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Nesta welcomes the Government’s Industrial Strategy and is pleased that it puts innovation at its centre, with a long-called-for increase in investment in R&D. We agree that innovation is one of Britain’s great strengths - it is vital for our prosperity and wellbeing. Much more can be done to make the UK the best place in the world in which to innovate, and to ensure those benefits are felt throughout society.

There are plenty of positives in this chunky document - a strong focus on the ‘development’ in R&D to commercialise the UK’s research strengths, plus a renewed commitment to tackle the UK’s skills provision and lifelong-learning, based on the jobs of the future. In particular the four new Grand Challenges sound promising in their ambition and scope, with an emphasis on precise ‘missions.’ These precise missions are still to be determined - a theme running through the strategy.

Sector Deals: three long established sectors and a challenger that could underpin the future economy

Jen Rae, Head of Innovation Policy at Nesta

In today’s Sector Deals announcements, three of the sectors have something in common: Life sciences, automotive and construction are established, well defined sectors with large incumbent companies who are set up to lobby Govt for what they want, on behalf of their sectors. The ‘open door’ policy announced in January’s Green Paper, where industries were asked to approach the government with specific ‘asks’, hasn’t yet reaped significant dividends for the UK emerging sectors.

But the inclusion of AI deal is a glimmer of hope in ‘anchoring the UK as the go-to destination for AI innovation & investment’. It points to a different approach to Government-industry relations slowly gaining traction, to really get a support package in place for fast developing, less defined sectors.

For AI as a sector, there’s a lot to build on in this strategy - a new Government office for Artificial Intelligence, a Centre for Data Ethics, and an investment in data skills. The Regulators Pioneer Fund in particular will offer support to regulators dealing with swift-moving development of tech like AI, and its impact on the public

But the key will be in how these new institutions work together, with the sector, to create a world leading environment for businesses - whilst also promoting ethical decisions about the use of AI.

Skills: We welcome the emphasis on STEM skills - however, this should not be at the expense of UK strengths like creativity, which research suggests will be as important to the UK’s economic future

Hasan Bakhshi, Executive Director, Creative Economy and Data Analytics

We welcome the strong focus on STEM skills in the Industrial Strategy, and the recognition that these are important for a wide range of sectors, “from manufacturing to the arts.” The Industrial Strategy quotes Working Futures forecasts that STEM jobs will grow at double the rate of other occupations between now and 2023.

Our research shows that the UK will indeed in the future need more talent with science and engineering skills. However, it also strongly points to the importance of areas as diverse as English Language, Management and Education. This suggests that a dogmatic approach to growing the STEM workforce will lead to future skills gaps in other critical areas.

A case in point is problem solving skills, which our research suggests will be at a high premium; equally important, however, will be strong interpersonal skills. This suggests that a siloed education which develops scientific problem solving at the expense of interpersonal skills will not meet employer needs. It explains why global experts like the OECD are now introducing measures of how well countries do at developing collaborative problem solving skills in the workforce, in addition to the usual STEM metrics.

That STEM is not the whole story is consistent with the forecasts that the Industrial Strategy itself cites. The Working Futures numbers suggest, for example, that creative jobs will if anything grow faster than STEM jobs over the next decade.

Independent Industrial Strategy Council: A good test of a strategy is the willingness to set clear outcomes and goals – and to be held to account for them. We welcome this aspect of the announcement today. But this body needs to be less watchdog and more strategic brain - making the most of both official and big data, alongside live experimentation, to adjust and improve the approach as it unfurls.

Kirsten Bound, Executive Director of Research Analysis and Policy

An Independent Industrial Strategy Council sounds promising and could be an indication that the Industrial Strategy is more than just a Department for Business priority, that a whole of Government approach results in joined up policy with education, transport, planning and devolution and beyond.

Said to be modelled on the OBR, this depoliticised approach will be critical if this strategy is to endure future governments. We’d like to see it invest in harnessing the power and possibility of big data: new dynamic data sources and tools for policymaking, and exploring how policymaking could be improved by their use

It should also make 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. Nesta’s Innovation Growth Lab could provide important lessons on how to do the latter in a meaningful way.

Productivity: We welcome the emphasis on the ‘productivity puzzle’ but note that rather than a prescription, this sets out more diagnosis with a new review planned on the ‘long tail’ of companies. Alongside skills and infrastructure investments, solving this puzzle will likely mean persuading non-innovating firms of the benefits of innovation and enabling them to access, adopt and create new ideas.

Chris Haley, Head of New Technology and Startup Research

The Strategy’s spotlight on the UK’s persistent productivity puzzle is welcome, given the intimate link between productivity growth and rising living standards. Since the causes of the UK’s low productivity growth remain unclear, more work is required to understand this, potentially including experimentation by local and national government.

It is clear, however, that innovation is a key driver of productivity. It is therefore crucial to understand what inhibits the diffusion of innovation from firms at the ‘innovation frontier’ to others - in other words, what can be done to encourage ‘ordinary’ firms to implement innovations which are already in the market.

Part of the solution must entail raising the amount that businesses spend on R&D, moving towards the OECD average. Here, the additional percentage point for R&D tax relief will be welcome, but is unlikely to be sufficient in itself to stimulate the major business investment needed to reach the 2.4% target gross domestic expenditure on R&D. It should also be remembered that business innovation includes much more than R&D - such as investment in new software and new business models.

Small and medium-sized businesses constitute the majority of businesses but are invariably less productive than larger firms. We therefore welcome the announced review into improving the productivity of SMEs, and encourage this to examine managerial attitudes towards and awareness of innovation.

Our recent report, The State of Small Business, illustrated the significant variance in SME productivity between local authorities across the UK, and called for locally-led approaches in improving SME growth and productivity. We therefore cautiously welcome the plan for local industrial strategies which identify and build on local strengths, although we await more detail of how these will be designed and implemented. Any local strategies must, however, be informed by timely, reliable, local data. We therefore welcome proposals to improve the collection and availability of economic micro-data.

Public procurement can a powerful tool for stimulating and supporting young, innovative businesses, but the barriers for qualifying are often too high. We therefore welcome the announced plan to improve procurement tools to make public sector contracts more accessible to SMEs - and hope that this also extends to startups without a proven track record.

Global Competitiveness: ‘Avowedly international’ but more to do to secure UK position on global stage and capture the value of those relationships

Kirsten Bound, Executive Director of Research Analysis and Policy

The government's industrial strategy is 'avowedly international.' In fact 'international' is mentioned well over a hundred times in the strategy and 'global' almost 300 times. We welcome this emphasis on global competitiveness and collaboration. But ambition needs to be matched with execution.

We're told we must wait until Spring 2018 for a new International Research and Innovation Strategy, led by UKRI. This needs to set out not only how we can maintain our global standing in the cold light of Brexit, but combine funding, migration policies and strategic relationships to both address global challenges, and also capture the value of those relationships in service of economic growth and societal benefit.

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