the local innovation ecosystem but also for the national economy.

2. The West Midlands Innovation Ecosystem, Commercialisation Support, and Gaps

• Innovation ecosystem: The region boasts 11 science parks, four Innovate UK Catapult Centres, and nine universities producing 72,000 graduates annually, supported by the best 5G coverage in the UK.
• Innovation accelerator: The West Midlands was selected for the Innovation Accelerator pilot, focusing on clean growth and med-tech, demonstrating strategic focus and leadership.
• Commercialisation support: The region has strong innovation capabilities but faces several challenges:
• Funding gaps: Early-stage companies struggle to secure seed funding, and there is a need for more venture capital, proof of concept funding and support to encourage more private capital.
• Infrastructure: Limited access to state-of-the-art research facilities and high costs are barriers to innovation.
• IP management: The complexity and cost of securing intellectual property rights can be prohibitive for smaller companies.
• Talent acquisition: Attracting and retaining skilled professionals is challenging, especially with competition from other innovation hubs.
• Regulatory hurdles: Complex regulatory requirements can slow down the commercialization process.

3. What the West Midlands is currently able to deliver:

• Regional finance system: The WMCA supports the regional finance system with initiatives like the West Midlands Co-Investment fund, a co-operation between private capital, West Midlands pension fund and seed funding from WMCA which have facilitated significant investments into regional growth firms.
• University spin-Outs: supporting the development of a major new patient capital company, Midlands Mindforge, with regional universities, opening opportunities through our regional Investment Zone.
• Clusters approach: The WMCA’s Plan for Growth identified nine primary clusters with comparative advantages, prioritizing clean-tech, med-tech, and creative-tech to stimulate R&D and innovation.
• Inclusive growth: The WMCA is committed to a socially purposeful model of economic growth, ensuring that innovation benefits all segments of the population. Initiatives like the Diatomic project focus on driving inclusive growth and supporting local SMEs.
• Includes information re catapults in the West Midlands.

4. WMCA as Testbed for Advanced Devolution: The Case for Further Devolution in Innovation and Place-Based Research

• The UK is recognised as one of the most innovative nations, ranking fourth in the 2023 Global Innovation Index. However, its innovation is narrowly focused.
• However recent 2024 ONS data reveals a concerning trend: while the UK government's net expenditure on R&D rose to £15.5bn in 2022, total business investment in R&D (BERD) declined by £3.4bn (3.0%) in real terms between 2021 and 2022.
• This decline in business R&D investment suggests diminishing real-term commitments from UK businesses and points towards the UK government's R&D investments generating diminishing value-for-money. The National Centre for Universities and Business (NCUB) warns that this downward trajectory may persist unless interventions are made, threatening the UK's innovation ecosystem, global competitiveness, and economic growth.
• Research by WMREDI shows that R&D investment positively impacts regional economies, but the benefits can be mixed. Standardised national policies often lack precision, whereas place-based R&D strategies can better leverage regional strengths and drive economic growth.
• Greater devolution of R&D and innovation would strengthen local innovation ecosystems, raise public awareness, attract talent and investment, and inspire local communities through greater opportunities for skills, education, and pride.

WMCA detailed evidence base:

