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Industrial Strategy: how to know if the Government is serious about innovation for growth, and also for good

January’s Industrial Strategy Green Paper was a promising start - but next week’s paper will need to match ambition with practical detail - setting out how the UK can encourage and harness innovation to fuel the UK’s future economy.

Ten months after initial publication (and 16 months after Theresa May announced the intention), next week we are finally going to see the Government’s plan for the UK economy. There were promising signs in January’s Green Paper - particularly its focus on innovation and the injection of an additional £4.7bn into the Government’s Research & Development budget, which included the creation of the Industrial Strategy Challenge Fund.

In the interim, there’s been lots of comment and suggestions on what problems the Industrial Strategy should tackle and how these might be fixed - the CBI on the importance of diffusion of innovation to fix the productivity gap, and Centre for Cities on place-based policy interventions. In particular, the independent Industrial Strategy Commission, reframing of industrial strategy as ‘strategic economic management’ with a focus on living standards and social outcomes was a considered, welcome addition to the debate.

From Nesta’s ongoing work on understanding innovation and its impact, these are the themes I’d like to see writ large throughout the White Paper next week -  and how we can judge if the Government is serious about placing innovation for growth, and for good, at the heart of the UK economy:

  • Challenge-led funding that identifies and rewards solutions to societal challenges, rather than simply funding new tech or specific sectors
  • Proposals to transform skills policy - preparing the UK workforce of the future
  • More anticipatory approaches to regulation that create a competitive advantage in the UK for new industries, alongside confidence in public benefit
  • A commitment to public involvement in setting a shared vision for the UK’s future, and on shaping the opportunities and impacts of new technologies
  • An investment in the ‘strategic brain’ of government for a better real time, data-led understanding of where innovation is happening, to improve prioritisation and targeting of policy interventions

Challenge-led approaches

The creation of the new Industrial Strategy Challenge Fund (ISCF) offered a huge opportunity to fund innovation differently. But to date, in execution it has been worryingly familiar to the approaches used before. Ambitions must be raised through adopting a truly challenge-led approach to support the development of technologies and industries in which the UK could become a world leader, focusing on ever more effectively solving big societal challenges. Importantly, it should stimulate innovation from more unusual quarters of our society and economy, as well as from the usual suspects.

But the first tranche of funding awarded was not particularly inspiring in its ambition - in part due to the need to commit the funding in this financial year. The next stage of the Fund process should clearly set out the challenges it is aiming to tackle and create a staged funding ladder for promising ideas to help solve these.

It should also be an opportunity to create more open funding models that reward solutions from any source. Only a tiny fraction of the UK’s R&D spending is allocated using open innovation methods. It would be great to see a proportion of the Challenge Fund earmarked for more open, collaborative approaches and challenges.

How we would know that the Government is serious

  • The new phase of ISCF will identify, articulate and fund solutions to societal challenges, rather than simply fund new tech or specific sectors
  • The ISCF will have funding models that encourage and enable innovation from new places and new players, and use outcome-based funding tools such as challenge prizes to allocate at least 10 per cent of the funding

Proposals to transform skills policy

The Government chose ‘developing skills’ to be one of ten key pillars in the initial draft of the Industrial Strategy. This was a welcome recognition that skills development is as important to growth as infrastructure, investment and trade.

The Green Paper contained a few good ideas, like a pledge for investment in technical and STEM skills - a critical part of the UK skills pipeline. This is an area of policy that has been neglected for some time, falling outside the science ringfence, and bearing the brunt of previous rounds of budget cuts. However, this investment needs to be in the context of a strategy that is looking at not just industries, but jobs and skills for the future. A much more ambitious and detailed response is needed here, and we urgently need proposals that will prepare the UK workforce for the jobs of the future. Recent Nesta research with Pearson on ‘The Future of Skills: Employment in 2030’ showed the skills that are likely to be in greater demand in the future, which include interpersonal skills, higher-order cognitive skills, and systems skills. But our current education system is not set up to provide young people with the skills they need to succeed, such as collaborative problem-solving and data skills. It should also focus on creativity - Nesta’s research has found that jobs that have high levels of creative skills are less at risk of automation.

How we would know that the Government is serious

  • An indication that BEIS has had some leverage over Department for Education policy resulting in a system-wide rethink of skills policy
  • A renewed focus on skills development and learning throughout people’s careers
  • A commitment to better understand and prepare for the future labour market

Developing a more anticipatory regulation system

There is a chance to position a post-Brexit UK as a country with a world-leading environment to develop new technologies, by putting in place a regulatory system that anticipates the opportunities and drawbacks of innovation. Emerging, fast-changing technologies and new innovative business models are not only disrupting industries and established ways of working, they are also presenting substantial challenges to existing regulatory systems. UK regulators such as the Financial Conduct Authority are already trying out new methods of creating, adapting and enforcing regulation for emerging technologies, but there is little evidence of what difference this is making. There is scant focus on giving the public a voice in the trade-offs that are necessary, and the voice of innovators can be drowned out by incumbents.

new, anticipatory approach to regulation would recast regulation to assist in the emergence of new technological tools, while also allowing faster responses to ensure that the public aren’t exploited and that new dangers are averted.

