What does the Levelling Up White Paper mean for Innovation policy?

February 2, 2022

The Levelling Up White Paper includes a series of new research, development and innovation investments to strengthen the UK’s science base and to boost economic growth across the whole of the UK. As Professor Richard Jones (who is speaking at Policy Exchange on levelling up R&D next week) has argued, the UK’s research and development base is too small for the size of our economy, is particularly weak in translational research and is too geographically concentrated in already prosperous parts of the country. The publication of the UK R&D roadmap in July 2020 marked  an important first step in addressing these problems; the White Paper is another.

The White Paper seeks to address misallocations in public R&D investment that undermine efforts to boost regional economic growth. One of its 12 “Levelling Up missions” is to ensure that “by 2030, domestic public investment in R&D outside the Greater South East will increase by at least 40%, and over the Spending Review period by at least one third.” This pledge follows the Government’s existing commitment to reach £22bn per year of public investment in R&D by 2024/25 and to increase UK investment in R&D to 2.4% of GDP by 2027.

At present, every £1 spent on public R&D unlocks £1.40 of private R&D investment, delivering £7 of net-economic benefit to the UK. If public investment in R&D is to continue to be an effective mechanism of boosting economic growth, investment must be based on a good understanding of the complex regional contexts that give rise to existing disparities. Whilst the White Paper outlines how the Office for National Statistics and the UK Government Office for Science will work together to collect sub-national data on departmental R&D spending, it is worth remembering that the Government has conducted Science and Innovation Audits (SIAs) since 2015. These have helped to map out local research and innovation strengths and infrastructure to identify the areas of greatest potential in every region. It is vital that further SIAs are conducted in future.

“Levelling up” R&D funding is a careful balancing act. The Government must be careful not to weaken the wider economic incentives to innovate by inadvertently introducing higher taxes to pay for R&D subsidies. It is likewise important not to distort markets through the overactive coordination of R&D funding by public bodies as this can leave room for harmful lobbying and rent-seeking.

Innovation most often occurs when clusters develop (such as the Cambridge Life Science Cluster or the Belfast Technology Cluster). Such clusters encourage local knowledge spillovers and benefit from the development of specialised local labour markets. The Levelling Up White Paper rightly recognises this. It pledges to invest £100m in three new Innovation Accelerators in Greater Manchester, the West Midlands and Glasgow. These proposed accelerators are described as “private-public academic partnerships which will replicate the Stanford-Silicon Valley, MIT-Greater Boston models of clustering research excellence and its direct adoption by allied industries.”

It is important, however, to ensure that the relative strength of the biggest clusters is not weakened by attempts to increase the overall number and geographical distribution of clusters arbitrarily. This is a danger inherent in attempts to “level up” innovation. Unlike the Khalifa Review of UK FinTech which recommended that the Government should encourage the development of as many as 10 fintech clusters across the UK, the Levelling Up White Paper doesn’t fall into this trap. Policymakers should always attempt to address the factors that allow clusters to emerge, rather than set out to ‘create a cluster’; the Government’s commitments in this area have to be understood in the context of the wider policy regime it outlines.

Reorienting decision-making is a key theme of the White Paper. Could more be done to encourage collaboration and partnerships through collaborative R&D funding mechanisms between central and local government? The Science and Technology Council wrote to the Prime Minister in September 2020 to call for the establishment of “a Local Economy Challenge Fund, administered at local and regional level, to support challenge-led research and to strengthen capacity for research, innovation and knowledge exchange through partnerships.” Such an initiative would build upon existing initiatives, such as the Industrial Strategy Challenge Fund and the Strength in Places Fund, to support regionally specialised research against a common challenge.

It is also essential to encourage research collaboration and links between organisations wherever they are in the UK. As the Council for Science and Technology explained, “incentivising partnerships across regional boundaries, between stronger and weaker regions, will be essential.” Catapult Centres already support regional growth objectives by providing local innovators with access to national networks and expertise. The Catapult network should be expanded into more regions of the UK and, as the recent BEIS Catapult Network Review highlights, Catapults must respond more effectively to “the demands of regional innovation landscapes by working closely with local leadership.”

For more of our analysis of the white paper, please click here


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