Innovation policy reform could help regional exporters by £200 billion per year

The Commission’s fourth and final report focuses on the UK’s knowledge capital and the ideas and processes - both public and private - aimed at fostering them.

The UK suffers from an ‘Exporter Productivity Gap’ of £192 billion per year in lost potential output. This gap refers to a difference in productivity between those export-intensive firms located in London and the South East, and those located in the rest of the country, which cannot be explained by regional factors. Were this to be closed, the UK would not only see increases in GDP, but regional productivity gaps would diminish by 14% - over £10,000 for every worker in the North, Midlands, East and South West.

To close this gap, the Commission proposes the following:

Firstly, ‘mission-led Government’ should start with defining the missions centrally, but then giving the Department for Science, Innovation and Technology (DSIT) an explicit mission for developing industrial capabilities, through measures such as Innovation Accelerators and leveraging Government procurement.

Secondly, the UK’s R&D institutions should focus not only on pushing the frontier, but also on the development of industrial capabilities and the diffusion of non-frontier innovation throughout the economy.

Thirdly, Innovate UK’s grants should more closely align with the government’s strategic missions. Given the complexity of the R&D landscape, it should also expand its outreach and ‘one-stop-shop’ capabilities.

Fourthly, quality-related funding formulae should place less weight on the quantity of research produced within institutions. UKRI and similar institutions should be encouraged, for projects in areas of strategic importance, to cover the full economic costs of research. Assessment criteria for grants should more heavily weight the quality of research delivery mechanisms.

Finally, an institution like the Regulatory Horizons Council should be given the role of a cross-sector ‘sandbox’ authority. It should act as a one-stop shop for those, especially those with cross-sector technologies, who wish to interact with the regulatory system. Through the sandbox exercise, it will ask existing regulators to justify their existing rules, as well as advising on legislation changes.