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By Vimi Grewal-Carr, Innovation lead, Deloitte

Is Brexit the end of the UK’s global prominence in innovation?

The UK has made leaps and bounds over the last few years becoming a global power for innovation. It is once again in the top three most innovative nations in the world, according to the Global Innovation Index 2016.”

The UK is a leader in research and development as well as a hub for innovation, but there are concerns that leaving the EU will undermine that position.

What are the factors that will determine the scale of impact on the UK’s innovation system?

It is tempting to base this answer on the experiences and performance of other countries in Europe, such as Norway or Switzerland, who are not EU member states but have (varying) access to EU funding and infrastructure. However, the unique politics, culture and innovation system in each country mean that there is no fixed template that the future UK-EU relationship will follow.

Although specific definitions of innovation vary greatly, there is consensus that the general meaning of innovation is either to do completely new things, or to do existing things in new ways.

Unsurprisingly, national innovation systems often differ significantly from one country to another, they broadly consist of three main elements. These are idea generation, tech development, and product commercialisation. Infusions of capital (human and financial) as well as distribution networks determine the strength and influence of any innovation system.

The UK innovation system

In the UK, idea generation is our key strength. This is driven by the combination of world class universities and high quality research. The associated knowledge networks and incentives (tax and regulatory) facilitate tech development. This infrastructure is not easily or quickly reproducible elsewhere, and will remain a key advantage for the UK post Brexit. This eminence attracts top talent from all over the world.

Despite having world class innovation inputs, the UK has relatively weak performance in businesses adopting innovative approaches that could boost their productivity. Some attribute weaknesses in technical and management skills as the main barrier to businesses, particularly SMEs applying innovation commercially. This is arguably a missed opportunity for boosting productivity and international competitiveness.

Threats

The EU plays an enormously important role as a strategic co-ordinator, regulator and investor for research, development and innovation. The UK has been influential in strategic decision-making and has benefited greatly from access to the funding and infrastructure that the EU offers.  Brexit threatens the UK’s valuable strategic role and access to funding streams and infrastructure. 

  1. Less efficient allocation of resources

The EU co-ordinates regulation, resources and research projects across Europe. This is an onerous but important job, which makes sure that EU funding is optimised by avoiding duplicative funding, ensuring consistent standards, and brokering access to expensive equipment between member states. If Brexit results in the UK not having access to this network, then UK spending on innovation projects could be less efficient.

  1. Restrictive immigration policies deterring talent and collaboration

The UK takes part in a large number of international research collaborations. EU member states now represent 60 per cent of all international UK research collaborations. Brexit could mark the end of free movement between the UK and EU member states, which could negatively affect the quality of talent that the UK attracts.

  1. Funding gap for innovation in the UK

The UK received 3.4bn Euros more than it contributed to the EU for Research, Development and Innovation programmes between 2007 and 2013. This has helped to substitute for the consistently low levels of UK public spending on innovation. For example, EU funding represents 10 per cent of the UK university research development and innovation budget. Although Brexit doesn’t automatically cut UK access to EU funds, based on past negotiations free movement has been a pre-requisite to access.

  1. Lose strategic influence over future innovation policy and funding

Currently the UK has a very influential voice in designing innovation policy and research programmes, such as Horizon 2020. Brexit will probably result in the UK losing its soft power as an influential voice in the design phases of future funding programmes.

Opportunities

Innovation is a global endeavour. The EU is an important partner, but the UK is capable of going it alone, since it attracts world class talent and significant foreign investment. The UK has a strong history of collaboration with the US and over recent years it has grown links with emerging economies, particularly the BRIC countries who are investing increasingly heavily in innovation.

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  1. World class universities

UK universities perform excellently in the world rankings for research and as a result attract talent from all over the world. Retaining this eminent position and actively marketing universities and their research outputs to create opportunities in countries around the world (including within the EU) will ensure that the UK continues to attract world-class talent.

  1. Mobility of UK affiliated researchers

As well as attracting world class foreign talent, UK researchers are themselves, some of the most internationally mobile, which helps to keep UK research cutting edge and promote a global reputation. When the UK government renegotiates free movement and immigration policy, the rules should continue to encourage this mobility of UK affiliated researchers.

  1. Growth in collaboration with emerging economies

The UK should continue to strengthen collaboration with emerging economies who are aggressively investing in research and innovation, through bilateral relationships as well as initiatives like the Newton Fund that support innovation projects in science and innovation.

  1. High levels of foreign investment in UK R&D

The UK is a very attractive place for foreign businesses to invest in research and innovation. The UK could be strategic about how they structure tax and other incentives for foreign investment to strengthen elements of the UK innovation system that are currently quite weak. For example, supporting SMEs to adopt innovative processes and technologies that could increase their international competitiveness and productivity.

  1. Freedom from EU regulation

The UK will be free from regulation surrounding controversial areas of research. This will enable the UK to design regulation to reflect domestic culture, political priorities and public opinion, rather than a collective compromise representing all EU member states.

Verdict

Brexit will undoubtedly present challenges to the UK innovation system and it is highly preferable that the UK government negotiate a variation of access to EU funding and infrastructure. However, the UK has a strong and independent voice on innovation that is respected and sought after around the world. To safeguard and embed this advantageous position, the UK government should:

  • Design immigration policy to attract the world’s best and brightest academic minds and give reassurance that existing EU students and researchers in the UK that they will be allowed to complete their studies under pre Brexit terms
  • Reassure foreign investors who fund many private sector projects that the environment will still be attractive to host innovation projects (e.g. tax credits and IP regulation)
  • Invest, and incentivise wider investment to support parts of the UK innovation system that are relatively weak at the moment, such as SME adoption of innovation

To find out more about the potential impact of Brexit on Innovation, please contact Vimi Grewal-Carr, Managing Partner for Innovation at Deloitte, or the author of this post – Jemma Insall.

You can also visit our Brexit homepage to explore the latest commentary and  insights on this topic.

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Vimi Grewal-Carr, Partner, Consulting

Vimi is Managing Partner on the UK Executive with responsibility for Innovation and Delivery Models. She is a Global Lead Client Service partner working with Capital Market & Investment Banking clients to help them address their most critical business issues and transform their organisation in response to significant market events. Her specific expertise includes M&A integration, advising clients on the use of offshoring/near-shoring, building STP solutions and technology integration.

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Jemma Insall

Jemma Insall, Innovation Insight, Senior Manager

Jemma is responsible for research and thought leadership for Deloitte’s Innovation practice. Since joining Deloitte last year she has published several pieces of research on automation and the future of work, and supported the wider firm to take this insight to clients. Before joining Deloitte, she was a Senior Advisor at the Cabinet Office where she advised the UK Government on data and social policy.

Email  LinkedIn

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