Innovation and UK City Growth
Introduction
Innovation-led growth has huge potential for the UK, scale-up fast-growing businesses, to drive high-value investment, to create more and better jobs, to regenerate our towns and cities, and to solve societal challenges. That is why 奥雅纳 , @Midlands Engine and UK Innovation Districts Group convened a group of over forty policymakers, investors, and city and university leaders, with the aim of learning from each other, and influencing policy and practice.
When it comes to innovation-led growth, proximity and place matters. In a knowledge economy, based increasingly on intangibles, face-to-face knowledge spillovers and trust-based relationships between innovators, entrepreneurs, corporates, investors and government bodies are essential. Smart people want to work alongside other smart people, and they want to collaborate, compare and compete in the spaces between the buildings, and have great amenities, as well as the right supply and mix of commercial space. That is why cities are so important to achieving innovation-led growth, and it is why we have seen the rise of innovation districts globally, including in the UK.
Through innovation we have the opportunity to drive good growth. Gains for private companies and gains for society are not mutually exclusive, with many firms increasingly recognising and responding to the growth and profit potential of innovations that address some of society’s most pressing concerns. For example, innovation that responds to climate change or the desire for improved health outcomes can benefit people across the UK, as well as being sold internationally.
One of the UK’s greatest challenges is productivity; the slowdown in productivity growth over the last 15 years has impacted living standards and public finances. It is important we sustain the success of existing innovation-led economies, particularly the London-Oxford-Cambridge “Golden Triangle”. But to significantly accelerate productivity growth the whole of the UK needs to be firing on all cylinders. So how can this be achieved? Our regional cities have huge assets in their world class universities and other research-intensive organisations such as teaching hospitals. But in the past we have not been good enough at securing the commercial pull-through of this research; we have been better at the R than the D. This is now changing, with switched-on and farsighted policymakers, university leaders, entrepreneurs and investors realising the potential of this agenda and starting to pull in the same direction.
In summary the main points from the discussion were:
1.????The positive role of innovation-led growth in supporting the success of UK cities and regions is going up the agenda, with significant policy initiatives (including Investment Zones ) and a degree of political consensus. However, the UK faces a challenge to keep pace with global competitors, for example in the US there are now unprecedented levels of investment in this agenda as a result of a series of federal government and local initiatives.
2.????Policy and investment should be focused on places and institutions with genuine research, economic, and sector strengths, and better evidence has an important role here.
3.????Partnerships in places to drive innovation are important; strengthening local ecosystems of universities and other innovators, entrepreneurs, larger businesses, investors, and government should be a priority.
4.????By harnessing and promoting our innovation strengths, we have the potential to attract high-value, capital intensive investment to create more and better jobs and drive-up productivity.
5.????Placemaking is an important part of this agenda. We need to accelerate the supply of the right type of commercial space to support innovation, as well as housing and the wider amenities places need to attract investment and skilled workers. This includes high quality collaborative spaces to support the building of networks and the exchange of knowledge.
Policy
We are seeing positive developments in policy on innovation-led growth, and good levels of cross-Whitehall collaboration, exemplified by the panel discussion with representatives from HM Treasury, DSIT, DIT, and DLUHC. This includes:
Investment Zones (IZs) are a particularly positive initiative. They offer a potentially powerful mix of capital and – crucially – revenue funding and fiscal incentives, including business rates retention, support for regeneration. They also emphasise the role of universities, the private sector, and local and national government working together. Specific points that were discussed on IZs included:
But the competition is not standing still. In particular, in the U.S. under the Biden Administration the federal government is taking forward a range of bold initiatives, including the Bipartisan Infrastructure Law, the CHIPS and Science Act, the Inflation Reduction Act and the Department of Defense Appropriations Act. This is leading to unprecedented levels of investment in R&D, translational research centres, green energy, innovative manufacturing and infrastructure.
As well as supporting innovation diffusion, we need to review innovation inputs at the front end of the cycle to maximise inclusion gains and outcomes too (see the UK Innovation Districts Group research on Inclusive Innovation ).0
Evidence and prioritisation
Innovation policy and interventions need to be demand-led and evidence-based. This requires monitoring of what works and what doesn’t, and an honest assessment of where economic strengths and potential are concentrated.
