Plan I. Fostering innovation for long-term growth. 5 February Stian Westlake, Exec Dir of Policy &

Transcription

1 Plan I Fostering innovation for long-term growth 5 February 2013 Stian Westlake, Exec Dir of Policy & 1

2 Two plans dominate the debate Plan A : Austerity Plan B : Stimulus Cut government spending Reduce government deficit Maintain low interest rates Deregulateto encourage growth OR Maintain spending -if necessary borrowing more Preserve employment and demand Reduce deficit as economy recovers 2

3 Where will economic growth come from? Productivity growth after major UK recessions Year 1 Year 2 Year 3 Year 4 Source: ONS Quarters since start of recession 3

4 But Plan A or Plan B alone won t solve our problems Productivity Slowing before 2007; sharp fall since 2008 Changing economic realities Major societal challenges The long-term affects the shortterm Will what worked in the past work now? The Great Stagnation, Race Against the Machine Green technology and healthcare present unique economic issues Stimulus and investment spending work better if the underlying economy works better 4

5 Innovation is the main driver of growth Both for the economy as a whole and for individual businesses Make-up of UK economic growth %/yr, UK Business growth, Revenue growth, %/yr Innovators Non-innovators Innovation: 67% of growth Source: Nesta, The Innovation Index ( ) Source: Nesta, The Vital Six Per Cent (2009) 5

6 Innovation investment has fallen sharply since 2008 Since the recession began there has been a 14% drop in real terms in innovation investment UK Business investment in innovation (constant prices) Between 2008 and 2009 investment in innovation fell by 7% in real terms 24 bn drop Source: Nesta, The Innovation Index (2012)

7 Innovation investment started slowing before 2008 UK business investment in innovation (%age of GDP) Intangible ( innovation ) investment Source: Nesta, The Innovation Index ( ) 7

8 Tangible investment fell, and its composition changed UK business investment in tangible assets (%age of GDP) Tangible investment (buildings, computers, vehicles, machinery) Composition of UK businesses tangible investment ( bn, nominal) Buildings Plant ICT Vehicles Source: ONS; Nesta, The Innovation Index (2012) 8

9 All the while, the business sector s surpluses increased UK Business sector currency and deposits (% of GDP) Net lending to UK businesses (% of GDP) Source: ONS; Bank of England Financial crisis

10 So: an innovation collapse has followed an age of cash and concrete Innovation investment levels off and begins to decline Tangible investment falls Buildings dominate, ICT investment falls Businesses accumulate cash Between 2008 and 2009 investment in innovation fell by 7% in real terms billion, real terms Since the recession began there has been a 14% drop in real terms in innovation investment Survey data Investment in innovation falls sharply No evidence of recovery yet 10

11 Other countries have made innovation a top priority since the crisis Government Outlays on R&D, 2007=100 Korea Germany France Japan USA UK 11

12 My children are eight and ten years old. I don't want them to read about how China has just built the world's most advanced aircraft; how India is leading the globe in computer design; and have to say to my children: that used to be Britain. I want Britain to be the home of the greatest scientists, the greatest engineers, the greatest businesses - a land of innovators. George Osborne, 3 October

13 But in the UK other commitments have won out Discretionary government spending on science, technology and innovation, 2012/13 to 2014/15, million Science, Technology and Innovation Science budget ring fence * R&D tax credit changes EIS, SEIS, VCT reform Science capital fund, aerodynamics centre, graphene centre Video games and VFX credit Entrepreneurs relief and EMI Catapult Centres SMART awards and SME innovation Smaller cities broadband Business angel co-investment Total ~ 2.6 billion Science ring fence Other innovation Aid Ring fence Spending to scale billion Other examples Corporation tax cuts Weekly collection support scheme ( bins fund ) Ring fenced aid budget Ring fenced health budget 8,469 46,045 Health Ring fence 46.0 * Difference between planned expenditure and average spending consolidation of other departments Source: Budgets 2009, 2010 (x2), 2011,2012, BIS Research and Innovation Strategy, TSB

14 So what can the Government do about it? Just get out of the way Picking winners 14

15 Lesson 1: Don t get stuck in a PICL P I C L lanning mmigration ompetition abour market reform Important, but not enough 15

16 There is another way Recovery and growth Austerity + Innovation Banking crisis and recession 16

17 Three main areas of recommendations 1. Investing more resources into innovation 3. Creating a lasting culture of innovation 2. Making the innovation system work better 17

18 Area 1: UK capital markets have little bearing on innovation investment The UK s capital markets and business investment in innovation, billion, nominal 1999 to Total capital raised above 1998 levels 6.6 tr Additional innovation investment above 1998 levels 0.2 tr Net profits re-invested by UK businesses ( bn) Net inflow of capital from flotations ( bn) Net equity investment in UK businesses ( bn) Net financial acquisitions (debt, MMIs, securities) UK businesses ( bn) Investment in innovative activities / NESTA innovation index ( bn) Source: Nesta and the Big Innovation Centre

19 Area 1: The right financial architecture A 200m venture coinvestment fund A business bank with the freedom and expertise to bank innovation New sources of finance: peer-topeer lenders, longterm investors 19

20 Area 1: Harnessing procurement Put 1% of procurement towards innovative solution Follow US SBIR model Create a 2.3 billion Innovation Engine, providing demand for growth businesses 20

21 Area 1: Twenty-first century infrastructure Invest in the infrastructure of the twenty-first century, not just the nineteenth Use low interest rates to build super-fast broadband, smart grids Remove planning barriers in innovative clusters 21

22 Area 2: invest in demonstrators Fund demonstrators connecting research, business, infrastructure and government Beyond manufacturing: services, retail, adoption of technologies 22

23 Area 2: better incentives for innovators Modernise IP law fewer junk patents Use Challenge Prizes to mobilise innovators to tackle tough problems 23

24 Area 2: Harness public and social innovation Public services 24% of GVA Harnessing evidencebased solutions, new technologies and social innovators Early investment and decommissioning Information-sharing 24

25 Area 3: culture of innovation Education for digital makers Educate both the brain and the hand A C21st BBC Computer Literacy project A commitment to innovation in education Break down the barriers to innovation Allow businesses to attract the best global talent Regulate with competition in mind 25

26 Where s the money? 4G auction 4+ billion to be raised in 2013 Prizes? Investment? ERDF 1+ billion for innovation Procurement 2+ billion per year if 1% of procurement went through SBRI Business bank 1 billion of capital for growing businesses 26