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Boosting finance for the UK's Industrial Strategy

The government published its white paper Industrial Strategy: Building a Britain Fit for the Future on 27 November 2017. We've grouped together three major elements of the Industrial Strategy: four ‘Grand Challenges’, the new Industrial Strategy Challenge Fund and sector deals.

About the UK's Industrial Strategy

Below we have linked the four "Grand Challenges" in the strategy together with the ‘sector deals’ and the 14 challenges announced so far as part of the Industrial Strategy Challenge Fund, to which the government has committed £725m, with additional commitments by the private sector likely to take the total well above £1bn.

Although the groupings  require a certain amount of simplification, they are a useful way to summarise the implementation of the strategy so far.

Theresa May, the Prime Minister, and Greg Clark, Secretary of State for Business, Energy and Industrial Strategy, said that the aims of the strategy were to build on the country’s strengths in a global ‘new industrial revolution’, address its weaknesses in economic productivity and embrace Britain’s decision to leave the EU in order to ‘trade more not less’. The government considers ideas, people, infrastructure, the business environment and places to be foundations of the economy.

The total UK R&D investment was 1.7% of the GDP in 2016. But the Industrial Strategy target for 2027 is 2.7%. 

The four Grand Challenges of the Industrial Strategy

 

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Industrial Strategy Challenge Fund

For the Industrial Strategy Challenge Fund, the government has worked with businesses and academics to identify the core industrial challenges where the UK has a world-leading research base and businesses ready to innovate, and there is a large or fast-growing and sustainable global market. The Industrial Strategy includes four Grand Challenges (as set out in the following pages). The Industrial Strategy Challenge Fund will be used to invest in 14 industry challenges that have been announced so far, with the aim that private-sector funding will also be committed to complement the public investment in each challenge. The 14 industry challenges were announced in Waves 1 and 2. Proposals for Wave 3 challenges are still under discussion. The Industrial Strategy Challenge Fund is being managed by UKRI and delivered by its Innovate UK arm.

UK Research and Innovation

The Industrial Strategy Challenge Fund is delivered by UKRI. Formed in 2018, UKRI is a new nondepartmental public body that brings together the seven Research Councils, Innovate UK and a new organisation, Research England. UKRI will manage a total budget of more than £6bn. It published its first strategy and corporate plan in May 2018.

Innovate UK

Innovate UK is the country's business-led innovation agency that is playing a central role in delivering the Industrial Strategy, has invested £6bn+ since 2007.

Sector Deals

"Sector deals" are partnerships between the government and industry on sector-specific issues intended to boost productivity, employment, innovation and skills. Sector deals have been announced for: life sciences, automotive, creative industries, artificial intelligence, nuclear and industrial digitalisation/’Made Smarter’. A sector deal for the construction industry is expected to be announced very soon (HM Government; ONS; OECD; Innovate UK).

Estimated past commercial growth finance investment in each Grand Challenge

For this publication, ICAEW asked research and data firm Beauhurst to estimate total equity investments for minority stakes in UK early-stage ventures and companies that could be broadly classified as complementing each ‘Grand Challenge’. These are indicators of the level of potential commercial and public–private venture capital and growth finance that could be attracted to each challenge. The estimates do not include direct investment by the government or by government agencies in companies, but they do include deals by funds in which the government is itself an investor, such as funds supported by the British Business Bank.

British Patient Capital

 Separate investment programmes from the Industrial Strategy include British Patient Capital, which is managed by the British Business Bank, the government-owned but independently managed development bank. The aim of British Patient Capital is to boost long-term investment in high-growthpotential companies. The British Business Bank has supported more than £4bn of finance for more than 65,000 smaller companies and participated in a further £6.6bn for mid-cap businesses since it was launched in 2014.

The recent government review "Financing growth in innovative firms" led to an additional £2.5bn of "patient capital" being provided via the British Business Bank.

Source: British Business Bank

Acknowledgements

This outline devised by Shaun Beaney, Corporate Finance Faculty, ICAEW; Henry Whorwood, Senior Consultant, Beauhurst

Thanks to:

  • Participants in ICAEW’s Innovation Investment conference, Chartered Accountants’ Hall, 4 July 2018, including Prof Birgitte Andersen, Shaun Beaney, Tom Carter, Joseph Clease, Lord Clement-Jones CBE, Dr Anne Dobrée, Dr Andrew Elder, Richard Grethe, Alice Hu-Wagner, Mo Merali, Calum Paterson, David Petrie, Dr Govind Pindoria, Oluwaseyi Sosanya, Nigel Walker, Adrian Watson, Michael Wignall, Rosa Wilkinson, Qun Yang
  • Everyone at ICAEW involved in the conference, including Michelle Badejo, Maria Byrnes, Natalie Bruce, Tiffany Chezum, Graham Dale, James Douglass, Grace Gayle, Robert Hodgkinson, Adam Holliday, Tim Hurst, Michael Izza, Katerina Joannou, Jeremy Mooney, Elizabeth Price, Joel Spreadborough, Simon Thompson, Nick Toyas, Rosalia Wood
  • Beauhurst, including Jake Ford, Jonathan Ross, Henry Whorwood.