Written evidence submitted by Digital Catapult (IGR0064)

Innovation, Growth and the Regions
Digital Catapult’s Response

Digital Catapult is a deep tech innovation organisation driving business value by accelerating the practical application of advanced technologies. Partnering with government, industry and academia, we focus on significant challenges and opportunities facing the UK’s economy and society, where technology can play a major role in providing solutions. We break down barriers, de-risk innovation, open up markets and responsibly shape the products, services and experiences of the future. Digital Catapult is part of the Innovate UK Catapult Network. Catapults provide a unique combination of cutting-edge R&D facilities and world-class technical expertise to support UK business innovation. 

Visit www.digicatapult.org.uk for more information.

Questions

We welcome a mission-based approach to innovation and industrial strategy, and encourage greater investment into support for deep technology capabilities in the UK.

• Digital Catapult welcomes a mission-based approach to national strategy and supports the Government’s focus on developing a technology and sector driven industrial strategy.
• Joined up national, regional and local funding and innovation initiatives such as the UKRI Strength in Places Fund, Industrial Strategy Challenge Fund (e.g. Made Smarter) have helped to enable collaboration and build new tech markets underpinned by an active supply side and a digitally ready demand side. These programmes are amplified when they leverage local specialisms, while simultaneously drawing in wider private sector, national and international collaborations and investments.

However, there are still persistent challenges in deep tech innovation in the UK that need to be addressed including but not limited to:

• (1) Sector and regional scalability of UK deep technologies: Programmes that help to address regional and sector imbalances in adoption and development of deep technologies will help to overcome challenges such as; (a) the lack of scale and number of startups and scaleups to meet the needs in key sectors of regional economies, (b) lack of a middle tier of deep tech companies (similar to Germany’s Mittelstand) and a lack of at scale investment into high growth startups (c) lack of access to innovation infrastructure as a public service – to derisk product development and scale opportunities.
• (2) Energy & Net Zero: Integrating green energy into data centres and investing into smart grids, new flexible energy models, hydrogen, and battery technology will help to ensure sustainable growth, meeting the energy demands of deep tech while advancing the UK’s net-zero goals through the application of deep technologies. It is critical to address this across the range of deep technologies. 
• (3) Access to digital infrastructure & compute: Rolling out future communications technologies, such as 5G/6G, fibre, and satellite connectivity, will accelerate adoption of IoT, autonomous systems, and edge computing, creating a resilient foundation for future digital transformation and the future internet across the country. Furthermore, expanding access to high-performance and quantum computing capabilities for not only UK researchers but also businesses, will help to ensure the UK stays at the forefront of deep tech innovation. Democratising access to compute, combined with data, can enable startups and SMEs to drive cutting-edge, scalable, new products and services more quickly. 

Digital Catapult considerations for regional deep tech innovation:

• The UK Government should focus on establishing regional and national innovation initiatives in deep technologies that help to foster collaborations between industry, technology developers, local ecosystems and central government.
• The Government should seek to further scale collaboration between Catapults, Research Technology Organisations and Research Institutions across the UK to help ensure greater strategic alignment and amplification of national strategies and join up regional and local growth action plans. This includes creating regional clusters of sector excellence, where there are already clusters emerging or established, that are then supported by targeted government investment, coordinated FDI (foreign direct investment) programmes, and pathways for startups in deep tech around the country to connect into them.
• Catapults, Research Technology Organisations, Universities and Research Institutions have over the past 10+ years played an informed advisory role to key decision makers in the public and private sector in innovation, helping them to design and deliver new programmes of work that can unlock further investment, growth in key areas and the development of new products and services. Digital Catapult, for example, is supporting many local decision makers on their strategic planning for innovation, including devolved administrations such as the Northern Ireland Executive, alongside engagements with local, combined and mayoral authorities in the north east and south west of England through our local centres based in Belfast, North East Tees Valley and Bristol.
• In particular, Digital Catapult is very supportive of interventions that support local startups to overcome barriers to their growth, and enable them to navigate and develop new business models, skills and best practices in emerging sectors. These can be transformational when aligned with policy goals.
• “Collaborative innovation programmes such as the Digital Catapult Tenfold Accelerator are important to help Northern Ireland to achieve Net Zero, while growing a globally competitive and sustainable economy, which is one of the immediate priorities within the Draft Programme for Government.  I believe that championing and investing in science, innovation and knowledge transfer is central to addressing climate change and unlocking new economic opportunities. The Tenfold Net Zero Accelerator Programme exemplifies our commitment to this approach.” Andrew Muir, MLA, DAERA Minister

