You could almost hear the collective sigh of relief within the UK’s science and innovation community. With a new Conservative government bent on reducing the deficit through making further cuts to unprotected public sector budgets, it had widely been expected that the Comprehensive Spending Review process that has taken place over the summer would result in substantial cuts to research funding across the board. This week’s Autumn Statement was therefore less brutal than anticipated, largely due to more optimistic projections by the OBR about the future health of the British economy.  

In the event, the operational budget of the Department for Business, Innovation and Skills will only be cut by 17 per cent, rather than the 25 to 40 per cent that had previously been floated. The science budget has been protected in real terms, and Innovate UK’s flat cash settlement will likely remain intact. However, this does not mean that all will be business as usual. Within this settlement, Innovate UK has been asked to convert £165 million of its grants into loans or other new financial products by 2019/20. And while it will retain a separate funding stream and its clear focus on business, the government also plans to look at ways to integrate it into a new umbrella organisation, Research UK (which is due to be set up to better coordinate the work of the Research Councils).

The details of all of these proposals remain vague. So far, commentators have been generally dubious about the proposal to merge Innovate UK into another institutional structure, with Mariana Mazzucato suggesting that it will lead to a real cut in its budget. The introduction of a wider range of financial support instruments is being treated with cautious interest, although business organisations - including the CBI and FSB - have expressed concerns that it might stifle innovation, particularly within smaller firms.

Innovate UK has been in limbo for a while, so at the very least, this week’s announcements have provided some clarity about the direction of future travel. The challenge for the government and Innovate UK in the months and year ahead will be to ensure that they do not get so bogged down in negotiations about specific funding instruments and governance structures that they lose sight of the bigger picture - namely, how to make Innovate UK as effectively experimental as possible in its mission to support business innovation in areas where the market is less willing to take risks.

Over the last year, Nesta has been looking at innovation agencies around the world, collecting interesting examples of best practice in terms of strategy and organisational design from both established and newer organisations. We’ll be publishing a report early in the new year that sets out what we have learned. In the meantime, here are a few teasers from our case studies that we hope will provide some inspiration and food for thought.

• Tekes in Finland (which uses a wide range of innovation support instruments including grants and loans) has been a leader in the use of evaluation to understand the role its funding has played in turning promising ideas into viable commercial products or services. A recent review found that more than 60 per cent of Finnish innovations have received funding from Tekes and that in more than 80 per cent of these cases, this was crucial to the project’s successful development. Significantly, Tekes support has been particularly important in supporting totally new innovations (as opposed to those which make incremental improvements) and those which are more complex and take longer to reach market.
   
• Over the last few years, VINNOVA in Sweden has been instrumental in developing the concept of a challenge-driven innovation agenda. Since the Swedish presidency of the Council of the European Union in 2009, which focused on directing European research and funding towards the ‘grand challenges’ facing the global community, VINNOVA’s programmes have shifted towards cross-sectoral activities designed to address big societal challenges (such as healthcare and sustainability). This has become an increasingly common approach among innovation agencies, including Innovate UK and Tekes.
   
• In Israel, the Office of the Chief Scientist was established in 1968 as a highly independent arm of (what is now) the Ministry of Economy, with a very broad mandate to stimulate investment in private sector R&D. It deliberately did not choose specific industries to support; instead offering grants for any kind of R&D, with royalties to be paid back by companies only if the project was successful. The organisation is widely credited with having jump-started a national culture of business-led high tech R&D, and in the 1980s and 1990s it filled a genuine gap in financing for Israeli startups. The organisation’s revenue model has also been successful in generating a return on investment - royalties accounted for just 7 per cent of the OCS’ budget in the late 1980s but had increased to over 30 per cent by the late 1990s.
   
• With a budget that has reached more than US $5 billion, Brazil’s innovation agency, Finep, has become an important player over the last decade. It has led on the design and coordination of Plano Inova Empresa, Brazil’s ambitious strategy to increase R&D in strategic sectors that involves cooperation between 12 ministries, four federal regulatory agencies and the Brazilian Development Bank. However, while Finep’s resources have given it influence, they have also made the organisation more susceptible to political interventions in its activities. For example, Finep’s president is a political appointee (nominated by the Ministry of Science, Technology and Innovation, and approved by the Brazilian president) and can change rapidly following election results.

These are just a few of the agencies we have been looking at in depth in this project. In future blogs, we’ll be looking in more detail at how the experience of other innovation agencies - many of which are facing similar changes in strategy and budget as a result of austerity conditions - can usefully inform the reorganisation set to take place at Innovate UK.  

Photo credit: Nicholas Doumani via Compfight (Creative Commons)