3rd Report - Flying Blind: Innovation, Growth and the Regions

Even in a digital age, physical proximity remains key to innovation and its commercialisation and absorption. Geographic clusters can drive productivity, foster concentrated networks of expertise, infrastructure and collaboration, and support regional growth, which is economically and politically important. Yet their success relies on sustained investment, established infrastructure and skills concentration. Responsive, targeted innovation policy designed to support the emergence and growth of innovation clusters can therefore benefit both individual regions and the entire UK. (Conclusion, Paragraph 11)

The UK’s clusters of innovation-led growth—from Cambridge Biotech to Glasgow Satellite City—are key engines of national economic prosperity, productivity growth and economic regeneration. Mapping, monitoring and supporting their growth should be a major pillar of the Industrial Strategy and the Government’s wider economic policy. (Conclusion, Paragraph 12)

The Government should establish a national framework for cluster development that embeds regional Key Performance Indicators and tracks cluster lifecycles. As part of this, it should develop regional economic profiles that line up clusters with key sources of economic activity, such as original equipment manufacturers, major education and health facilities, government and defence facilities, and their supply chains, with an analysis of opportunities for supporting innovation and diffusion. As part of this framework the Government should define its role in supporting the development of regional clusters, versus that of the private sector. (Recommendation, Paragraph 13)

The Government should publish annual data covering the performance and impact of innovation clusters. These should set out any gaps around infrastructure, skills, and commercialisation outcomes and detail how public investment is being used across different parts of the country. (Recommendation, Paragraph 14) 43

Public support for R&D is not effectively designed to reach researchers and innovators that have not traditionally received large amounts of innovation funding – such as those in the regions. UKRI, the country’s biggest public innovation funder, has acknowledged the problem, but its new objectives are only the starting point in addressing the challenge. It is also disappointing to already see vast regional imbalances in the spending of recently-formed ARIA. (Conclusion, Paragraph 21)

The Government should establish a portal where innovators can be matched with suitable funding and support to help them cut through the current tangle of options. Innovate UK should announce targets for increasing engagement with innovators across the country, using metrics such as outreach and targeted support, more accessible and streamlined application processes, and additional support personnel in the regions. (Recommendation, Paragraph 22)

While the most cutting-edge science may be best carried out in established centres of excellence, as Lord Vallance put it, there are centres of excellence across the country, in Cardiff, Durham, Edinburgh, Leeds, Manchester, Milton Keynes and Newcastle – amongst others. Traditional innovation hubs like London, Oxford and Cambridge are limited in physical space, housing costs and facilities, which other locations can offer in abundance and often at lower cost. Utilising their potential has the additional benefit of supporting greater regional economic growth. (Conclusion, Paragraph 30)

The Government should incentivise complementarities between institutions in London, Oxford and Cambridge and those in other regions, such as through programmes to help spinout companies to scale up elsewhere in the country. Good practice examples include the partnership between the Universities of Cambridge and Manchester. The Government should put in place a mechanism for identifying these opportunities, setting out the details in its response to this report. (Recommendation,Paragraph 31)

The Government should publish a strategy setting out how it plans to exploit the full potential of the Oxford-to-Cambridge Growth Corridor – including locations outside these cities. This strategy should identify the existing and potential strengths of places between Oxford and Cambridge and set out plans to support them. (Recommendation, Paragraph 32)

The Government should publish an assessment of whether funding to Golden Triangle institutions should be made contingent on projects having a quantifiable economic impact elsewhere. (Recommendation, Paragraph 33) 44

The Government should appoint a minister to champion innovation in each region of the UK – not just the Golden Triangle. These ministers should be tasked with ensuring that regional needs, opportunities and interests are considered in decisions on investment and infrastructure. (Recommendation, Paragraph 34) Data and transparency

The UK is flying blind when it comes innovation policy. It is unacceptable that the Government and UKRI cannot properly measure and map R&D spending and the accompanying private sector investment. Without clear, transparent measurement of what is being done and its impact, it is impossible to assess existing policies or identify improvements. We welcome the Government’s agreement to release departmental R&D spending plans and outturn data in response to our previous request. This will help to support more effective innovation policy, ensure greater accountability and ultimately contribute to regional economic growth. (Conclusion,Paragraph 42)

Future disclosures of departmental R&D spending should include breakdowns by region and cluster. The Government and UKRI should also develop a framework for tracking impact and publish annual regionally disaggregated reports that set out how public R&D funding supports innovation across the country. These should include company-level data on funding, innovation diffusion and take-up, and geographic distribution. (Recommendation, Paragraph 43)

