“The change we need is to put innovation at the heart of everything we do.” So said Prime Minister Rishi Sunak on Wednesday as he set out his priorities for 2023.
He said all the right things: “Let me tell you why innovation is so important. Over the last 50 years, it was responsible for around half of the UK’s productivity increase. New jobs are created by innovation. People’s wages increased by innovation. The cost of goods and services reduced by innovation. And major challenges like energy security and net zero will be solved by innovation. The more we innovate, the more we grow. And the world is seeing an incredible wave of scientific and technological change, so right now, the most powerful way to achieve higher growth is to make sure the UK is the most innovative economy in the world.”
The Prime Minister claimed to already be doing this by: increasing public funding in R&D; seizing the opportunities of Brexit; making sure entrepreneurial and fast-growing companies get the finance they need to expand; and spreading a culture of creative thinking and doing things differently across every part of the UK.
I’ll take each in turn.
First, while successive governments should be commended for their commitment to R&D spending, in the Autumn Statement the government cut R&D tax credits for smaller companies. This coming April, the credit for companies claiming through the SME scheme will be reduced from 33.35% to 18.6%. As Wayve’s CEO Alex Kendall says: “We’ve seen really strong rhetoric from the government being pro-innovation, pushing the UK to be one of the best environments if you want to come and start a company. [The credit reduction] feels like a U-turn on that rhetoric and that strategy, which is disappointing to see.”
I’m not sure what, if anything, has been seized so far post-Brexit. As the TIGRR report and a succession of Regulatory Horizons Council reports show, there are opportunities, but they haven’t been a priority. Philip Aldrick is to the point: “Sunak, a Silicon Valley acolyte, believes in tech, ideas, innovation and capital. Thrilling stuff, but he might get bigger rewards simply by delivering on his promise to get the Northern Ireland protocol fixed.” However, George Freeman MP (co-author of the TIGRR report) remains optimistic for some regulatory reforms.
On access to finance, we will wait to see whether he can unlock the institutional investment that we’ve long called for. I’m particularly interested to see more detail on the Long-term Investment for Technology & Science (LIFTS) initiative, which is designed to catalyse investment from pension schemes and other institutional investors into UK science and technology businesses.
When it comes to impacting culture, much of this is frankly outside the power of government. However, as we have argued, the Great Exhibition of 1851 managed to inspire a generation of innovators and we could do so again. This would be the opposite of last year’s failed Unboxed festival, which was described by the DCMS committee as “vague and shape-shifting”.
Stupid Economy
We don’t know what the biggest story of the year will be because there’s no accounting for a deranged world leader like Putin, or a pandemic like Covid. But even if they don’t turn out to be the biggest stories, we know that the Government will have to deal with the strikes, a recession and the impasse of post-Brexit trading arrangements in Northern Ireland.
Local elections will be held in May. Most don’t expect a general election until 2024, but last year nobody predicted three Prime Ministers. Even without an election, the campaigning will start gearing up in earnest.
The economy will be front and centre. Of 101 leading UK-based economists polled by the Financial Times, more than four-fifths expect the UK to lag its peers, with GDP already shrinking and set to do so for much or all of 2023. Professor Ricardo Reis concludes: “The UK suffers from an energy shock as bad as Europe’s, an inflation problem . . . as bad as the US and a unique problem of lack of labour supply from the combination of Brexit and the NHS crisis.” You can read the full responses here.
Bloomberg’s economic predictions are equally bleak – including a significant drop in house prices (even at a time of gross undersupply when it’s most needed). The Office for Budget Responsibility expects a 9% decline and many others are predicting even more. This would hit business creation as house price growth is strongly correlated with entrepreneurship, and there is a strong positive effect of home equity on the probability that a non-business owning household will switch to entrepreneurship in the future.
Kitty Donaldson is “on the lookout for Keir Starmer to try and recreate some of the cultural groundswell of enthusiasm for a Labour government that Tony Blair managed to create in the mid-1990s.” Perhaps a drill remix of Things Can Only Get Better? While Cool Britannia 2.0 is an overstretch, Starmer (as Blair was when he was favourite to enter Downing Street) will be asked to set out a more detailed policy platform.
Elizabethan Order
Back in 2021 our Head of Innovation Policy Anton Howes and Ned Donovan called for the creation of a new order of chivalry – an Elizabethan Order – to raise the status of innovators, entrepreneurs, engineers, and scientists. Part of the reason is that the current Order of the British Empire fails to do this, with on average only 6.7% of the awards being given for those activities. Instead, it largely goes to philanthropists, civil servants, or people who are already famous for sports, acting, and music. With the 2023 New Years Honours, we had hoped for some improvement, but this year it’s actually fallen a little, to 6.2%. Still, it’s incredible to see Anisah Osman Britton, chair of our Inclusive Innovation Forum, and Alison Cork, member of our Female Founders Forum, both awarded an MBE. Both richly deserved.
Heart of the Matter