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Innovation – Life After European Regional Funding

  • 24 July 2023
  • By William Wells
  • This blog was kindly authored for HEPI by William Wells, the Deputy Director of Research Innovation and Impact at the University of Leicester.

Whilst there has been much focus within the Higher Education sector on the future of the UK’s relationship with the Horizon programme, the relationship with the European Regional Development Fund (ERDF) has been somewhat overlooked. The UK’s engagement with Horizon (primarily focussed on research) remains subject to ongoing negotiation and agreement. Our relationship to the ERDF (primarily focussed on skills, innovation and social inclusion) is clear: it is ending in 2023. Many UK universities are winding down or closing innovation and skills activities which ERDF previously funded. This presents a risk and an opportunity for innovation in the UK.

The UK must invest in research and innovation to address a persistent national productivity crisis. Before the recent ONS ‘technical adjustment’, long term data showed the UK’s gross domestic expenditure on R&D as a percentage of GDP at between 1.6%-1.7% – well below the 2019 OECD average of 2.5%.

UK R&D spending is comprised of business (55%), universities (23%) and government (7%). The role of government spending is commonly seen as a catalyst or addressing market failure and is critical to a successful, robust economy.  ERDF formed a reasonable proportion of public (geographically targeted) investment in innovation. With ERDF no longer part of the equation, we have a different and evolving innovation funding landscape.

It is difficult to deliver an exact assessment of the extent to which ERDF is set to be replaced by other sources, since no like-for-like funding will exist. Questions exist around whether new funding will be subject to the same level of targeting, based on economic need and geography. This is partly because the economic development environment in the UK is in a high degree of transition. Investment is being channelled through a broader array of organisations and funds, such as Mayoral Combined Authorities, Shared Prosperity Funds, Innovate UK, Advance Research & Invention Agency and Research England.

For many in the UK Innovation landscape, Shared Prosperity Fund had been seen as the natural successor to ERDF. In reality, however, it is marked by a number of disadvantages compared to ERDF. Firstly, the level of annual investment (£610M) is lower than that of ERDF (£1.56Bn). Secondly the investment allocations are devolved to local authority level, which, whilst placing investment decisions firmly in the hands of highly localised councils, mitigates against structural investment in activities which yield longer term gains (such as innovation). Finally, in developing their plans, local authorities are “prioritising” activities across a very wide array of interventions, including ‘community’, ‘supporting local businesses’, and ‘people and skills’.

The 2022 Comprehensive Spending Review saw a welcome increase in annual funding of 54% and 35% respectively for Innovate UK and Research England by 2024/25. Compared with a baseline of 2021/22 this represented a net increase of £950M. This contrasts markedly with an average increase of just 10% over the same period for the “discipline specific” research councils (a net increase of £259M). In policy and funding terms, UK Research and Innovation Agency (UKRI) is increasing investment in to knowledge exchange, partnerships and innovation. Visible through the reboot of programmes such as Research England’s UK Research Partnership Investment Funding and the extension of Knowledge Transfer Partnerships (at different ends of the financial spectrum).

In addition to the UKRI councils, a new “high-risk, high-reward” science and technology funding body in the UK has been formally established. The Advanced Research and Invention Agency (ARIA), backed with £800m, and created with the goal of “identifying and funding revolutionary science and technology at speed from world-class scientists” it aims to remove bureaucracy by “minimizing hurdles across a typical project lifecycle” that can hamper grants given by other UK funding agencies. It is a welcome addition to the national picture with its focus on high risk and high potential yield technologies.

At the regional level, the emergence of Mayoral Combined Authorities (MCAs) is injecting further dynamism into the innovation funding landscape. Boosted by devolution deals agreed with government, they are providing investment at a value of £30-£40M per annum, some of which will be directed at regional innovation. Furthermore, in regions such as Greater Manchester and the West Midlands, so called “Trailblazer deep devolution” deals are being concluded. These deals include a focus on regional innovation priorities and promise a share of £100 million to fund transformative research and development projects. They encourage a stronger relationship between the city region and national government by articulating innovation priorities and working closely with Innovate UK to strengthen local clusters and attract investment. Three pilot innovation accelerators were launched by UKRI in March 2023 in the city regions of Birmingham, Manchester and Glasgow, flowing directly from these deeper devolution deals.

While this is positive for those larger city regions, and should be celebrated, it is unclear whether there will be a path to accessing such investment in cities and regions without multi-authority devolution deals. This could result in a two-tier approach, with some regions unable to draw on their economies of scale and geography. A mechanism to address this might be have been found in the development of the Innovate UK Launchpad programme described by Innovate UK as designed to “support a geographic cluster of small and medium-sized enterprises (SMEs), providing innovation funding, support, and networking opportunities to help SMEs to innovate, grow and scale their businesses”. However, the two pilots that have been launched are in city regions represented by Mayoral Combined Authorities (Liverpool and Tees Valley). At this point, it is unclear where such investment might flow outside of MCAs.

Opportunity and recommendations

The current complex funding landscape presents an opportunities and risks. I see the biggest opportunity being the potential role that universities can play across the UK to level the playing field in innovation approaches.

  1. Universities within Mayoral Combined Authority regions should be working closely with the Mayoral executive and lead on the development of innovation and productivity strategy.
  2. Where not in a Mayoral Combined Authority region with an associated devolution deal it is critical that the arguments are made for innovation investment within a coherent geography aligned with sectoral growth opportunities. This will include an identification of relevant innovation clusters and priority investment required to grow them.
  3. Universities must demonstrate committed leadership on the regional innovation agenda and communicate opportunities and needs to national government and agencies. An example would be the transformation of the technology economy in Leicestershire through the development of Space Park Leicester.
  4. Universities must nurture and develop industrial partnerships to address the increased funding within Innovate UK which has never been greater (KTP, Collaborative R&D and Launchpads).
  5. The targeted use of Higher Education Innovation Funds (HEIF) by universities to address the gap left by ERDF is critical to regional innovation, especially where funding has gone and is yet to be replaced. These should be deployed against other sources of regional and national investment for maximum leverage and impact.
  6. Whilst Shared Prosperity Fund is far from a panacea for innovation funding, HEIs should be working with partners to support bids aligned with their assets (Skills, Net Zero and Business Support).
  7. The loss of ERDF should prompt the evolution of regional innovation support, and universities should collaborate to deliver in partnership for maximum scale and efficiencies. The use of Civic University Agreements can be an effective strategic and operational mechanism for this approach.

Change has always been a feature of the innovation funding landscape. There will, however, be constants: UK universities will brim with research and talent; there will be differing levels of economic performance between regions; and places will exhibit a variety of strengths and opportunity. The opportunity for universities is to provide the leadership, constancy and investment in innovation as part of a long-term commitment to the economic health of their communities.

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1 comment

  1. Albert Wright says:

    This is a useful update on the recent and forthcoming changes to the landscape of regional and innovation funds open to Universities.

    However, what I think is missing is robust, third party evalutions of the projects that have been funded. There is little evidence that they have made any difference to local / national productivity or wealth creation.

    Governments would rather leave investment to the private sector than give funds to Universities.

    Government money given to the private sector is also likely to be reduced following further investigation into the the Research and Innovation Tax Credit scheme, which seems to indicate an unacceptable level of error and fraud.

    On a more fundamental point, the percentage of GDP devoted to research and development is extremely difficult to measure, as is productivity. The correlation between a high percentage of investment in R & D and resulting growth in GDP remains “unproven”.

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