North-South R&D tech funding divide highlights levelling-up challenge

The findings are part of a wide-ranging report, 'Chasing Unicorns: Innovation-led Growth in the North', published today.

The report highlights the challenges facing the government’s flagship domestic agenda, with its promise of ‘levelling-up’ the economy, and its delivery of the UK Industrial Strategy, which is focused on innovation.

The North of England accounted for only 14 per cent of the £37.1bn which UK companies and academic institutions spent on research and development over the last five years, with 53 per cent being invested in Golden Triangle areas.

The figures mirror the levels of public money invested in private companies and universities through Innovate UK, the agency responsible for supporting business innovation. The report found that between 2015 and 2020, the North was awarded 14 per cent of the £7.1bn, with 47 per cent going to the Golden Triangle. With the universities out of the equation, the balance between North and South for investment in business was 12 per cent North, 56 per cent Golden Triangle.

The funding gap was even wider for private-sector backing through the widely-used Enterprise Investment Scheme (EIS) and Seed Enterprise Investment Scheme (SEIS), which offer tax relief for investors backing small unquoted companies. The figures, representing the tax year 2018-19, show that the North attracted only 7 per cent of the £2bn funds invested compared to 76 per cent in the Golden Triangle.

The venture capital funding challenge is equally stark: the North pulled in only 6 per cent of £8.1bn, with 84 per cent being invested in the Golden Triangle. By 2020, the picture was even worse, with a ratio of 4 per cent to 86 per cent out of a total of £12.7bn.

The UK Industrial Strategy sets out four ‘Grand Challenges’ to future-proof the economy: artificial intelligence and data; ageing society; clean growth; future of mobility.

Looked at through the prism of attracting funding from Innovate UK to business, the North-South funding divide against these four priorities was more complex. The North performed best on clean growth (16 per cent) and worst on AI and data, securing only 5 per cent compared to the 82 per cent invested in the Golden Triangle.

The full report makes ten recommendations to achieve a step change in rebalancing the UK science and technology economy. The most radical calls for the creation of a new statutory body, the Northern Innovation Forum. It would mirror Transport for the North in enabling the region to speak with one voice on the investment needed to drive transformational growth. The new organisation would help connect the different elements within pan-Northern innovation – the business community, Northern universities, Local Authorities and Local Enterprise Partnerships. It would not be intended to replace or replicate the work of existing bodies, but to add strategic value by ensuring that funding and strategy decisions are informed by local knowledge and requirements.

The authors also call for the Northern Powerhouse Investment Fund (previously supported by the European Regional Development Fund) to be restocked for investment specifically targeted at sectors aligned with the Grand Challenges, along with fund management incentives that reward greater risk-taking.

Other recommendations include using the government’s planned overall increase in research funding to drive up academic activity that is specifically tied to industrial collaboration and commercialisation.

Neil Murray, chief executive of Impact Data Metrics, based in Liverpool’s Baltic Triangle, said: “The Covid-19 pandemic has intensified many longstanding social and economic inequalities. If any good comes from the turmoil of the last year, it must include redoubling our collective efforts to unlock the potential in regional economies. The government’s own strategy prioritises science and technology and our findings show the size of the task ahead in the North of England.

“Dynamically growing businesses need to be supported and nurtured to ensure that they achieve their full potential. Increasing the number of these businesses will not only provide more opportunities for the local workforce, but will improve the attractiveness of the North for qualified and skilled workers from elsewhere in the UK.

“There’s much we can do in the North to support better outcomes, not least ensuring that policy-making here is more agile and responsive to take advantage of the growth opportunities that are available. A higher level of performance monitoring also needs to be applied across policy areas.

“It is not enough to simply report outputs with the too-commonly heard view that, ‘It’s always been this way.’ Decisive and effective interventions need to be made in response to under-performance to achieve positive change.”

In February, the House of Lords Science and Technology Committee published a report on the impact of UK innovation centres (Catapults), concluding that additional support for the centres was vital in order to reach R&D spending targets and that the government’s strategy was failing to make the most of the Catapults.

However, the government can fairly point to positive investment funding made available last year for crucial research and innovation projects to help the nation respond to some of the world’s most pressing challenges, from climate change to the production of medicines.

In October 2020, a number of 'blue-sky projects' arising from the Future Leaders Fellowship initiative received a collective total of £109m in public funding from the government.

However, last week, university leaders expressed fear at reports that the Treasury has not set aside funding to support the UK’s continued participation in the Horizon Europe science and innovation funding programme.

Ministers were warned that a £1bn cut in funding would be equivalent to cutting more than 18,000 full-time academic research post across the UK, weakening the UK’s attractiveness as a hub for talented researchers and private and international investment.