Addressing challenges in scaling investment into UK deep tech companies

• In digital technologies, R&D is less linear than for example, medicines development in life sciences. This means that transformational companies can spring up from anywhere, from an entrepreneur’s kitchen through to a large corporate. It is also much more challenging for these companies to be commercialised at scale rapidly, as there are significant cultural, technical and business barriers for these companies to be procured by local and national large public funders (e.g. health trusts).
• Innovation focused digital researchers and businesses thrive when they have access to ready capital and investment at scale, can retain their own IP and have the right foundations of infrastructure, including data, wireless communications, security and compute to be successful. This makes them attractive to international investors.
• Yet UK deep tech startups in particular face significant challenges in securing sufficient funding to scale, due to the capital-intensive and long-term nature of their innovations. While government schemes like SEIS, EIS, VCTs, and the British Business Bank’s Enterprise Capital Fund (ECF) provide valuable tax incentives and co-investment opportunities, their restrictions—such as funding caps and eligibility rules—often exclude deep tech companies needing substantial upfront investments and longer timelines. These limitations disincentivise investors, particularly in high-growth sectors like advanced manufacturing, clean energy, and quantum computing, where deployment costs are higher. Larger venture capital funds tailored to deep tech could address these gaps by enabling specialized expertise and greater capital allocation per company, fostering a less risk-averse investment ecosystem to scale transformative UK-based innovations.

• Access to state-of-the-art infrastructure can help these startup companies in deep tech to compete globally against hyperscalers and attract investment to scale faster. This includes:
• Enabling access to infrastructure to help AI startups to train AI algorithms that are more accurate, scalable and valuable for numerous applications. This allows them to test products and services in new markets and attract further investment.
• Providing early access to experimental new wireless communications environments such as 5G & 6G. This helps businesses to test what these new technologies will mean for them and how they can get ahead of their competitors – this is particularly of interest in immersive technologies, digital twins and AI enabled systems in physical / industrial environments.
• Supporting researchers and businesses to trial new approaches to security through novel hardware and chips, such as through the Digital Security by Design programme (funded by UKRI) where Digital Catapult has been working with ARM. LowRISC and the University of Cambridge to help support early access to novel world leading capabilities in information security.
• Access to state-of-the-art computation and quantum technology capabilities – such as through Digital Catapult’s Quantum Technology Access Programme. Allowing businesses to explore the art of the possible with Quantum technologies – and discover early use cases to commercialise. We are working with exciting UK Quantum companies such Orca Computing and Riverlane, and enabling early use case creation with companies such as the Port of Dover, Airbus, Vodafone, UK Atomic Energy Agency, ARUP, BAE and a number of SMEs.
• It is critical that the UK Government should further invest into supporting R&D infrastructure and enable better access to this infrastructure by businesses through market scaling programmes. This will help to develop and scale transformative ideas and build USP for the businesses, as well as then attracting investment into and enabling the scalability of these technologies when they have been developed.
• The UK Government should continue to provide support and investment into supply side startup and technology support programmes in tandem with demand side adoption programmes – this will create lasting growth and talent for the UK as markets are formed between a supply and demand side that are compatible to work together. 
• This will ensure we can support companies in attracting investment, building and retaining IP and scaling faster into new markets.

How effective are regional innovation hubs and clusters in supporting regional growth and prosperity for local communities?

