The spending review is an opportunity for British innovation we cannot miss

19 Nov 2020

£200 million… it’s a lot of money, but in the grand scheme of national spending, it’s not as colossal a figure as it first appears. To put it in context, the government had already spent £200 million today by 2am alone. 

The Treasury is in the process of preparing for the spending review next week. Normally it would set out the fiscal priorities for the next three years, but given the series of events this year, it is taking a sensible approach to look just at 2021/22 for now. With Covid unexpectedly side-swiping the economy, getting the strategy right is vital. A strong short-term plan now will provide flexibility to adapt to the realities of the post-Covid landscape in a year’s time. 

At the general election in 2019, the government committed to making significant increases in R&D spending. Rather than brushing the commitment under the rug following the pandemic, it has, it would seem, doubled down. R&D, science and technology investment – and the successful businesses that come out of it – look set to be crucial to driving the post-Covid economic recovery.

Directing £200 million from this expected increase in R&D spending to new and disruptive methods of funding innovation over the next five years, is a bold step I would encourage the government to take. 

Since the upcoming spending review will only cover 12 months, that would equate to £40 million for the year – a modest amount by government standards.

Learning from the past

Traditionally the government funnels its innovation budgets to more established businesses to deliver projects and programmes in the form of up-front grants. Contracts focus on delivering against a process, not necessarily outcomes and get awarded to the company that seems might be best placed to deliver what is needed rather than a company that can demonstrate working solutions to the problems at hand. 

This approach stymies the innovation economy by freezing out SMEs and start-ups who may have the better ideas, but not the networks or industrial and political clout that the incumbents have. They don’t get a look in, that’s bad for us all.

Where do challenge prizes fit into the spending review?

We believe that the government should set aside a specific fund as part of the planned spending increase in R&D to do things differently – specifically, to deliver challenge prizes. The government established Nesta Challenges in 2012 to develop the UK’s understanding and expertise in the application of prizes to promote innovation. Challenge prizes reward the best or first solution to a problem with large sums of money, only after they are proven to work, de-risking investment in unusual suspects. 

From the Ansari X Prize for private space flight to the DARPA autonomous vehicle challenges, from Nesta Challenges’ Open Up prizes and the £8 million Longitude Prize, challenge prizes have demonstrated again and again their ability to attract new innovators, bold solutions and diverse approaches to solving problems. 

Beyond that, prizes crowd investment and expertise into solving a problem. The multiple teams competing for the Ansari X Prize collectively invested $100 million in innovation and R&D in pursuit of the $10 million prize, a 10:1 ratio. Imagine the impact if that ratio of investment could be replicated across the British innovation landscape thanks to well-funded, game changing prizes – if that £200 million resulted in £2 billion of private and inward investment?

There will always be a place for grant funding in R&D 

I’m not for one moment suggesting we abandon it, but we do ourselves a national disservice when we rely almost exclusively on it. A ring-fenced UK fund that builds on the expertise and knowledge that Nesta Challenges has established in the last decade, would help ensure the UK innovation landscape is one where great ideas, no matter where they come from, can thrive and contribute to the economic prosperity of the decade to come.      

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