The Government and UKRI should, in response to this report, and on an annual basis thereafter, set out how the R&D budget will be allocated by sector, region and cluster. The Government should also, in its response to this report, and on an annual basis thereafter, set out the current level of private sector R&D investment by sector, region and cluster. This should include detailed mapping of not just total investment but key metrics such as company formation, job creation and intellectual property filings. (Recommendation, Paragraph 44)

The Government should in its response to this report set out how it intends to ensure the Secretary of State’s mandate to use public spending to unlock private sector investment is taken up by Government departments, UKRI, Innovate UK and other public funders of R&D to inform their funding allocations. (Recommendation, Paragraph 45) 45 Commercialising innovation

University spinouts play an important part in ensuring that the UK’s research base contributes to economic growth. However, academics at some institutions would benefit from greater flexibility in working structures as they start and grow their spinouts, and universities should be prepared to accept smaller returns on IP if it encourages greater levels of innovation and delivers wider economic benefits. This would help rebalance the risk-reward dynamic that is essential to delivering an innovation-driven economy; and support greater regional growth. (Conclusion, Paragraph 53)

The Government should accelerate delivery of the University Spinout Dashboard and commit to making it an annual publication. The dashboard should include standardised data on equity terms, intellectual property agreements, institutional support, and regional outcomes. (Recommendation, Paragraph 54)

Some university technology transfer offices have made a significant contribution to their local economies. Others, however, are underperforming, leaving academic founders without the support and expertise needed to scale. (Conclusion, Paragraph 57)

The Government should consider making funding to build the capacity of technology transfer offices contingent on their ability to deliver significant volume of throughput and provide evidence of success in building capacity and developing skills in their local economies. (Recommendation,Paragraph 58)

In its response to this report, the Government should set out how it plans to support the establishment of a Northern Gritstone or Midlands Mindforge for every region of the UK. (Recommendation, Paragraph 61)

The Government should establish a series of regional branches of the British Business Bank, with a substantial presence on the ground in undercapitalised regions, to ensure that the Bank’s policies are aligned with the needs of innovative businesses across the UK. (Recommendation,Paragraph 74)

Taking risk and being rewarded for doing so are essential components of a dynamic, innovative economy and capital is essential to driving national, regional and local growth. Whilst the Government is limited in what it can do to influence the flow of capital across the economy, London, Oxford and Cambridge dominate venture capital flows and angel investor networks, leaving high-potential early-stage businesses in other parts of the UK underfunded. The Government’s additional Proof of Concept funding, 46 to help bridge the first part of the ‘valley of death’ between research and commercialisation, falls far short of what is needed to drive real change, at just £40 million over five years. (Conclusion, Paragraph 77)

The Government should expand the Proof of Concept Fund and ensure it meets the needs of existing or emerging clusters of innovation. It should also increase the size of available awards to £1 million. (Recommendation, Paragraph 78)

The Government should introduce a mechanism for businesses that ‘graduate’ from proof of concept funding, to funnel them directly through subsequent stages of investment. (Recommendation, Paragraph 79)

The Catapult network has the potential to help drive innovation and economic growth across the UK’s regions, but in regions with low R&D intensity and limited public investment, Catapults risk competing with local bodies for funds rather than fostering knowledge diffusion. (Conclusion, Paragraph 82)

In its response to this report, the Government should set out how it intends to ensure the Catapult network is more effectively targeted at addressing regional disparities, including its assessment of whether removing the imperative for Catapults to raise private funds would increase their impact in the UK’s regions. (Recommendation, Paragraph 83)

The Government and Innovate UK should develop a standardised and transparent set of performance indicators for the Catapults. These should include measures of industry engagement, commercialisation outcomes, support for technology and innovation adoption, regional economic impact, and wider societal benefits by region. (Recommendation, Paragraph 84)

There should be a minister in the Cabinet Office responsible for innovative procurement, supported by a dedicated unit and responsible for exploring new approaches to engaging SMEs, spinouts, and scaleups, particularly those developing UK-owned intellectual property; and making use of testbeds to trial emerging technologies and new procurement models. (Recommendation, Paragraph 88)

The Government should encourage the development of specialist investor capability in science and tech across the UK, particularly in strategic deep tech sectors such as quantum. It should support the development of regional investor and investment readiness training programmes, expand partnerships between technical experts and investment networks, and reduce business rates on lab space for early- stage companies. It should create investor envoys for key deep tech sectors, modelled on the existing trade envoys, to liaise between stakeholders and the Government. (Recommendation, Paragraph 93) 47