• Regional innovation hubs are most effective when they have long term public investment, strong connections into national initiatives, and efforts to build coordinated supply chains of specialist deep tech capabilities across the country and linked to trade and FDI programmes to drive investment.
• While developing innovation clusters in regions is a worthwhile endeavour, it takes time and the challenge is often that it requires significant encouragement of deep tech companies currently headquartered in London and the golden triangle for a variety of reasons (investment, reputation, talent, infrastructure etc.) to move their operations to another part of the country. This investment can be through R&D infrastructure support, or programmes to connect them into potential customers and attract investment.
• Example – Investment into Northern Ireland Innovation:
• For example, Digital Catapult’s initial core grant investment into Northern Ireland innovation in 2016, has helped to significantly advance the region’s deep tech innovation ecosystem. Initiatives like the Smart Nano Northern Ireland Programme, funded by the UKRI Strength in Places Fund and led by Seagate Technologies, has allowed Digital Catapult in partnership with Ulster University and Queen’s University Belfast, to bring together industry, SMEs, investors and local partners to equip startups with photonics and 5G capabilities. This has fostered innovation in manufacturing and industrial decarbonisation through R&D test environments. These efforts have enhanced precision, reduced costs, and strengthened supply chain resilience.
• “Without Digital Catapult’s [Smart Nano Northern Ireland] programme we would have never been able to access to William at McColgans and his factory. Being able to test our proof of concept on a large food production factory such as McColgan has been key for us, and it’s made the programme worthwhile. The help and guidance from Digital Catapult has been so brilliant. We’ve benefitted from direct access to industry leading technologists, but also enjoyed insights into product design thinking and even advice on go-to-market strategies. We have gone from initial concept into full development of a new product with the potential to solve some of the food production sector’s most common challenges.” Jason McDevitt, Aeroblue Software
• “Connecting the technology ecosystem in Northern Ireland stimulates innovation partnerships that can drive growth opportunities across NI. This programme helps push the boundaries in smart manufacturing, share knowledge and explore commercial applications of breakthrough ideas.” Mark Gubbins, Director, Seagate Technologies
• This type of investment enabled the collaboration and reputation between key actors in the Northern Ireland innovation ecosystem, helping to catalyse further major investments into further infrastructure, including the £37.6M UK Digital Twin Centre in Belfast, funded by Innovate UK, the Belfast Region City Deal, and industry. Opening in 2025, this centre aims to connect national digital twin initiatives and drive innovation in sectors like aerospace and maritime – building on local specialisms and expertise in the area to have both a regional and national impact.
• In Digital Catapult we have been further supporting businesses through innovation and skills programmes on the ground across our centres in North East Tees Valley and the South West. This includes building a creative technology cluster in Bristol, in collaboration with the University of Bristol, and establishing PROTO in Gateshead working with UK SME Target3D as a state-of-the-art facility for advanced media production and the future of the internet through games engines and immersive technologies.
• "We are thrilled to see the North East welcome the Advanced Media Production studio to PROTO. It will provide amazing opportunities for upskilling and will further support the region's vision to become a growing force in film and TV production. We are looking forward to working with Digital Catapult and Target3D to ensure this studio is utilised to its full potential. It is an exciting time for the screen industry in the North East!" Alison Gwynn, Chief Executive at North East Screen
• It also includes exploring emerging technology innovations, including AI, haptics, and immersive animation, and how these technologies are transforming the UK’s creative industries in the South West, working in partnership with Bristol University and many industry stakeholders, the flagship MyWorld programme supports a range of innovations from companies in and around Bristol and Bath. Supported by our team of experts, startups on the programme have pioneered groundbreaking solutions that push at the boundaries of what’s possible in the creative sector.
• “It’s not easy to blow my socks off, but that’s what this did. It is fantastic to see first-hand digital innovation happening in the heart of Newcastle, which is a testament to the region’s ambition to help home-grown businesses to flourish. Above all, it was great to see completely commercial products being developed by companies working alongside the local authorities to build the businesses of the future.  This government is on a mission to generate sustained economic growth in every corner of the UK, and the Digital Catapult innovators I have met are helping us do so by leveraging regional talent to boost growth in the North East and beyond.” Sir Chris Bryant MP, Minister of State, DSIT & DCMS
• Increasingly, digital infrastructure (e.g. mobile networks such as 5G/6G and data architectures) can also reduce the need for businesses to relocate or co-locate their teams to work collaboratively together – even in physical environments. Digital Catapult are beginning to trial this through the development and interconnection of our labs, to test how advanced networks can enable remote collaboration and break down the barriers of geographical distance. This is being explored in particular through our labs like PROTO in Gateshead, where we are enabling creative companies to access state of the art equipment in media production underpinned by 5G connectivity that we are looking to connect into similar labs in London and the South West.
• While talent and companies can be developed in regional locations through universities, research centres and cluster support mechanisms / programmes this talent is still often drawn away from the region due to career growth potential, salaries and experience in other locations. This creates a hollow shell of innovation, lacking the momentum to build lasting resilient innovation capabilities.
• To overcome these types of challenges, Digital Catapult has been supporting regions such as the North East to drive growth and build talent pipelines. This includes undertaking skills programmes with key universities and colleges in the region focused on advanced media production using PROTO, and collaboration between Digital Catapult and the Engineering Development Trust / Industrial Cadets – exploring opportunities for a new innovation skills programme, that will upskill and support young people to work in deep tech and connect them to Teeside businesses. "The Engineering Development Trust is looking forward to working with Digital Catapult on future innovation skills programmes in Teesside - to help enable the skills of the future for businesses of all sizes in the region. With our joint strengths across the full talent pipeline, we believe that a new innovation skills programme, designed and delivered between us could become a transformative blueprint for talent development for the rest of the UK." Julie Feest, CEO, Engineering Development Trust and Industrial Cadets