Through allowing companies to safely test their products and services, and enable a route to scale for new industries, substantial new innovation investment could be attracted to the UK. As new technology creates new products and services, and disrupts existing competitive advantage in the global market, creating a dynamic and flexible regulatory environment could secure the industries that will drive growth and create jobs. But the UK needs to act soon: there are already examples of where the UK is losing out in this race.  For instance, Finland has attracted substantial investment from Rolls Royce for an autonomous shipping R&D testbed.

How we would know the Government is serious:

  • Invest in incentivising and supporting UK regulators to test, experiment and adopt new methods for regulating emerging technologies until there are tangible results, for example, by setting up a new regulatory innovation fund.

Public involvement

We know that innovation is a critical engine of social progress and economic development. But as a result many organisations promote innovation in and of itself, rather than a means of achieving broader social or economic goals. While businesses and policymakers are keen to encourage innovation, there is little discussion about what ‘good’ innovation looks like, or how to do innovation ‘responsibly’. And historically the benefits and risks of innovation have not been evenly distributed, and nor has the power to shape how things progress.

Nesta’s 2014 survey of UK attitudes to innovation, Innovation Population, showed how discerning the public is when it comes to innovation. Most people in the UK are very open to new ideas but want to understand what the impacts and benefits will be - they are sceptical of any claim that ‘new is always better’. So the challenge is to understand the different types of opportunities and challenges an innovation might create and then guide it towards the greatest potential benefit.

We also need careful consideration of the wider, and long-term impact for society. For example, with artificial intelligence the exponential increase in algorithms - rather than humans - taking decisions that affect our lives has wide-ranging consequences, including a lack of transparency and reinforcement of systemic biases. In response Nesta has suggested a Machine Intelligence Commission: a public institution with the purpose of representing the public interest in the development of “new generations of algorithms, machine-learning tools and uses of big data”. The Machine Intelligence Commission would have powers of investigation and recommendation rather than regulation; thus it would manage key stakeholder relationships between companies, regulators and the public.

We can’t define technologies before they are invented, but we can steer their development towards addressing the problems that need to be solved.  This is done best when the public is engaged in upstream decision-making rather than downstream consultation.

How would we know that the Government is serious?

  • It will go beyond paying lip service to public engagement and set out a resourced plan for how to effectively engage the public in shaping investments in innovation - its opportunities, impacts and influence on the future of the UK
  • Whilst funding new ideas through the Industrial Strategy Challenge Fund there should be an opportunity for the public to shape the investment choices being made by the Government. Dedicating some funding to experimenting with different ways of involving the public would be a great start.

Investment in the ‘strategic brain’ of government

The context in which innovation policy is being made is changing quickly. Our societies and economies are complex, and so are the challenges that we look to solve through innovation (for example, around creating new and sustainable sources of economic growth, or responding to the complex health and care needs of aging societies). These broad challenges can rarely, if ever, be addressed by one department acting on its own or by groups of people with one specific skillset - a much more open and distributed approach is required, involving collaboration and learning across and outside government, and with international partners. It’s also going to involve moving outside of Government departmental silos. The rhetoric in the Green Paper was positive on this, but it remains to be seen how much traction the Department of Business, Energy and Skills can get throughout the whole of Government.

To be really effective, the Government will need to invest much more heavily in its ‘strategic brain’. All strategies depend on some sort of intelligence, but traditional data sources are not enough when it comes to measuring, analysing and informing policies to support new and innovative sectors - they are not timely enough, and fail to capture new industries and collaborations. With little reliable information about the performance of sectors, different technologies, or the economies of local areas, it makes it hard to decide where and how to invest, or for decision-makers to have confidence in investment decisions. It also makes it hard to keep an eye on how policies are working.

We’d like to see the UK Government investing and using more dynamic data sources and more sophisticated ‘big data’ techniques and to build a much more nuanced picture of where innovation is happening, throughout the UK. This will help to identify where support for innovation could make the greatest impact. For the last three years Nesta has been building tools to analyse industrial and innovation ecosystems, understand the relative performance of different technologies, and map sectors and clusters - such as Arloesiadur, our tool for analysing the Welsh economy and enabling more effective local policies. We’d also like to see Government opening up its own data so that others can better understand the UK innovation system and the impact of different types of public support.

Finally, we know from experience that the current evidence on what works in innovation policy is pretty inconclusive. More rigorous evaluation of existing policies will help with this, but we hope to see a broader, more experimental approach to innovation policy - one that encourages new ideas, but also puts in place the systems to learn whether they are working or not.

How would we know that the Government is serious:

  • An indication that the Industrial Strategy is more than just a BEIS priority and the whole of Government approach is resulting in joined up policy with education, transport, planning and devolution
  • Investing in harnessing the power and possibility of big data with new dynamic data sources and tools for policymaking, and exploring how policymaking could be improved by their use
  • A long-term commitment to fund experimentation in innovation policy. This would support policymakers to try out new ideas, but should also require a commitment to using robust approaches to learn what works.  (The recently announced EU fund provides an example of what could be done).

With thanks to Nesta colleagues Kirsten Bound, Tris Dyson, Juan Mateos-Garcia, James Phipps, Harry Armstrong and George Windsor for ideas and comments as part of developing this blog.


Jen Rae

Jen Rae

Jen Rae

Head of UK Innovation Policy

Jen Rae was a policy advisor on innovation and economic growth for Nesta’s Policy and Research team.

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