The Future Governance Forum (FGF) has this week launched a new report warning that the UK’s innovative potential risks being stifled without a more coherent approach to funding, smarter regulation and a ruthlessly prioritised industrial policy. Rebuilding the Nation 05: Spurring Innovation highlights that the UK’s persistent productivity slump following the financial crisis – which costs the economy tens of billions annually – stems in part from years of failing to get the policy conditions right for spurring innovation.
Despite a world-class research base, in recent years UK firms have often struggled to translate early-stage ideas into commercial success. Obstacles include a complex institutional landscape; a regulatory environment that can deter internationally mobile firms; and a funding regime that spreads money too thinly to have genuine impact.
The government has said it wants to drive up sluggish productivity and lead the global tech race. In the Autumn Budget, it committed to a record £20.4bn of R&D spending for 2025-26 and a further £25mn for an ‘R&D Missions Programme’. But it must go further, the report argues, breaking down stubborn barriers to innovation and creating a policy environment where cutting-edge new economy firms can thrive.
The think tank urges the government to focus efforts on high-growth sectors where the UK has a competitive advantage. AI alone is a £550 billion opportunity for the UK, with the potential to boost productivity by 1.5% annually. Globally, the quantum computing and space industries are on track to hit $2 trillion by 2035 and $1 trillion by 2040 respectively.
Drawing on a series of discussions with leading experts in R&D, space, AI and quantum, the report calls on the government to:
- Prioritise ruthlessly, targeting investment at high-potential sectors, but stepping in only where the state can add value
- Fill the funding gap, mobilising patient private capital through the newly-unveiled British Growth Partnership and pension ‘megafunds’
- Regulate for growth, enabling innovation and experimentation while upholding accountability and standards, and equipping regulators to oversee emerging technologies
- Drive impact through procurement, promoting outcomes-driven contracts and opening up the market to smaller, higher-growth firms
- Build an open, tech-savvy state, with science and tech integrated into policymaking and greater interchange with industry
- Unlock regional economic potential, shifting more R&D funding beyond the ‘golden triangle’ of London, Oxford and Cambridge
- Demystify the institutional landscape, with clear communication and engagement channels.
Lord Willetts, Chair of the UK Space Agency, welcomed the report’s conclusions: “There is a big prize of promoting new technologies to boost the growth rate and enhance public services as well. The proposals in this report could help achieve that great prize.”
Adam Terry, Deputy Director of The Future Governance Forum and co-author of Rebuilding the Nation 05: Spurring Innovation, said: “The government is absolutely right when it says that if we are to raise both productivity and economic growth then we will need ‘fresh thinking and new ideas’. But innovation doesn’t happen in a vacuum: it needs a stable and enabling policy environment in which to flourish.
“Our recommendations aim to help government get the right strategy, regulatory system, funding and institutions in place to spur innovation in every corner of the country. That’s how we’ll get the economic growth that has long eluded us, and in turn a rise in living standards that is so desperately needed.”