Infrastructure deficits can be a major barrier to scaling up innovation, commercialising research, and ultimately to regional growth. Planned reforms to the Green Book offer an opportunity to rebalance regional investment, but their impact will depend on effective implementation. Scientific infrastructure plans should be aligned with those for services such as transport that facilitate the necessary concentrations of people in individual regions. (Conclusion, Paragraph 100)

The Government should publish a long-term strategy for science infrastructure investment. It should instruct the British Business Bank to ring-fence a percentage of its funds to support the development of innovation infrastructure in partnership with the private sector. (Recommendation, Paragraph 101)

UKRI should revise its Infrastructure Roadmap to include a detailed mapping of existing capabilities, identify underserved regions, and prioritise infrastructure development that supports economic resilience and long-term growth. (Recommendation, Paragraph 102)

We are concerned by an apparent tendency to place major new scientific institutions in London by default. This compounds the challenges other regions face in attracting and retaining graduates and skilled professionals, despite their world-class universities and thriving innovation hubs. Disparities in salaries, access to funding, and quality of public services contribute to the ongoing migration of talent to London. Infrastructure support can help address this imbalance. (Conclusion, Paragraph 103)

The Government should publish a Regional Graduate Retention Strategy, backed by investment and cross-department coordination. This should include support for university-industry collaboration to create high- skilled local employment, linked to analysis of public services such as housing, transport, and education – which are needed to create the conditions for graduates to build careers throughout the UK. (Recommendation, Paragraph 104) Diffusion and absorption

The UK’s strengths in cutting-edge science have been hampered by low rates of technology and innovation adoption, particularly among SMEs and in non-tech sectors. This is the low-hanging fruit of innovation policy: the investment needed to support businesses in adopting technologies could have a transformative economic impact in regions and sectors where adoption has been low. (Conclusion, Paragraph 113) 48

Strategies to support increased industry adoption of technologies must have a regional focus, just as industries are largely regionally focused. This will require targeted interventions that identify high-potential clusters, provide long-term investment to deliver the infrastructure for them to flourish, foster the development of expert networks, and support regional economic growth. (Conclusion, Paragraph 114)

The Government should prioritise the diffusion and adoption of innovation and technologies across the UK. This will require greater emphasis on building skills for smaller businesses; increased advice and support on regulatory matters for smaller businesses; making finance available to companies to adopt technologies, such as AI; and facilitating engagement between universities and local businesses. In its response to this report the Government should set out its plans to do this, including how it intends to scale up support for the Made Smarter Adoption programme to better engage SMEs and non-tech businesses across all regions. (Recommendation, Paragraph 115)

The establishment of the Regulatory Innovation Office is a welcome recognition of the need to tackle regulatory barriers to innovation, particularly at the cutting edge. We believe that it can play a significant role in ensuring that innovation benefits the whole of the UK, beyond the and we will be closely tracking its development and impact. (Conclusion, Paragraph 118)

The Regulatory Innovation Office should work with universities, SMEs, and spinouts to map the full pathway from research to market, identifying where disproportionate burdens or barriers exist. It should also publish a regional support strategy with measurable objectives and deliverables. (Recommendation, Paragraph 119) Devolution

Local leaders, including but not only mayoral authorities, are pivotal to regional innovation ecosystems and regional growth. Their proximity to stakeholders, understanding of their areas, and ability to convene cross- sector partnerships position them uniquely to drive growth. Devolved national, regional and local authorities could play a greater role in funding early-stage businesses, such as through initiatives to match UKRI funding. (Conclusion, Paragraph 129)

The Local Innovation Partnerships Fund’s ambition to give regions more control over innovation policy is welcome, but it falls short on scale, with just £500 million over five years, or around 0.5% of the science budget. (Conclusion, Paragraph 130) 49

The Government should, in its response to this report, and on an annual basis thereafter, set out a framework to clarify the roles and responsibilities of sub-national authorities in the innovation landscape, particularly in areas that do not yet have formal devolution arrangements. This framework should include guidance on strategic planning, data-sharing protocols, and mechanisms for cross-regional collaboration. It should create a model that ensures all regions, regardless of devolution status, can access strategic planning tools, funding, and representation in national innovation policy. (Recommendation, Paragraph 131)

The Government should commission an independent review examining the link between R&D, new businesses and growth in jobs and GDP since 2008, and task it with recommending how to make public investment in R&D increase productivity, growth, and jobs. This should use examples such as Greater Manchester as case studies in raising productivity, to identify lessons for other regions. (Recommendation, Paragraph 132) 50