Despite these success stories, more can still be done. We believe the following five activities could be explored to drive investment and scale adoption further:

1. Fostering deep tech talent and skills: Local talent pipelines for deep tech should be developed alongside innovation initiatives outside universities, focusing on both technical skills (e.g., AI, data science, infrastructure) and soft skills (e.g., sales, marketing) critical to commercialising ideas. This dual approach ensures that entrepreneurial talent is equipped to bring innovations to market.
2. Connecting golden triangle innovation to regional specialisms: Deep tech startups in the golden triangle can stimulate regional growth by connecting with end users in key sectors through challenge-led national innovation programmes. These programmes derisk experimentation, fostering commercial interactions and market activity while creating regional job opportunities and addressing sector imbalances by helping deep tech firms pivot into new markets.
3. Upskilling digital clusters to lead in deep tech: Supporting digital-first companies across UK clusters to adopt and experiment with deep tech (e.g., AI) can accelerate the creation of deep tech clusters. This approach leverages existing digital suppliers’ roles in sectors like manufacturing and construction, enabling faster deployment of deep tech innovations through already trusted channels.
4. Positioning the UK as a global leader in creative innovation: The creation of a national “Creative Engine” R&D programme and a global campaign, alongside Creative Connect to help connect the UK’s creative technologies, would leverage the UK’s strengths in creativity and technology to attract investment, talent, and innovation. A global campaign, akin to the GREAT Campaign, would highlight the UK’s leadership in creative and deep technologies, while the Creative Engine programme would unlock creative spillovers to transform all growth-driving sectors. Key initiatives include regional Living Labs, workforce training, and funding for underserved areas, ensuring the UK remains a global leader in creative-driven industrial innovation. The Creative Connect programme on the other hand would bring together all of the Innovation investments for creative under a single connected fabric of creative technology services, acting as a shared public service.
5. End-to-end Innovation - R&D through to public procurement programmes: This will help to ensure new deep tech solutions developed through R&D activities can be purchased at scale at the end of the innovation cycle. It will enable more rapid commercialisation and return on investment evidence for both the public and private sector. A good example of the link through R&D to local procurement systems to FDI is the Oxfordshire Dynamic Purchasing System – more information can be found here: https://www.oxford.gov.uk/dynamic-purchasing-system-ev-charging/electric-vehicle-dps

Would unlocking investment at scale for innovative science and technology companies support regional growth, and how could this be done?