1. The importance of the West Midlands innovation economy

• According to a 2023 study by the University of Birmingham[1], labour productivity In the West Midlands was 11% below the UK in 2019, and 33% lower than the most productive UK region (London). The West Midlands also has one of the largest inter-regional gaps in productivity, with productivity growth having occurred unevenly across the West Midlands.
• Therefore, strengthening the West Midlands is critical to national productivity growth and achieving the Government’s economic growth mission.
• In the round businesses in the West Midlands generate over £3bn of private sector R&D expenditure every year.  Over the last decade the city-region was the fastest growing outside Greater London.
• Recent ONS data[2] on Business Enterprise Research and Development indicates the West Midlands has seen the second highest level of growth in business investment in R&D in the UK between 2022-2023 (behind only London). This growth, alongside London and Northern Ireland, bucks the trend of declining real-term investment in business enterprise R&D.
• The West Midlands has strong and growing private sector research investment base - £3.83bn in latest figures (2022). This investment is “deep and narrow”, relating to a small number of large automotive and advanced engineering businesses, yet the region also has growing shoots of innovation capability stimulating the emergence in Medtech, Cleantech, and creative clusters. Conversely, with public investment of £747m, the 5:1 private:public ratio is one of the most unbalanced in Europe.
• Co-creating an ambitious Innovation Settlement centred around our three globally significant innovation clusters of clean-tech, med-tech, and creative-tech, will accelerate the region’s ability to capture new global markets and will put science and innovation at the heart of policies that ultimately improve peoples’ lives.
• The WMCA’s innovation ecosystem includes 11 science parks, four Innovate UK Catapult Centres, nine universities that produce 72,000 graduates from 157 countries, all supported by access to the best 5G coverage in the UK. 
• Our mature local innovation governance and leadership were key reasons why the West Midlands was selected in 2022 as one of three trailblazer areas for the Innovation Accelerator pilot. The region has demonstrated strategic focus in the West Midlands Innovation Accelerator by identifying priorities for clean growth and med-tech, along with developing the capability and capacity of businesses to apply technologies cross-sector to innovate new products and processes.   
• The Institute for Government (IfG) cited the Innovation Accelerator pilot as an example of how to increase absorbative capacity, translating into economic benefits, and these should be expanded beyond their current small scale if successful.[3]
• The West Midlands Innovation Settlement will activate a pipeline of investments that have been designed around the most promising global market opportunities for our world leading research, industrial strengths, and skilled graduate populations.

2. The West Midlands innovation ecosystem, commercialisation support and gaps.

• The West Midlands has a strong innovation ecosystem, with considerable nationally recognised strengths.
• Recent analysis to look at businesses that are driving innovation in the West Midlands has sought to define and identify new and developing areas of innovation activity within different clusters in the West Midlands.  Several indicators have been selected to provide insights on the business base and related growth signals when tracked over time.
• 
  Chart 3, below, summarises different growth signals and shifting dynamics within the business base of each of the priority clusters in the West Midlands, and looks at the number of new registered businesses, the number of scale ups (defined as businesses with more than 10 employees and 20% growth), the number of university spinouts, the number who have received IUK funding and the number with a reported funding round in the last 5 years.

• While this does not give an assessment of performance these indicators do give some insight into the structure of these sectors and provide a useful baseline of current performance.

That said, there are also several identifiable weaknesses within the ecosystem, as well as the need for a stable and guiding national R&D place policy, which require further strengthening if the region is to maximise its contribution to the UK economy. The case for investment in these ‘areas of development’ are supported by national benchmarking studies, regional research and feedback from innovation-focused researchers and businesses in the West Midlands:

Improving Access to Finance

• Funding Gaps: While there are various funding initiatives, there can still be gaps, particularly for early-stage, pre-revenue companies that need seed funding to develop their ideas.  There remains a lack of substantive local business angel networks  while Mindforge, a new early stage venture capital company, co-founded by regional universities including Aston, Birmingham, and Warwick, currently fund raising with an initial target of £250m, could help fill some  the gap for univeristy spinouts and science based companies ,  it does not plan to launch until December 2025 at the earliest.
• Investor Reluctance beyond the South-East: Investors may be hesitant to fund high-risk, innovation-driven ventures, especially those without a proven track record.

Strengthening Infrastructure

• Limited Facilities: Access to state-of-the-art research facilities and laboratories can be limited, especially in the Black Country, which is crucial for developing and testing new technologies.
• High Costs: The cost of setting up and maintaining advanced infrastructure can be prohibitive for start-ups and small businesses.

Enhancing Intellectual Property Rights

• Complexity of IP Management: Navigating the complexities of intellectual property (IP) rights can be challenging, particularly for businesses without dedicated legal expertise.
• Cost of IP Protection: Securing patents and other forms of IP protection can be expensive and time-consuming, which can be a significant barrier for smaller companies.