While the funding available through initiatives such as IZs is not insignificant, there is a need to really focus on areas of research and sector strength. Otherwise, there is a risk that effort and resources will be spread too thinly, and impact dissipated. The challenge will be to better connect innovation strengths in the core of our cities to wider supply chains, to sites and locations for investment across a wider area. This is particularly the case for manufacturing (and if we want lots of jobs from this agenda, we need manufacturing to be part of it).
The current cluster mapping across the UK is a good and necessary step. It shows that clusters are far more complex and multi-dimensional than perhaps we knew. Too often we consider sectors in very broad terms, such as “health life sciences”, when in fact sub-sector specialisms (e.g. genetics, health informatics, medical devices etc) are important. With a better understanding of clusters comes the scope to strengthen links and cooperation between places with complementary strengths. And in this regard, the UK’s size as a relatively small country, compared to say the scale of the US, can be turned into an advantage. In addition, mapping helps us to better consider cross-sector opportunities; knowledge spillovers and novel applications in other sectors is another potential source of growth, and of resilience.
Partnerships and anchors
Place partnerships to drive innovation are undoubtedly important, and a significant feature of the IZs initiative. Successful innovation-led economies need the right ecosystem of innovators (particularly universities, but also other research-led organisations), entrepreneurs (in spin-outs, start-ups and scale-ups), R&D intensive corporates, investors of risk capital, and government bodies working together. Capacity and skills in building and curating these partnerships can be an issue, one which needs to be better understood and addressed.
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While national policy is important, the power of local leadership should not be underplayed. Universities, local and combined authorities, and businesses have a long-term stake in places; they can provide coherence, consistency, innovation in policy, leadership, and build long-term partnerships.
The role of universities within places and innovation economies is fundamental. They are long-term institutional anchors as well as R&D leads and talent hothouses. That is why universities are core signatories and partners for IZ proposals; a rubber-stamping exercise this is not. In addition, universities are also increasingly taking a role in generating investment opportunities too. The Midlands pilot on “Universities as drivers or trade and investment” examines precisely this point.
There's an invitation for universities to come back to government with ideas and recommendations on how universities can best occupy this space.?
Short-term there is an opportunity to compile a database of regional teams and key contacts that already exist within national innovation and investment agencies (IUK, British Business Bank, UKRI, The Investor Forum, UK Business Angels Association etc). This will help with communicating who is who and generating more conversation between central government, agencies and places. UK Innovation Districts Group could take the lead on doing this.
Mid-term there is scope to set out advice / guidance / good practice on how to form partnership structures and the different types of governance models that can be adopted. This could include useful insight on the main principles and pitfalls in the formation of innovation boards or steering groups, as well as organisational structures for new types of partnership bodies. There would need to strike the right balance between providing a clear steer on potential partnership and governance approaches while not being overly prescriptive.
Long-term we should treat every policy intervention as a learning process, with active 360 review and evaluation reflections for adaptation. It would be good to run a retrospective evaluation and iteration process on the 2019 MIT REAP Lite UK Pilot programme, as this was specifically seeking to address some of the central questions and blockers to place-based innovation partnership formation.
Inward investment
The UK has huge strengths in innovation, with the potential to use this to drive the high-value, capital intensive investment that we need to create more and better jobs, and to drive up productivity. This sort of capital investment needs to be done at a globally-significant scale. This scale of investment (public and private) is one of the biggest differences between the UK and US approach.
Innovation also has huge export potential. By tackling some of the big societal challenges we face locally and globally, such as climate change, improving health outcomes, enhancing mobility and so on, we can develop products, services and capabilities for which there is genuine global demand.
Short-term we need to harness better our innovation strengths and capabilities in promoting the UK for inward investment, particularly in our cities outside London and the South East. With their world class capabilities and positive global reputations and reach, universities have a bigger role to play here than they do currently, as is being demonstrated by the Midlands Engine Universities as Drivers for Inward Investment pilot.
Medium-term we should develop a more sophisticated understanding and articulation of clusters, including sub-sectors (e.g. “Life Sciences” covers a huge variety of activity) as well as linkages between them and between places. More work is needed here (see section on evidence and prioritisation).