• According to Digital Catapult’s analysis of Crunchbase on average 85%+ innovative UK companies working in key areas of deep tech are based in the Golden Triangle.
• Unlocking investment at scale into these companies will still not resolve challenges around regional growth unless the effects of these transformational companies are felt in key sectors that underpin regional economic activity.
• In order to unlock investment that benefits regional growth, further attention should be given to programmes that connect these UK companies, no matter where they are located, into potential customers in other regions. This will recognise both the importance globally of being located in London, but still create pathways out to other regions to encourage adoption and innovation.
• For example, less than 5% of UK AI companies currently work in more traditional industrial sectors that underpin regional economic activity across the UK such as manufacturing and construction. As such we need to stimulate and scale new products and services from the supply side to pivot into these sectors, so that they can meet the needs of laggard businesses and see them as a viable customer base.
• It is for this reason that Digital Catapult worked with the UK Government to make the case for and now deliver the Innovate UK BridgeAI programme. BridgeAI, is the UK’s flagship AI Adoption Programme and is helping to address supply side imbalances by pivoting AI companies in sectors that face market or capability failures to their adoption, overcoming technical barriers to them scaling, and supporting businesses in addressing challenges in their application of the technology in new sectors such as construction, transport, creative industries and agriculture. Through this programme we have supported UK AI scaleups to connect to key partners in new sectors including Merlin Entertainment, LADBible, Bauer Media, Transport for London, Port of Tyne and RailX – working closely with AWS, Graphcore, Nvidia and Seldon AI to provide free support to our small AI companies to help them scale faster.
• "Digital Catapult’s AI Accelerator has given us unprecedented access to innovative startups, enabling us to explore fresh ideas and cutting-edge technologies to solve pressing business challenges. The program has facilitated innovation in ways that were new to our organisation, opening up opportunities to rethink strategies and drive impactful change."​ ​ Megan Wastell, Global Creative Diretor, Merlin Entertainments

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?

• Due to the nature of tackling significant global market challenges and opportunities, deep tech requires significant and sustained time, investment and support in their application, talent, procurement, development and adoption in key markets.
• As such assessment of the impact in deep tech innovation support should be undertaken through medium to long term cycles assessment cycles of 5-10+ years.
• It should also be assessed through the impact into UK small businesses, in particular startups and scaleups, their growth and new customer bases in key markets that underpin regional economies.

To what extent do Catapults support technology diffusion, and drive both national and regional growth?

• Catapults were created to address key market failures as a micro-economic intervention to address areas of market or capability failures in the economy – nationally, regionally and locally.
• The Catapult Network is a key partner and delivery mechanism to support the government missions and industrial strategy. Catapults are relied upon to deliver national technology programmes and science at scale (with major contracts or grant agreements with DfT, DESNZ, DSIT, DHSC, MoD and MHCLG). 
• Catapults provide businesses with access to their expertise and facilities, enabling them to test, demonstrate and improve their ideas, derisking research & development and driving commercial opportunities. Collaboratively the Catapult Network plays a crucial role in technology diffusion and driving both regional and national growth in the UK.
• Robust econometric evaluation has shown that small and micro businesses supported by Catapults demonstrated 50% growth in businesses after 6 years, when compared to similar businesses that did not receive Catapult support.
• A £1.6 billion Innovate UK investment in Catapults is projected to return an additional gross value add of £7.7 billion to the economy within the next 4 years.
• Catapults mobilise stakeholders to create attractive R&D environments and provide SMEs with routes to finance, leveraging a 5:1 return on investment.
• Through assessments of Digital Catapult’s impact, businesses that have engaged with us on a high or medium level grew between 57-63% per cent more in employment than similar businesses who did not engage with the Catapult, and 37% more than businesses who engaged on a low level with the Digital Catapult. This spans a range of engagements including:
• Working with 2832 companies since 2019 across sectors and technologies.
• Supported 317 digital first company engagements from November 2023 – November 2024
• Helped startups and scaleups in areas such as AI, Extended Reality, Quantum and advanced networks to raise £550M+ of investment since 2018 through our programmes.
• This includes £41M investment raised by startups in FY 23/24 alone.
• Enabled 89 academic and collaborative R&D engagements in FY23/24
• Enabled 117 new industrial collaborations in FY23/24

Enabling and coordinating innovation and supply chains across the UK through cross catapult collaboration