Additional Challenges

• Talent Acquisition: Attracting and retaining skilled professionals in the region can be difficult, especially with competition from other innovation hubs.
• Regulatory Hurdles: Complying with regulatory requirements can be complex and time-consuming, potentially slowing down the commercialization process.

While the West Midlands has instances of firms securing finance to scale, attain high-growth and maximise value, the overall picture for business finance can best be described as a relative low-demand, low-supply equilibrium, in comparison to other UK regional and advanced economies. The situation requires integrated demand-side, supply-sides and interface interventions:

• Demand side: While the West Midlands has high start-up rates, survival rates (3yrs+) are the lowest of any city region (50.4%).  The number of high-growth firms (345 in 2022) is proportionally lower than other major city regions. 
• Interface: Private and public business support offers are sometimes challenging for businesses to navigate, creating frictions which reduces business demand and creates a vicious cycle of supply.​
• Supply Side: A fragmented supply side can make it difficult for firms to make connections particularly with financial institutions like banks and private equity houses.​ Low levels of wealth/savings in the West Midlands creates dependency on external investment.

In response to this issue, WMCA has been keen to strengthen the regional finance system. Our investor scene is growing momentum:

• The West Midlands Co-Investment fund has unlocked £25m of public and private investment that is now available for regional growth firms
• Midlands Mindforge is a new early stage venture capital company, co-founded by regional universities including Aston, Birmingham, and Warwick, currently fund raising with an initial target of £250m.

• 
  As demonstrated by the Independent Review of University Spin-Out Companies[4] there is insufficient funding to support such activities. The £20m fund launched in response was welcomed, but does not address the gaps recognised in the review, putting significant emphasis on the raising of private capital to support critical spin-outs for regions.

3. What the West Midlands is currently able to deliver:

• In December 2022, WMCA published its Plan for Growth (PfG), which identified nine primary clusters where the West Midlands had a comparative advantage and had the potential for delivering above-forecasted levels of growth. These clusters included Aerospace; Creative Content Production & Gaming; Digital Economy; Electric Light Vehicles and Battery Technologies; Health Tech & Med Tech; Logistics & Distribution; Professional & Financial Services; Smart Energy Systems; and Manufacture of Future Housing.
• Based on additional evidence of the future growth potential of these clusters, the West Midlands has opted to prioritise three of the most technology-intensive and international clusters, in its Innovation Settlement. 
• By taking a place-based approach to investments into these clusters, we aim to create dynamic innovation ecosystems in which firms operating in these sectors are supported to invest in R&D so they can thrive and work symbiotically,  thereby unlocking additional  by strengthening applied research capabilities, encouraging collaboration across value chains, commercialising allied technologies, taking common approaches to meeting skills needs, and enabling a vibrant investor and founders’ scene.
• Underpinning the lions-share of our proposals is a once-in-a-generation pivoting of the West Midlands industrial base to stimulate greater levels of R&D and innovation to stimulate the industries of the future:

• Clean-tech: focused on future of mobility and decarbonisation of heat and buildings, enabled by a smarter, more flexible energy system
• Med-tech: focused on data driven health care and health technologies
• Creative-tech: focused on gaming, experimental and immersive user experiences

• Inclusive Growth: WMCA has committed to a more deliberate and socially purposeful model of economic growth - measured not only by how fast or aggressive it is; but also, by how well it is created and shared across the whole population and place, and by the social and environmental outcomes it realises for our people. In terms of innovation, there’s an opportunity to ensure that this is inclusive – whether that’s product or process innovation by which services are developed for and/or by those who have typically been excluded from the mainstream.
• It is by making innovation inclusive which can revolutionise and drive the growth of our economy.  In the West Midlands, Diatomic, the Digital Innovation Transformative Change initiative, have piloted initiatives to accelerate innovation across the West Midlands. The programme focuses on driving inclusive growth, attracting global investment, and supporting local SMEs in tackling key challenges. Home to the UK's first Inclusive Innovation Hub, it has promoted evidence-informed approaches to enhance decision-making at a local level. https://digitalbirmingham.co.uk/diatomic-projects/
• Catapults in the West Midlands:

