A plan for growth
The UK government replaced its Industrial Strategy with a Plan for Growth in March 2021. If the UK is to Build Back Better this plan needs long-term, consistent investment into research and innovation, argues Shaun Beaney.
The undignified political kerfuffle in April about how Boris Johnson had funded the refurbishment of his Downing Street private apartment included a side story with its own small irony. Texts sent last year by the prime minister to one of Britain’s most successful entrepreneurs and inventors, Sir James Dyson, about the potential tax treatment of the industrialist’s employees should they become involved in manufacturing ventilators, were allegedly leaked by Dominic Cummings, the PM’s former chief adviser. Cummings was the driving force behind the government’s £400m investment to buy satellite-network-in-the-making OneWeb out of Chapter 11, and was at one time acclaimed as the Conservative government’s champion of innovation. Putting this political soap opera to one side, there are much more important innovation challenges for the UK to tackle. One example is the phasing out of combustion engine vehicles over the next few decades, which will require massive investment, and not only in forms of propulsion, but also in novel transport networks, energy generation, manufacturing techniques and supply chains.
Public money is, of course, a major factor in much innovation activity – not least the development, production and distribution of vaccines in the fight against COVID-19, in which Johnson’s government has been very successful. But corporate financiers tend to focus on the commercialisation of new technologies – when they are pushed out into the market and begin to attract significant private capital.
Plums in the pudding
Innovation investment is a big contributor to economic growth. After the Brexit referendum in 2016, Theresa May’s government devised a new industrial strategy with the aim of increasing the country’s investment in R&D as a proportion of its GDP. The strategy included £4.7bn of additional government money by 2020-21. The UK lagged behind the likes of Germany, the US and France in R&D investment. Other international pressures included China’s 10-year strategy, announced in 2015, to make the country a high-tech manufacturing superpower and self-sufficient in industries such as computer-chip fabrication.In 2016, ICAEW’s Corporate Finance Faculty published Boosting Finance for Engineering & Technology with the IET, and in 2017 was heavily involved in the government’s Patient Capital Review. In 2017, the government published its Industrial Strategy and the faculty hosted the first major conference about the Industrial Strategy Challenge Fund (see icaew.com/boostingfinance).
Development of the strategy had involved a 132-page Green Paper and a 254-page White Paper. It included five ‘foundations of productivity’, four ‘grand challenges’, 10 ‘pillars’, several ‘sector deals’ and 142 policy commitments.
About £45bn of public- and private-sector money has been committed to those projects so far. But when Kwasi Kwarteng became secretary of state for Business, Energy & Industrial Strategy in March 2021, he described the 2017 programme – which had been spearheaded by his predecessor Greg Clark – as “a pudding without a theme”. Kwarteng promptly disbanded the Industrial Strategy Council. The council had pointed out that the Johnson government’s own Build Back Better: our plan for growth, published on 3 March, included 180 different measures.
A new plan
The prime minister wrote in the foreword to Build Back Better that he wanted a “strong and active government investing massively in science and technology, coupled with a dynamic enterprise economy that embraces the instincts and know-how of the private sector”.The plan included a recommitment to invest £14.6bn in R&D in 2021-22. UK Research and Innovation (UKRI) – the umbrella body for the research councils that provide £8.5bn per year – is only briefly mentioned. Also, for a ‘Brexit’ government, pan-European collaboration via the EU’s highly effective Horizon science programme has been somewhat undesirable.
Long-term, consistent research investment, as well as commercialisation via government departments, state procurement and the Innovate UK agency (part of UKRI), are economically vital. The Labour Party has argued for a guaranteed 3% of GDP to be spent on science and research, instead of the government’s target of 2.4% by 2027.
This government has been a little more enthusiastic about launching the Advanced Research & Invention Agency (ARIA) – a pet project of Cummings before he left Downing Street.
ARIA will be funded to the tune of £800m over the next three years. It will back so-far unnamed “high-risk, high-reward” R&D projects that might take up to 15 years to reach success. The new agency will be independent of UKRI and loosely based on the Defense Advanced Research Projects Agency (DARPA) in the US. But DARPA receives $3.8bn (£2.7bn) of financing per annum.
In February, the House of Commons Science and Technology Committee said that the need, remit and “government client” of ARIA had not been clearly identified. Committee chair Greg Clark called it “a brand in search of a product”.
Horizon scanning
On the corporate finance beat, the Future Fund, set up as one response to the COVID-19 crisis, has been expanded from £250m to £1.2bn. The British Business Bank, which manages it, has so far committed convertible loans to more than 1,200 high-growth, VC-backed companies. This is going to be extended into a ‘Breakthrough’ programme.The Corporate Finance Faculty’s work when it comes to innovation investment has often focused on collaboration with bodies such as the British Business Bank, which supports 100,000 smaller and growing companies, and Innovate UK. The faculty’s aim has been to encourage more public and private investment, encourage the provision of expert advice and highlight the beneficial aspects of corporate transactions, which are globally worth between $3.5trn and $4trn annually.
There are overlaps between the faculty’s activities on this front and its others in public policy, representation and technical guidance. These include national security, the new UK Infrastructure Bank, the review of the UK listings rules, fiscal incentives for SME investment, and state aid (all reported in recent issues of Corporate Financier).
Such areas of public policy often intersect. One example was the UK government’s recent decision to review formally – on competition and national security grounds – the potential $40bn takeover of Cambridge-based chip designer Arm by US giant Nvidia.
Economic development for health, education, employment and housing – let alone to overcome climate change and COVID-19 – depends on effective innovation. In the UK, that requires increased, sustained public investment as well as private-sector capital and expertise. Globally, it’s likely to mean much more international cooperation – and, we hope, much less ‘vaccine nationalism’.
