Regional Innovation and Growth

Our report, entitled “Flying Blind: Innovation, Growth and the Regions”, was published in March. Profound policy mistakes have led to a multi-decade failure to foster even economic growth geographically. From a productivity and GDP per head perspective, we are two nations: Greater London and the south-east, and everywhere else. Last year, GDP per head in the UK averaged just over £39,000. Every region in the country is below that figure, apart from the south-east, at £41,000, and London, at a whopping £69,000. My Committee’s report found that if the £86 billion of public funds is accompanied by unlocking private investment across the country to commercialise innovation, it could deliver regional economic growth and therefore better living standards and quality of life for all our constituents. Although we welcome the Government’s commitments, including a £500 million fund for regional innovation clusters, that is less than 1% of our public research spend.

The work of our Committee member and former Minister, the hon. Member for Mid Norfolk (George Freeman), rightly emphasised the power of clusters. Our report found that there is still untapped potential for innovation-driven activity across the regions, with an increase in the number of innovation-led clusters. Regional inequalities continue to persist in R&D funding. The golden triangle between Oxford, Cambridge and London receives significant public R&D funding and private investment, absorbing 46% of non-business R&D despite having only 36% of the population. The Minister for Science has asserted that cutting-edge research is best carried out in centres of excellence, and we found such centres in Cardiff, Durham, Edinburgh, Leeds, Manchester, Milton Keynes and Newcastle, among many others.

Geographic clusters can drive productivity, foster concentrated networks of expertise, infrastructure and collaboration, and support regional growth. Their success relies on sustained investment, established infrastructure and skills concentration. We have said that the Government should establish a national framework for cluster development that embeds regional key performance indicators. We have said that the Government should take a data-driven approach and comprehensively monitor, map and support the growth of innovation-led clusters across the regions. We have also said that the Government should publish annual data covering the performance and impact of innovation clusters. The data should set out any gaps in infrastructure, skills, and commercialisation outcomes, and detail how public investment is being used across different parts of the country.

Throughout our inquiry, we heard of major shortfalls in gathering and sharing data relating to innovation policy, meaning that there is currently no clear way to track the pipeline from R&D research to capital investment, company growth and wider economic benefit. There is no system that brings together the data on all research and innovation spending across the public sector. The Public Accounts Committee noted in July last year that UKRI aimed to link up all such data across Government but had not given a target date, and that “significant limitations” in its data systems make it hard to manage its budget strategically.

We concluded that the UK is flying blind when it comes to public and private R&D spending, and it is unacceptable that we cannot measure and map R&D spending and private sector investment. The Secretary of State rightly told us of her desire to leverage public funds to unlock private investment in innovation-led activity across the country, but without clear and transparent measures of what is being done and its impact, it is impossible to assess existing policies or identify improvements.

I thank the Government for their response, which was published on Tuesday. There is much to welcome in it, particularly the Government’s joined-up contribution from the Department for Science, Innovation and Technology, the Ministry of Housing, Communities and Local Government, the Department for Business and Trade, the Department for Education, the Treasury and the Cabinet Office.

I welcome the Government’s agreement with the key thematic areas highlighted in our report, and their acceptance of the need for better data. More specifically, the promise of

“a more robust and joined-up approach to monitoring the development of innovation clusters over time”

is a step in the right direction. The Government also committed to doing more to help innovators access public funding and, crucially, to prioritise the procurement of innovation, which is the best way for the Government to support the development of sovereign UK alternatives to global technology providers. I note and welcome the Chancellor’s recent directions to Ministers on this topic.

However, I am disappointed by the Government’s rejection of our call to establish a framework for monitoring cluster development, and by the fact that they will not designate a Minister responsible for championing innovation in each region of the UK. That leaves us with only a Minister with responsibility for Cambridge and Oxford innovation—the Minister for Science. The Government have argued that they should not be supporting the establishment of a Midlands Mindforge or a Northern Gritstone, and they have not accepted our recommendation to establish regional branches of the British Business Bank. By failing to accept these recommendations, the Government are depending too heavily on an industrial strategy that does not have appropriate regional data.

We chose to call our report “Flying Blind” because that was the best summary of the approach of successive Governments to innovation policy. Regional growth and development can transform a region and rebalance our nation’s economy, helping to address the inequalities that drive division. Greater Manchester is an example. Under Mayor Andy Burnham’s leadership, we have seen 3.1% annual growth sustained over 10 years, which is faster than London and twice that in the UK as a whole. That shows the power of regional leadership and investment.

The current Government deserve credit for backing our national research and development ecosystem, but without a clearer picture of what works for different regions and a greater engagement with local leaders on what support their local innovation ecosystems need, we will continue to be flying blind.