• There are three catapults in the West Midlands region:
1. Energy systems catapult HQ – 250+ employees.
2. High Value Manufacturing HQ (38 WM employees) – with MTC Coventry (845 WM employees) and WMG Warwick (595 WM employees)
3. Connected Places Catapult Birmingham centre – regional hub

• We can also start to quantify the ability to attract and retain talent:  We understand the Catapults employ over 1700 across the wider West Midlands geography, which shows the depth of expertise and successes of MTC and WMG as businesses in their own right. 
• 10% of total businesses engaged by Catapults were based in the West Midlands.
• We held a productive workshop between the Catapults and IUK, and are working on a Local Action Plan with the Catapults. 
• Recognise that Catapults are national assets but they have considerable local growth impacts:
1. ability to deepen specialist industrial knowledge,
2. create better businesses through translation of technical knowledge,
3. bolster the investment credibility and international standing of innovation ecosystems.         
• The West Midlands also has various bases and activities from other catapults. We have worked with Innovate UK and the Catapult network to understand their “bite”. Of the 320 WM businesses engaged by Catapults in 2023/4, 76% were via the High Value Manufacturing Catapult. That’s higher than the 62% national coverage showing a bias in the West Midlands towards advanced manufacturing.
1. not surprising because of the industrial base and the location of two HVMC centres in the West Midlands – WMG and MTC.  
2. Below shows a graph of all nine catapults and WM business engagement (total WM business engagement = 320):
   
   
    

3. Within these Centres, there’s a nuanced difference in engagement across the region and nationally.  For example, of the 243 West Midlands firms working with the HVMC, 180 are with either the MTC or WMG.  Just 63 (26%) are with the other five centres nationally.  

• The key point is that we know translational innovation works, but that we need to both help firms develop the commercial inquisitiveness and risk appetite to be relevant to translational innovation, and keep it simple to connect and work with knowledge transfer institutions.  That’s why the Innovation Accelerator has emphasised translational support in the Black Country, including making use of assets like the BCIMO. 