• Digital Catapult in particular plays a role across the Catapult Network, acting with its own go to market in key industries such as telecommunications, creative industries, and defence, but also acting as a hub of shared service across the other catapults providing technical expertise and innovation practice services and support.
• This includes, for example, supporting other sectors to understand and navigate the emerging technology markets we represent, exploring the wider learnings for cross sector infrastructure and technology capability building in areas such as advanced networks and data, and the spillover effects of technologies and innovations between sectors. An example of this is leading the National Cyber Physical Infrastructure project on behalf of the Department for Science Innovation & Technology working with Connected Places Catapult and High Value Manufacturing Catapult – which has led to key initiatives and alignment between Catapults in areas of future data sharing infrastructure. This includes feeding into plans for national data library plans and developments. This is critical to unlocking investments across the public and private sector into local infrastructure –and unlocking value from data.
• Further to this Digital Catapult have been working on behalf of the Department for Energy Security and Net Zero supporting the UK’s journey towards net zero through the use of AI technologies – working collaboratively with the Energy Systems Catapult and The Alan Turing Institute to enable businesses in high emissions sectors such as energy and agriculture are able to decarbonise faster.
• “Cross-Catapult collaboration is vital for accelerating decarbonisation. By bringing together diverse capabilities and knowledge, and fostering innovative solutions, we can address the complex challenges of reducing carbon emissions more effectively. The ADViCE initiative exemplifies this collaborative spirit, combining Digital Catapult’s digital capabilities with Energy Systems Catapult’s expertise. This integrated approach ensures that new technologies and processes are developed, tested, and implemented to maximise their impact on decarbonisation. Collaborating across Catapults enhances our support for industry and policymakers, driving significant progress toward Net Zero.” Guy Newey CEO of Energy Systems Catapult
• Catapults are also working together to amplify strategic areas and deliver productivity and efficiency across the UK. For example, the Workforce Foresighting Hub, funded by Innovate UK and managed by the Manufacturing Technology Centre (part of the High Value Manufacturing Catapult) has developed a structured process, bringing together insights convened from workshops with experts (domain specialists, employers and educators) and data collated from open source, global data sets to foresight skills for the future and ensuring local industries are equipped to meet future national and regional demands.
• Each of these cross Catapult activities amplifies the support that businesses can access on the ground, and through Digital Catapult are enabled to explore new sectors, share learnings between sectors and build infrastructure that drives supply chains.
• For example, Digital Catapult's work in telecoms on behalf of the UK Government is helping to test and trial new approaches to tackling challenges in the UK’s approach to diversifying telecoms supply chains. Through £22m of funding, Digital Catapult and Ofcom have established neutral environments for telecoms vendors to test new approaches to system integration using Open Radio Access Network (OpenRAN) technologies. With 33 companies involved in the programme, testing 67 products and leading to 150+ strategic partnerships and engagements being forged, these companies have been able to explore new business models in the sector, while helping to stimulate UK leadership in telecoms R&D through partnerships with 10+ countries including the US, Korea, Taiwan and Japan.
• Furthermore, national funded programmes such as Made Smarter have enabled Digital Catapult to deliver technology accelerators to technically support tech startups to work with manufacturers across the country. This then led to our work across the UK in digital supply chain innovation, in partnership with the High Value Manufacturing Catapult and industry to drive the connection between startups and scaleups and industrial businesses, fostering new deep tech markets to grow.
• The Digital Catapult led Digital Supply Chain Hub for example, is working with 300+ organisations, including 100+ SMEs and OEMS such as Nissan, BAE, Rolls Royce, HS2, Cranswick, Unilever and JLR involved across 18 different sectors. This has helped to stimulate £15m+ of joint investment from industry to transform supply chains for the future through the application of deep tech. These programmes are addressing supply chain challenges across the UK and Northern Ireland and tackling the green transition by supporting the development of new supply chains in areas such as Hydrogen, Batteries and Nuclear.
•                   Examples of the impact that these national and regional testbed / acceleration programmes are delivering include; (1) Reducing waste in the food supply chain by 30% through the use of AI and machine learning (2) Mapping complex supply chains to increase visibility in days rather than months through AI (3) Reducing Freight on the roads through a digital platform for shared logistics reducing congestions, repair costs and the CO2 impact of road haulage; (4) Tackling the provenance and recyclability of critical minerals through better information sharing across supply chains; (5) Building the UK’s first supplier directory for manufacturing to support localisation of supply chains.

24 January 2025