The ‘innovation nation’ needs its creative industries

This blog was kindly authored by Jenny Haigh, Head of Policy (Fashion and Textiles & Creative Economy) at University of the Arts London.

At the Innovation Summit earlier this month, Prime Minister Andy Burnham set out a compelling ambition for Britain to become the world’s leading innovation nation. It was a speech that rightly celebrated the UK’s research ecosystem, with its thriving regional clusters and legacy of invention from Lovelace to Turing to the Oxford vaccine. The Budget on Wednesday is an opportunity to back that vision with policy architecture, but if it is to succeed, creativity needs to move from the periphery to the centre.

Universities are central to the UK’s innovation ambitions, yet the way government measures and supports innovation often overlooks some of the fastest-growing areas of university-generated enterprise. Many businesses in the creative economy remain invisible to innovation policy frameworks, despite the fact that the creative industries contribute £145 billion to the UK’s economy annually, and are growing at more than four times the national rate. Burnham himself pointed to London’s creative sector as a national strength and celebrated Liverpool’s expanding creative economy. Creative businesses are actively innovating: research by the Creative Industries Policy and Evidence Centre shows that nearly two thirds of creative micro-firms have engaged in R&D in the past three years, outstripping every other Industrial Strategy priority sector. In fact, the most student start-ups in the UK are produced at University of the Arts London (UAL), a statistic that also highlights the necessity of creative higher education.

Yet R&D systems were not built with creative businesses in mind, and innovation narratives reflect this. For all of the innovation agenda’s ambition, government policy has yet to harness the obvious connection between the creative industries and the country’s R&D goals.

The definition problem

The Organisation for Economic Cooperation and Development (OECD) defines R&D as ‘creative and systematic work undertaken in order to increase the stock of knowledge – including knowledge of humankind, culture, and society’. It explicitly includes the arts and humanities. However, the definition used by HMRC to determine eligibility for R&D tax relief does not: for a UK business to claim relief, a project must seek an advance in science or technology.

This means that a significant proportion of genuinely innovative creative activity receives none of the fiscal support available to STEM. Funding and support systems are built around models of research that both ignore the role of creativity in innovation and do not reflect how innovation actually happens within the creative industries. The small and micro enterprises that make up the vast majority of the sector also frequently lack capacity to navigate the systems that do exist.

Creative R&D in action

Our latest UAL report, The Creative Advantage: R&D Case Studies from the UAL Eco-system, profiles nine diverse graduate companies – in sectors from material science to architecture to sustainable fashion – that exemplify the case for creative R&D.  Between them, these companies are developing biodegradable materials, building tools to reduce waste and measure circular value, creating new sustainable construction materials and helping scientific breakthroughs reach investors and patients. They are attracting serious investment and solving real-world problems that more siloed research approaches have not cracked.

These creative companies are no doubt undertaking R&D, the impact of which transcends the sector it began in. They are ambitious, ready to scale, and perfectly poised to contribute to the good growth that characterises Burnham’s vision. Yet they operate in a system that removes them from the narrative whilst excluding much of their work from tax relief. The complex funding landscape also makes it very hard for small businesses to access support: half of R&D-active creative micro-firms do not access any guidance or advice about R&D and innovation, significantly more than firms in other Industrial Strategy priority sectors.

What the Budget should do

Burnham is right that the UK is not making the most of its innovation assets, but closing that gap requires removing the ‘arts vs STEM’ binary from our way of thinking. The Budget is an opportunity to fix that.

In addition to valuing the contribution of creative higher education and putting it on secure financial footing, three changes would make a significant difference:

1. Expand the HMRC definition of qualifying R&D to include the arts, humanities and social sciences, bringing the UK in line with the OECD and comparable economies like Germany or South Korea.
2. Provide targeted support for small and micro creative businesses to engage with R&D systems, with simplified processes and plain-language guidance, rather than complex frameworks designed for large firms.
3. Work in collaboration with universities like UAL to improve support offers for university spin-outs and student start-ups working in Industrial Strategy priority sectors in areas like business development, intellectual property guidance and access to long-term capital. Universities are doing a lot, but we need better government support.

None of this is a radical ask. The Prime Minister said himself that Britain has everything it needs to succeed. This is true, but only if our innovation system is properly supported to capture everything that makes it so great – our creativity included.