Is the UK government doing enough to incentivise innovation?

In this guest article, Martin Warner, CEO of Entrepreneur Seminar, an online education and mentoring programme, discusses the new Sunak conservative government, and the essentiality of innovation in business.

To business, innovation is crucial to everything we do. It is what allows us to streamline, modernise, and improve. Of course, beyond the obvious economic advantages, it is also what progresses human existence. No wonder governments globally want to encourage it, and rightly so.

Particularly now with the many exceptional challenges we face, from the climate crisis to recovering from a pandemic, the UK should be at the vanguard of cutting-edge innovation to ensure we can rise to these challenges.

There is clear rhetoric from government about achieving this, and it is true there are individual policies that encourage innovation. What is lacking is a coherent plan. There is not enough top-down organised thinking.

At the heart of the problem is a lack of dialogue between the policymakers, and those whom their policies affect. Occasionally there is collaboration in the guise of ‘Tsars’ brought in to advise and guide policy, such as David Buttress, the recently announced Cost-of-Living Tsar. This is welcome, but only if it is more than a gimmick – an excuse to hold a half-day ‘summit’ at 10 Downing Street, assume the issue has been resolved, and move on.

Instead, ministers have to sit down with business leaders to thrash out hyper-focused policies that are going to encourage growth. They need to go beyond simple tax breaks; regulation, infrastructure, and legislation all need to be specifically tailored to the industry that you are trying to grow.

We are often guilty of trying to be too many things to too many people. The UK must decide on the top ten or so industries that we want to be flagship innovators and at the heart of the economy, then work with leading businesses to create effective policies to grow them. These businesses can be ambassadors for the UK on a global stage and project our values.

Nothing shows this lack of focused policy more than the recent £469m loss due to fraud and error under a questionable multibillion-pound scheme of tax credits encouraging high-tech research and development (R&D). In their haste to advance their industrial strategy the government created a leaky, vague system designed to encourage innovation that instead acted as ‘free money’ to businesses.

The idea was, under the £7.4bn scheme, companies could claim back money they invest in R&D – which is obviously a key component of innovation. However, the approval process was so broad that ridiculous claims were often approved. A pub in Chester, for example, successfully claimed £28,035 across two R&D tax credit claims for adding vegan and gluten-free options to its menus.

This was a catch-all policy, that failed because it was not specified to certain industries. By listening to business leaders, you can create individual policies that will bring industries what they need to flourish. We want to encourage investment in the UK and make it the most attractive place to start an innovative business. We can only do that with specific, attractive regulation.

For example, my R&D business, Autonomous Flight, is developing the Y6S Plus, a six-seater eVTOL (electric Vertical Take-Off and Landing) aircraft and I have seen at first hand the impact of regulation on the sub-2000ft airspace industry.

The Civil Aviation Authority recently confirmed its certification standards for eVTOL aircraft, having speeded up the five-stage certification process. Developing an aircraft for certification costs £100m so businesses like mine needed clarity and certainty before committing capital to projects. That is an example where collaboration with the industry has worked.

But even when central government does choose an industry it wants to back, they often do not get it right. Take London’s “Silicon Roundabout” as an example – which was the emerging cluster of tech start-ups in Shoreditch. It is true that there was ‘something stirring’ as David Cameron famously said. However, ultimately the lack of commitment and investment in it was its downfall.

Likely due to austerity, there were limited tax breaks given to residents of Tech City. Instead, it was hoped that the ‘buzz’ and a successful PR campaign would attract business and grow the cluster.

But ultimately, there was no real reason to base yourself in Tech City, it might as well have been in Mayfair. They made no material difference to the area. Despite initial excitement, the skills labs by Facebook and Yahoo died off because the government did not care enough. You cannot simply wish an industry to success.

So, is the government doing enough to incentivise innovation? Despite clearly trying, no. You can see there is a desire from Rishi Sunak to grow innovation but sadly until there is a coherent plan in place the UK will not be a true leader in this space.