5. WMCA as test-bed for advanced devolution: the case for further devolution in innovation:

• Whilst it has long been recognised that the UK is regarded as one of the most innovative nations – having ranked fourth in the 2023 edition of the Global Innovation Index[5] - it is also recognised that many of the UKs main areas of innovation are rather narrowly focussed (Quantum Technology, Synthetic Biology, Artificial Intelligence etc.) and involve a relatively narrow cohort of firms[6]
• The challenge of the narrow focus of our R&D specialisms is  further reinforced by recent (2024) ONS data[7] [8],on the R&D performance of UK businesses which identifies that whilst the UK government's net expenditure on R&D rose to £15.5bn in 2022, total business investment in R&D (BERD) declined by £3.4bn (3.0%) in real terms between 2021 and 2022.
• In addition to pointing towards diminishing real-term commitments from UK business towards R&D investment, this data also seems to point towards the UK governments own investments in R&D generating diminishing levels of value-for-money.
• In its analysis of the gravity of this situation, the National Centre for Universities and Business (NCUB)[9] , remarks that "this downward trajectory may persist unless interventions are made” and “that persistence would threaten the UK’s innovation ecosystem, its ability to compete globally on research and innovation, and its wider economic growth". In its closing remarks, it calls for, “a collaborative effort across government, industry, and academia to ensure a thriving innovation ecosystem that supports growth, production, and societal progress”.
• Research by WMREDI has demonstrated that R&D investment has a positive impact on regional economies, but this can be mixed[10]. While it generates advantages for some skill sets and economic sectors, it can disadvantage others. Standardised national policies often lack the precision needed to ensure targeted effects. In contrast, strategies for enhancing place-based R&D can better leverage regional strengths, foster deeper collaboration, and drive regional economic growth by addressing local challenges. Increasing funding can enhance capability, supporting greater innovation, including the commercialisation of university research and alignment between local universities, private, and public sector partners.
• Despite record increases in the UK’s R&D budget, there has been an absence of long-term cohesive planning on R&D and Innovation strategies. The House of Lords Science and Technology Committee commended the government’s ambition to boost R&D spending to 2.7% of GDP, but found that frequent changes in policy had generated instability, particularly following the dissociation from Horizon Europe following Brexit[11]. Policy is often focussed much more on R&D and high-tech sectors, but greater focus is needed on low-tech sectors and developing absorbative capacity for adoption rather than development[12]. Established Combined Authorities, such as the WMCA, are better-placed than central Government to understand where capacity needs to be increased and where adoption policies are required. Government’s policy focus can remain on keeping the UK at the forefront of international R&D capabilities.
• There is limited evidence supporting the effectiveness of the Higher Education Innovation Fund (HEIF) and Connecting Capability Fund (CCF) in driving commercialisation, compared to targeted funds like the UKRI Strength in Places fund. The Trailblazer Devolution Deals for the West Midlands and Greater Manchester, along with the English Devolution White Paper, outline how UKRI should collaborate with regions to support regional economic growth. A promised, but currently undelivered, UK place-based R&D strategy is a key mechanism to ensure a place-based approach can drive innovation and subsequent regional growth.
• The National Audit Office’s review of UKRI’s management of the Industrial Strategy Challenge Fund, a £3bn budget over an 8-year period, specifically noted the complex funding structures, inconsistent funding allocations, and lack of coordination, had prevented long-term planning in key sectors and a failure to make progress in key areas[13]. The report acknowledged that the uneven geographical distribution and assessment of awards had been affected by a lack of clarity from government on the expected outcomes. As demonstrated by the Innovation Accelerator, funds delivered in partnership with devolved administrations can deliver better value for money by linking to key outcomes for the place.
• The case for finding a new approach for trying to stimulate widespread increases in the adoption and diffusion of innovation – and the greater devolution of innovation funding to sub-regional economic development bodies is further supported by the Productivity Institute[14] which identifies an absence of joined-up policymaking as one of the three priority issues which needs to be tackled (together with underinvestment and the inadequate diffusion of innovation – if we are to close the UK productivity gap which has emerged with our international comparators since the financial crash of 2007.
• The availability of appropriate skills, was recognised by the Campaign for Science and Engineering (CaSE)[15] as essential part of businesses investing in R&D. The devolution of the Adult Education Budget to Combined Authorities is a critical tool for Combined Authorities to ensure that skills programmes are aligned with local needs. Combined Authorities can react quickly to emerging sectors in the economy, ensuring the immediate and future skills needs for the economic growth of key sectors are met. Joining complementary policy levers is essential to ensure that individuals in a region can be skilled and gain better employment in their local area, delivering economic growth for the region.[16]
• In its call for greater joined up policymaking to improve the UKs productivity performance, the Productivity Institute makes the case for greater co-ordination and devolution of productivity programmes to ‘mid-level’ governments, drawing parallels with other countries that have successfully achieved productivity improvements by devolving significant responsibilities for productivity policies to a sub-regional level. 
• The case for greater devolution of R&D and Innovation Programmes is also supported by the Campaign for Science and Engineering[17] [18] who argue that greater devolution of R&D funding would enable the further strengthening of local innovation ecosystems, which would also enable local actors and governments to embed R&D as part of an area’s identity; to drive public awareness of, and support for, R&D; raise the area’s profile, attract talent and investment; and inspire local communities through greater opportunities for skills, education and pride.
• As Ben Rogers, Professor of Practice at the University of London and Distinguished Policy Fellow, LSE Cities at the London School of Economics identifies in his article, The case for devolving research funding to England’s regions[19], “giving cities and regions more of a say in the direction of academic funding would enable them to harness research and innovation funding to solve their critical policy challenges – giving cities the resources to direct research to addressing their priorities.

23 January 2025