­­­­

Written evidence submitted by the National Innovation Centre for Rural Enterprise (IGR0092)

About NICRE

The National Innovation Centre for Rural Enterprise (NICRE) builds evidence and undertakes knowledge exchange to inform policy, foster the innovation and resilience of rural businesses, and unlock the potential of rural economies across the UK. It was established in 2020 thanks to a core grant from Research England and investment from founding university partners.  We build on three leading centres of expertise - the Centre for Rural Economy and Newcastle University Business School, the Enterprise Research Centre at the University of Warwick, and the Countryside and Community Research Institute at Gloucestershire and Royal Agricultural Universities – and have supported research relating to rural enterprise across England. Strutt & Parker property consultants is its founding national professional business service partner.

NICRE delivers a portfolio of activities involving a diverse mix of funders and partners across the public, private and third sectors: 

• Innovation insight: We bring together researchers, businesses and communities across the UK to build a strong evidence base that informs policy, practice and infrastructure support in rural areas
• Innovation action: Together with our network of partners, we’re combining theory and practice to encourage new ways of thinking and supporting development of new products, services and practices that provide tangible benefits to our rural businesses and communities.
• Innovation exchange: we build connections across sectors and places, and share knowledge, best practice and practical experience to inform policy making and support for rural enterprise at all levels.

Further information is available at: https://nicre.co.uk/.

Rationale for this response

NICRE welcomes the committee’s focus on the roles and relationships between national, regional and sub-regional actors in the UK’s innovation system, and how they collectively drive research and innovation which results in growth and prosperity for all.  We see this as particularly pertinent to rural parts of the UK, where standard approaches to supporting and diffusing research and innovation have proved less effective to date.  

We hope that the committee’s inquiry will highlight the value of inclusive, place sensitive support for research and innovation in driving growth and prosperity in all parts of the UK, including rural areas, and further understanding of the roles of national, regional and local government and UKRI in enabling this. 

Below we make some brief observations relating to innovation in rural areas that the committee may wish to consider.  We would be happy to provide further evidence and detail relating to any areas of our submission if this is of interest for the committee.  We would also draw the committee’s attention to the briefings emerging from NICRE’s State of Rural Enterprise (SORE) survey and our recent response to the UK Industrial Strategy Green Paper for further background and statistics[1],[2].

1: Rural enterprise makes a significant contribution to the UK economy, but there remains untapped potential

Rural economies bring a range of distinctive contributions and comparative advantages to wider regions and the nation as a whole, as well as a basket of solutions for economic renewal. There are 600,000 registered business units in rural areas in England alone, employing 4.2 million people. They make up a quarter of businesses and contribute over £315 billion to the economy, with their supply chains, workforces and innovations reaching well beyond rural areas. Rural economies contain considerable diversity in enterprise scale, sector and performance, with many creating high-value, advanced or internationally-traded products or services, and with the expansion, innovation and productivity of many firms boosted from operating from a rural location.

2: A disconnect between rural enterprise and the research and innovation system inhibits growth and prosperity.

Despite accounting for approximately 1 in 4 businesses and representing all sectors (of which less than 15% are connected to agriculture), the vast majority of rural firms do not engage with the UK’s research and innovation ecosystem. In other words the dedicated public-sector infrastructure for supporting innovation is not used by most rural businesses.

The R&I system can often fail to reach the diverse sectors and networks of businesses operating in rural areas.  Here grant awarding bodies and innovation structures are seen as too remote or top down and as disconnected from the valuable learnings, solutions and innovations that are generated by rural businesses and communities themselves. Major interlinked transitions triggered by environmental change, digital transformation, ageing, and economic uncertainty, pose unique and urgent challenges requiring responses in which rural businesses and communities are well-placed to lead the way. These need to be taken up by Government and the R&I system in order to drive up innovation and productivity.

Consequently, many rural businesses and communities continue to miss out on the benefits of new developments, in particular in the digital space, and the full potential of innovation and the R&I system as a means to strengthened sustainable growth, economic development, and other social and environmental outcomes is not always realised.

Businesses in rural areas face specific infrastructure challenges to innovation, such as lack of connectivity and insufficient public transport[3]. The lack of connectivity reduces the ability to find out about innovation elsewhere and to make use of innovations opportunities including new to market and new to business innovation.  The lack of transport has impacts on employment including of highly skilled innovation-aware employees.  Driving innovation and growth in rural economies therefore requires a holistic understanding of the characteristics, assets and challenges of rural communities and solutions which are built in partnership.

