In the wake of COVID-19, the new UK-EU relationship, rapid technological advancement and the climate challenge, we are all bearing witness to a defining opportunity to reset the UK economy. Innovation is always looking ahead, weeks, months, decades, creating what comes next. And that is just what businesses, government, and the UK needs to be doing in the next 1, 2, 5 years not just to get back on an even keel but to genuinely seize the moment.
Innovation has risen up the agenda
Science and innovation and the tangible benefits of it have been centre stage in society like never before, underpinning the UK’s ability to adapt and rise to unprecedented challenges facing society. The crisis has highlighted the best of British innovation and business dynamism to address urgent challenges and develop new possibilities.
Businesses have been innovating to help out. From vaccines and ventilators, to diverting production to PPE or hand sanitiser, or businesses using AI technology to automate and speed up hospital HR onboarding tasks working with scientists to harness the processing power of thousands of mobile phones to develop treatments to Covid-19.
And businesses have been innovating to figure it out, with changes to ways of working and restrictions driving a colossal demand for technology, connectivity and innovation.
For many firms the pandemic has caused a sea change in the how they invest in, and adopt technologies, how they communicate and manage staff, and how they deliver services to customers with business innovation that usually happens in years implemented in days, weeks and months.
This has enabled large sections of the business community, and associated jobs and services to survive the impact of Covid-19 and for some, create new opportunities.
Businesses have demonstrated they can adapt and transform too. The sheer scale of this transformation would have been unimaginable at the start of last year. Before the crisis, a lack of appetite for innovation, and digital adoption held many businesses back, but, amid widespread disruption, standing still was not an option.
“COVID-19 has meant that business cases for innovation spending that were not accepted last year have now been signed off. The benefits of this transformation have become very tangible. We’re now light years ahead of where we were.”
“People now are much better at adapting to change – pre COVID if you said you were going to introduce a new system it wouldn’t have gone down well but now there is appetite.”
CBI member businesses
Innovation is a team game that the UK is good at
We’ve seen, perhaps more than ever, that innovation is a team game; with government, business, universities, individual experts, critical innovation infrastructure within and beyond the UK’s boundaries all playing their part.
Amid the unprecedented challenges presented by COVID-19 members have highlighted some unexpected positives. For instance, catalysing R&D development and transforming the way they work with academic institutions. Members also highlighted examples of truncated processes and speedier decision making, overcoming usual barriers to partnership.
Investing in innovation can seem a battle of urgent versus important
We know that innovation increases productivity and competitiveness. Estimates suggest tech diffusion drove 67% of UK productivity growth in the 2000s and SME tech adoption could add around £45bn to UK GVA in 2030. And we know that top R&D investors grow faster than their sectors in most cases, particularly in Automotive (+16pp), Pharmaceuticals (+15pp), Media (+10pp), Software (+9pp) and Electronics (+9pp).
Yet from engagement with businesses, we’re already seeing that investing in innovation will be a battle of urgent verses important. Long term versus short termism drivers for investment decisions was a challenge pre covid and even more so now. So as businesses look to manage cash flow and balance the books, it can be harder to make the case for further investment in innovation.
CBI survey work from October found that 28% of firms were intending to decrease their investments in R&D as a consequence of the economic turmoil caused by COVID-19. While 38% reported no plans to change investment, only 16% of respondents reported plans to increase investments creating a risk that overall investment could decrease.
This chimes with the experience of 2008-10 recession where data from UK Innovation Surveys show that the that the number of companies undertaking R&D investment halved. The data also suggest prolonged “scarring effects” with the proportion of innovation active firms still below pre-crisis levels in 2014/16. At the same time, an Enterprise Research Council study found that ‘innovation-active’ businesses (especially ‘magpie’ firms, rapidly learning from others) were more resilient during 2008 financial crisis.
This is also true within government
The government has expressed its ambition to be a science superpower, and intention to grow R&D investment to fuel business investment, recovery and growth across the UK. The top-level support for innovation at the highest levels of government is very welcome but we’ve been here before and the UK has historically struggled to deliver on potential.
The ambition is there, but as yet, the long-term plan and investment to match isn’t.
An innovation economy is about more than investment – but it’s a vital ingredient
The factors impacting on the competitiveness of the UK innovation environment are many and varied – skills, procurement, infrastructure, regulatory environment, fiscal incentives and more. With a spending review around the corner focusing the mind, bold, long term investment in innovation is a vital ingredient if the UK is to become a science superpower or build back better through innovation.
So as we build on the innovation strategy, there is a destination – 2.4% of GDP on R&D by 2027, and a stop along the way of £22bn public investment in R&D by 24/25. Now we need a concrete plan and the fuel to get there. The implementation of the Plan for Growth, especially the Innovation Strategy, and the upcoming spending review must deliver on both.