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Lord Sainsbury. |
 nnovation is one of today’s key drivers of business competitiveness. There are two fundamental reasons why this is so. The first is, simply, globalisation. Trade liberalisation and a rapid fall in communication and transport costs mean that the developed countries have increasingly to compete against countries with significantly lower labour costs and well-educated labour forces; labour costs in China are 5% of those in the UK. The second reason why innovation is so important for government and industry is the major advances taking place in science and technology. These advances are changing our world faster than anything we have experienced before, and are creating many opportunities for entrepreneurial businesses to gain competitive advantage.
We cannot hold back technological change, nor compete on the basis of low cost, low skill or low margin goods. To that end, the Government has put the emphasis on knowledge and entrepreneurship, and we are encouraging the start-up and fast growth of many more high-tech businesses.
Seizing advantages
I believe that there are no high-tech and low-tech industries, only high-tech and low-tech companies. Companies can be profitable in any industry, but only if they find sources of competitive advantage – particularly through science and technology.
Britain has firms in nearly every sector that can be held up as models of innovation. However, we must strive to improve our rate of innovation if we are to remain economically successful. In recent years, we have taken many steps to make Britain an attractive place for high-tech businesses and innovation. For example, over eight years we are doubling the science budget, to almost £3 billion in 2005/06; and we have introduced R&D tax credits which are worth £600 million per year to businesses. We have also given significant incentives to our universities to increase their rate of knowledge transfer to industry. As a result we have seen a major cultural change in our universities and a large increase in the number of spin-off companies, licensing and patents.
Reviewing policy
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The UK seeks to promote innovation throughout the economy. |
However, overall, our innovation performance is not strong enough. Business R&D spending and patenting show that our performance is only average on the global stage.
While we have put in place many of the building blocks of a successful knowledge economy, we know there is still much to do. That is why we undertook an extensive review of innovation. We published our findings in the Innovation Report(1) in December last year.
The Innovation Report makes wide-ranging recommendations. It looks at the roles that government can play in framing regulations to stimulate innovation rather than stifle it, and at how it can use its £109 billion purchasing power to encourage more innovative products and services for government. Officials should harness supplier innovation where it will deliver best value for money.
The report also set out a framework for developing a Technology Strategy, to take a more strategic approach to our support for technology development. This is underpinned by a long-term funding commitment – initially £150 million over the next three years.
The Technology Strategy will inform the Department of Trade and Industry’s funding priorities, making spending far more efficient and focused. We will concentrate funding on the emerging technologies that have the widest and most pervasive applications in business and in achieving environmental and social benefits.
The report identified as a major focus support for new and growing businesses to help maximise their innovation potential. To that end, the Small Business Service make the promotion of innovation one of its key tasks. It will give assistance to SMEs with intellectual property rights and R&D grants, as well as brokering collaboration between companies and higher education institutes.
We will set goals to increase the rate of knowledge transfer and the level of interaction between our Research Councils and business – which will be taken forward by the Director General of the Research Councils with each Research Council.
Delivering innovation
Competition policy and regulatory policy can affect the level of innovation, and we believe that we can increase innovation through more and better use of outcomebased regulations. We have put together a cross-government project team looking at three areas of environmental policy, and will focus on how the regulations are designed, and potential alternatives to regulation.
Last, but by no means least, we will promote a regional drive on innovation. National policies and priorities need to be fit for purpose on the ground and, to that end, we will be working with the regional development agencies (RDAs) to ensure that our focus takes account of regional priorities, and that they shape more effectively what is delivered by and through the RDAs at the regional level.
We will agree with the RDAs a set of regional innovation indicators, and assist them in setting up regional Science and Industry Councils so that they have high-level sources of advice to draw on.
Finally, we need to raise our level of skills. That is why last year the government issued a new Skills Strategy. We need to make sure that our education system meets the needs of the workplace because otherwise it will hold back the growth of productivity in our economy.
At the higher level we produce more science, engineering and technology graduates than any other G8 country except France, although there is a worrying decline in some specific subject areas. But the real problem lies in the middle range of skills – particularly at the technician level, where we have a serious shortage of skills in comparison with Germany and France. Our Skills Strategy should begin to improve our performance in this area.
Reaching the vision
Our vision is for the UK to be a key hub in the new global knowledge economy and I believe that we have a great deal to offer, not just in terms of the knowledge and expertise of our scientists and researchers but also our excellent science infrastructure, first class research institutions and strong links between science and business.
We have already made good progress. Britain has an outstanding pool of scientific and technological talent, and I am confident that we now have the ability to turn that raw material into new and exciting products and services to create wealth and opportunities, and improve the quality of all our lives.
The Innovation Report is the UK’s response to the Lisbon challenge. All of us in Europe need to do more to improve our innovation performance in order to reach that goal. Only by so doing will we deliver the prosperity all governments seek for their citizens. And there are now encouraging signs that Europe is waking up to the need for action.
(1) The Innovation Report may be downloaded from http://www.dti.gov.uk/innovationreport/index.htm
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