In rural areas, due to lower levels of interaction and less accessibility to urban knowledge centres, innovation and technology diffusion is slowed[4]. Skilled labour availability may also be more difficult to access in rural areas and also having a detrimental impact on technology acceptance and use[5]. The paradox is that rural areas require the most advanced digital connectivity to compensate for their remote location, but they are the least connected and included[6]. Enhanced digital connectivity is critical both in building rural innovation and business resilience[7].

Tackling these issues requires a more dedicated and tailored focus within the UKRI and Innovate UK provision and support to connect to businesses located in rural areas. This should include the development of an innovation system that supports place-based approaches, participatory innovation, co-design, and porous innovation ecosystems, to ensure innovation support is highly accessible to all, including rural, businesses and to encourage better integration of end users at design/early development stages.

The Innovation Research Caucus, funded by UKRI, of which one of NICRE’s partners is part, has also conducted extensive work on the barriers to R&D commercialisation. The UK government faces several challenges in facilitating the commercialisation of Research and Development (R&D), particularly in bridging the gap between innovation and market readiness. Typical barriers include the limited long-term investment available for highly innovative firms and weak industry-academia collaboration, particularly for UK-owned firms due to mis-aligned incentives. Indeed, universities often underutilise intellectual property (IP), and licensing systems are complex. Above all business skills among researchers to bring innovations to market are lacking. Infrastructure needs investment too to create accessible facilities for scaling and testing innovations, such as 'wet labs'. For rural areas the gaps in broadband and 5G access hinder deployment of tech-heavy solutions. Moreover, the UK has a geographical and sectoral uneven distribution of innovation hubs and investment.

Data from the Innovation State of the Nation Report[8] indicates a positive correlation between corporate innovation activities and investment in R&D, patents, training, product design, market research, and development. This study found that intervening in those facilitators is one way to encourage creativity in rural areas. On a national (UK) scale, many types of innovation aid exist in the form of financial or non-financial support that is directly tied to innovation enablers, such as R&D tax credits, innovation grants, and intellectual property protection. Firms in higher performing regions are more open to seeking external advice and therefore advice in business development and product and service development can be effective for supporting innovation.[9]

This highlights two critical challenges facing the government’s ambition to harness R&D investment to build strong regional innovation ecosystems. One is how such strengthening can be achieved. The other is closing the innovation gap between large and smaller enterprises.  A range of low-cost policy options are relevant here:

First, mapping local investment opportunities would help reveal weaknesses in commercialisation pathways and show how university research might connect with local businesses. The Department for Science, Innovation and Technology has already done valuable work to understand the geography of technology clusters across the UK. This mapping could be developed to include the infrastructure that supports research commercialisation and the scaling up of small companies, creating a national resource to inform devolved innovation strategies.

Second, to succeed, devolved innovation strategies need more support for capacity building in local policymaking. The University of Birmingham’s recently established Local Policy Innovation Partnership Hub and Innovate UK’s Net Zero Places Innovation Network are good examples of how to share the lessons of local innovation policy. The Manchester Institute of Innovation Research also provides capacity-building courses in innovation policy. Expanding and integrating these capabilities could support innovation policymakers in combined authorities and local authorities. 

Third, facilitating local peer-learning networks of firms would help spread digital technologies and managerial expertise. Prosper Scotland’s Peer Works programme of facilitated meetings is a proven model that could be extended across the UK.

Finally, there is strong evidence that local and sectoral innovation policy measures, often targeted at smaller firms, are an excellent proving ground for wider efforts. For example, firms that work with Innovate UK’s Catapult centres are more likely to win national innovation grant support.

3: More inclusive, place-sensitive support for innovation could harness and enable the full potential of rural enterprise

Drivers of innovation are often place-specific, and to be effective innovation and enterprise policies should recognise this and be adjusted accordingly. International attention is, therefore, increasingly turning to the need for more concerted and tailored approaches to promoting and supporting rural innovation, to unlock the full potential of vibrant and decentralised growth.  This emerging body of evidence signals a need for reform of innovation systems to recognise and reach out to resilient and resourceful businesses operating outside main conurbations[10].

There is evidence that business advice which is more cognisant of the local and regional specificities has a positive impact on business development and innovation. This also points to benefits arising from place-sensitive innovation polices.   Furthermore, local innovation policies are often able to work more closely with SMEs compared to national level approaches. They can therefore fill an important gap in the support of innovation and encouraging small businesses with growth potential.

This key message came out strongly in a recent Jan 2025 NICRE roundtable event with businesses and local and regional policy makers in Cornwall.  Participants emphasised the importance of innovation policies taking account of local specificities and characteristics. Place-sensitive policies and initiatives take account of available resources, including existing business and skills and also natural resources.  Participants also highlighted the value of mentoring and business angels to support innovative firms, and the role of networks in facilitating innovation and sharing of resources required for innovation.

