Yesterday, Parliament went into recess until 5 September, meaning broad governmental changes are likely to be on pause for a few months. For this week, though, there are plenty of updates to get through, including: formation of BEIS; the reintroduction of industrial strategy; the UK’s performance in the European Innovation Scoreboard; and the digital economy and infrastructure.

New department means BEIS-ness

The most notable change to take place in innovation policy is the disappearance of BIS, now replaced by BEIS: Business, Energy and Industrial Strategy, headed up by Greg Clark. The list of responsibilities for BEIS (pronounced ‘bees’?) is a fairly broad one:

• Business and enterprise
• Competitiveness
• Science and innovation
• Labour markets
• Energy system
• Keeping energy bills low
• International climate change and cost-effective carbon reduction at home
• UK energy legacy

Notable in that list are the responsibilities for energy and climate change policy, with the closure of DECC probably the most controversial reform in this area.

Oversight of universities, further education, skills and apprenticeships will now pass to Department for Education, for whom Justine Greening is the new Secretary of State. Currently, there remains uncertainty over which department will have responsibility for the research budget, with Times Higher Education predicting BEIS will be charged with overseeing research.

It has been confirmed that plans for UKRI and OfC will continue, with the bill on higher education and research passing its second reading by 294 votes to 258, just in time for parliamentary recess.

"I am thrilled to have been appointed to lead this new department charged with delivering a comprehensive industrial strategy, leading government's relationship with business, furthering our world-class science base, delivering affordable, clean energy and tackling climate change."

Greg Clark, Secretary of State for BEIS

Also noteworthy is the re-introduction of ‘industrial strategy’ to the political lexicon, first heard in the 70s. Generally it is recognised as state intervention being utilised to support particular industries or companies, or intervene on behalf of the public interest. The example given by the new Prime Minister was the ultimately abandoned attempt in 2014 by Pfizer to take over AstraZeneca, which the government had no power to block, despite the harm people believed it could cause the pharmaceutical industry. Government commitment to this concept was quickly tested with the controversial takeover of ARM, one of UK tech’s biggest successes, by Japanese firm SoftBank. May and Hammond - the new Chancellor - both welcomed the deal amid promises by Softbank of 1,500 new ARM jobs in the UK in the next five years. From this, we can perhaps deduce that May considers some industries more requiring of intervention than others, and regards the benefits of an open attitude to foreign investment to outweigh the potential risks.

Foreign takeover bids are unlikely to end here: commentators have suggested that part of the motivation for the purchase of ARM is the bargain offered by the relatively weak pound due to Brexit (although others have denied this). It’s possible this forms part of the reasoning behind the re-introduction of industrial strategy: there have been suggestions that private investment will take a hit, and industrial strategy may be a method of introducing economic stimulus.

European innovation scoreboard: UK steadily improving

The European Innovation Scoreboard is a comparative analysis of innovation performance in EU Member States, other European countries, and regional neighbours. It assesses relative strengths and weaknesses of national innovation systems and helps countries identify areas they need to address.

The three main categories of indicator used by the scoreboard are:

• Enablers - basic building blocks which allow innovation to take place – human resources, open, excellent and attractive research systems, and finance and support.
• Firm activities - capture innovation efforts in European companies – company investments, linkages and entrepreneurship, and intellectual assets.
• Outputs - show how this translates into benefits for the economy as a whole – innovators and economic effects.

The UK was once again categorised as a strong innovator, still behind innovation leaders such as Switzerland and Sweden (the top two ranked countries) and 9th out of the 36 countries compared. While there is room for improvement, the outlook is generally positive; the UK’s performance has been improving steadily since 2008, and performance relative to the EU average has gone from six per cent above in 2008 to 15 per cent above in 2015. It is also worth noting that the innovation leaders performance relative to the EU average has declined over the last year.

One area of concern is the decline in performance in venture capital (VC) investments across Europe, which is known to lag behind the USA in this market - in 2015, VCs invested 5.4 times more money in the US compared to Europe. UK venture capital investments have also declined in the past year, but have statistically improved relative to Europe. However, this may not be a sign of a comparatively strong UK market: the report reveals that the method of measuring VC investment has changed this year. Previously it was based on ‘industry statistics’, which measure how much VC originates from a particular country, but is now based on ‘market statistics’, which measure how much VC is invested in a particular country. We would expect the UK (particularly London and the South East) to attract VC investment from Europe, so the relative UK improvement in this area is perhaps not as striking as originally thought, and may instead be largely down to a shifting of the goalposts.

Venture capital support in Europe is an area much discussed and researched - later this year Nesta will be launching an update on the European Digital City Index, which describes how different European cities support digital entrepreneurship, including through access to finance. Carlos Moedas, EU research commissioner, recently gave a speech at a hearing of the European Parliament’s Committee on Industry, Research and Energy, in which he outlined the next steps for the European Innovation Council, an initiative for better supporting innovation in the EU. One step was to address the finance difficulties that young companies face, through instruments combining grants and loans. He also suggested fostering innovation through changes to the evaluation criteria for innovation instruments, to ensure they favour support for high-risk proposals with “disruptive” market-creating potential.

A less ambiguous area of strong UK performance is in its research systems, most notably the measure “International scientific co-publication”, as shown by the image below for participation in Horizon 2020 contracts. This goes some way to explaining academics concerns over the fate of UK research collaborations with other EU countries, and there has been a recent call for the EU to publish a Brexit ‘code of conduct’ to ensure UK researchers aren’t being discouraged from joining bids for EU funding, as has been suggested.

Room for improvement in digital economy

The Commons Select Committee for Business, Innovation and Skills has completed a report on the digital economy. The report initially established the UK’s success in this area; digital industries grew 2.5x as fast as the economy as a whole from 2003-2013. This growth is being reflected across the UK, concentrated in digital tech clusters, as detailed in Nesta and Tech City UK’s Tech Nation report. Nevertheless, there were a number of recommendations to ensure the strategy stays on track, particularly in light of the EU referendum result:

• Regulation: The issue of clarity and regulating disruptive technologies is raised. This is often a tricky issue, as a balance has to be struck between encouraging innovation and ensuring customer and employee protection. The report suggests that Airbnb, for example, has benefited from its providers not having to comply with the health and safety regulations hotels do.
• Measurement: In order to accurately measure the digital contribution to levels of UK productivity, and better inform policy making, the government should explore how to collect real-time data, and apply standard terminology and coding of activity to develop a standardised approach for benchmarking.  
• Collaboration: A more collaborative approach to regulation, involving users, should be explored by the Government. Digital platforms (the software or hardware of a site) could themselves become key players in the regulatory framework, required to ensure that users are complying with current regulations, and that workers using the platforms have reasonable employment conditions and are not vulnerable to exploitation.

The Commons Select Committee for Culture, Media and Sport has published a report on broadband connectivity in the UK. In some ways, the issues facing digital economy connectivity are reflective of those facing UK policy in general; the sector contributes ten per cent of the UK’s GDP (double that of America), but inequality continues to be a problem, with some areas becoming “digitally excluded”.

The committee approves of government plans to introduce a “Universal Service Obligation” (USO), giving a household or business a legally enforceable right to an affordable and reliable internet connection at a minimum speed, stating it should be designed to “encourage investment without overly burdening industry, creating consumer detriment or inhibiting take-up”.

Andy Stevenson is an intern in the Innovation Policy team at Nesta. You can follow him on Twitter here: @StevensonAndy4

[Image: https://pixabay.com/en/gears-cogs-machine-machinery-1236578/]