Longer-term we should focus on how best to unlock the huge wall of potential investment of patient capital in the UK. This can start with conversations with UK-based investors (such as L&G and Aviva) where there is scope for them to build more strategic partnerships with places, encompassing investment in regeneration alongside venture capital investment in start-up and scale-up firms. There is the L&G partnership with West Midlands Combined Authority which can be built on for example. Then there is potential to create vehicles for channelling international funds, many of which look for very large investments or packages of investment.
Placemaking
Innovation walks on two legs. Successful innovation districts are places that are attractive to people, supporting face-to-face interactions and knowledge spillovers. Proximity matters, as does the right level of density to create a place that is walkable and can support sufficient critical mass, while also supporting collaboration.
The foundational elements of a place must be considered – such as utilities, water, power, and digital network connectivity – as well as the opportunities for local renewables. And there is a need in some places to increase the supply of the right type of commercial space (including innovation space, labs, and offices), and supporting uses, including housing. However, this is unlikely to be sufficient to compete for talent at a global level. It’s necessary to take a broader perspective and identify the fundamental aspects that make a place attractive, to scale up placemaking efforts and acknowledge the need to invest in the public realm to create places in which people want to live and work.
Successful places for innovation include city centre districts, significant urban growth nodes connected to public transport, as well as out of centre locations such as science parks and business campuses. These different types of places create different place-making opportunities and challenges. For example, in city centres and inner urban areas there may be a need to create more green space and public realm, or in existing out-of-centre locations the focus may be on making them more walkable, better connected to public transport, and widening the range of uses and amenities. There is also a need to consider suitable locations and premisses for manufacturing – which for some places and some sectors will be essential if we want to create good quality jobs at scale. In all cases there is a need to strengthen physical and non-physical links with residential communities to enhance access to opportunities; human capital is an important part of placemaking.
Placemaking can also support the creation of real-world testbeds . These can enable the testing of how new ideas and technologies work in practice before they reach a wider audience. For example, a new smart logistics system, an automated vehicle or a new method of construction all need to be thoroughly tested close to real-world conditions before they can be commercialised.
Successful placemaking faces challenges associated with funding cycles and gaps for regeneration programmes. In response, collaborative partnerships are needed, rather than transactional relationships, to maximise available opportunities. Universities, other anchor institutions, developers and occupiers need to take a view beyond their own buildings and red line boundaries, to work together to create and curate places as a whole. Universities are becoming more ambitious and proactive in the way in which they develop their estates, seeking to do so in a way that supports businesses to locate alongside them, and there is scope for them to go further in the context of the civic university agenda, the drive to decarbonise university estates, and to meet the changing expectations of students and university staff.
Short-term, there is potential to bring together and share best practice and guidelines for place-shaping to support innovation, as well as approaches to developing the business cases for placemaking projects. This could help inform the development and implementation of proposals for IZs.
Medium-term, places should develop the right planning policy frameworks, with a focus on planning – not less planning – and a focus on increasing the supply of the right types of commercial space. By setting out a clear and flexible spatial framework, places can provide greater certainty to investors, sending clear signals to investors, and help ensure the right quality of development with good public realm and green infrastructure. Robust design codes can also provide clarity and certainty and send the right signals to the market on the nature of ambition, and the economically productive uses and quality of development being targeted. Local Development Orders and / or Planning Performance Agreements have a role to play here.
Over the long-term universities, and other anchor institutions such as major hospitals, developers, and local authorities, should continue to develop suitable partnerships and joint ventures to develop innovation districts. There is already good practice to build on here from places such as Manchester, Birmingham and London. This needs to be set against the wider backdrop of reshaping places and urban districts to respond to economic change and changing working practices, the growing importance of the civic university agenda, and the potential future role of innovation districts. Now is the time for organisations with a long-term stake in cities to be ambitious in shaping places to support innovation-led growth.
What next?
It is clear that the agenda on innovation-led growth in UK cities and regions is developing at pace. This is a huge opportunity for the UK; government at national and local levels, universities, other knowledge producing organisations, developers, businesses and investors all have important roles to play. We would like to keep the conversation going, and to hold some smaller, more focused discussions on relevant topics in the months ahead.
We would like to thank everyone who joined us as part of this important conversation. It is the start of what should be an ongoing dialogue between practitioners from across the different sectors and policy and government officials.