The committee also asks about the value of regional innovation hubs and clusters. Cluster based approaches have traditionally been focussed on urban areas able to benefit from agglomeration economies and spillovers arising from a greater density of networks, businesses, knowledge institutions, skilled workforce, service providers and public institutions. A low density of population, firms’ dispersion, weak infrastructure, and long distances to metropolitan areas, are a challenge to the creation of clusters in rural areas and their ability to contribute to regional development. However, if built on locally identified specialisms and competitive advantages, anchoring development on the specific needs and assets of each territory, the development of clusters can also represent a significant opportunity and unlock innovation potential in rural areas[11].

There are many examples of cutting-edge science and technology clusters in rural settings across the country that are globally respected. These are often in innovative sectors such as precision engineering, pharma, defence, scientific research and manufacturing.

Future clusters and choice of sector priorities should be driven partially by locally-informed development needs and opportunities, with greater attention to delivering benefits to neighboring communities, which are often rural, and ways to extend the wider reach and benefits of clusters. One approach, for example, is to encourage a ‘hub and spoke’ model within high-potential clusters. The North East Technology Park in Sedgefield is a good example of this.

Alternative approaches are also be needed in areas with a more dispersed business base in order to develop effective knowledge infrastructures and encourage the proximity of and connection of firms and other actors, This includes, for example helping firms to develop networks to internationalise, or supporting local business hubs and micro-clusters that are reflective of local specialisms.

4: This will require national, regional and local government, UKRI and other partners to ‘innovate the innovation system’

To unlock the rural contribution to national economic prosperity and sustainability, a step change in the innovation ecosystem is needed in terms of how innovation and innovation leadership is recognized, harnessed and enabled in rural areas. This will be vital to ensuring new innovative businesses can establish in rural areas, that rural-based businesses have access to the support to start innovating and others to become better and faster innovators, and to equip and share innovation that is generated from rural areas. 

Addressing the reach and performance of innovation systems in rural areas is vital to achieving a more inclusive, collaborative and outcomes-focussed research and innovation culture. This relates to:

• How innovation is undertaken and encouraged: Further harnessing rural economies within the innovation system will be key to delivering, and potentially leading the way with, innovation missions for the economy and society around green growth, healthy ageing and adaptation to environmental change, and to realising the aspiration for more spatially tailored and inclusive innovation frameworks, practices, and processes.
• How innovation is evidenced, evaluated and researched: It is vital to build capabilities and develop new approaches for understanding and addressing how key components of the entrepreneurial and innovation ecosystem are experienced in a rural context, and the implications for the ways in which innovation can best be catalysed.

Universities and other innovation institutions must embrace close ties with rural actors (businesses, communities, and other key players) if they are to expand reach and stimulate knowledge-exchange with rural areas, while recognising more appropriate means to identify opportunities, unlock untapped potential and learn from innovation led from rural areas.

NICRE itself provides excellent examples of cooperation between universities and rural businesses in order to drive forward innovation. See examples in its Innovation Portal at https://nicre.co.uk/innovation-portal/. In the North East region, the Rural Catalyst is also an innovative partnership between NICRE and the Rural Design Centre, funded by the North East Combined Authority, which is tackling the challenges facing rural areas through innovation, design, community engagement and knowledge transfer[12].

5: The UK government’s devolution agenda represents an opportunity to reconfigure the relationship between the research and innovation system and rural enterprise and drive growth and prosperity through place-based innovation (NECA case study)

Devolution can enable innovation that makes sense within the local area where it occurs, making use of existing resources and being inspired by local needs and opportunities. As part of the North East’s devolution deal, the North East Combined Authority (NECA) has UK Innovation Trailblazer status, developing and sharing new solutions to natural environment, coastal and rural challenges, informed by its distinctive geography and economy.  NICRE has a strong relationship with NECA and played a key role in informing the approach to driving rural innovation and growth in the North East through the strategic evidence review underpinning the regional investment plan[13]. 

NECA making use of this place-based specificity by identifying the comparative advantages the region has such as natural capital enabling the storage of carbon and creation of goods and services for the region and the nation.  Using innovation to harness these has been included in NECA’s Environmental Stewardship, Coast and Rural Growth Investment plan.  The development of the investment plan and priorities was facilitated at regional level, but with strong input from local stakeholders and supported by national government.

This is just one example of how all levels of government and other R&I system actors are driving a shift to more inclusive, place-sensitive support for innovation.  We would be happy to share further insights into these relationships and opportunities for learning for other regions.  

This consultation response was compiled by Jeremy Phillipson (NICRE Director), Ulrike Hotopp (NICRE Policy Adviser) and Sarah Best (NICRE Project Development Manager)

24 January 2025