Innovation accelerators are part of the government’s strategy for levelling up regions outside of London and the South East by supporting place-based research, development and innovation activity. City REDI's Kelvin Humphrey and The Economic Intelligence Unit's Charlie Hopkirk take a look at the challenges in modelling the potential impact of the accelerators.
The Levelling Up White Paper, published in 2022, announced the government’s intention to establish innovation accelerators in three city regions: Glasgow, West Midlands and Greater Manchester. Fast forward to March 2023 and 26 projects were awarded a total of £100m across the three regions supporting a broad range of technologies, including net zero, advanced materials, health, quantum, fintech, digital, manufacturing and space.
Boosting Economic Growth
The innovation accelerators are intended to boost economic growth in areas of the country where productivity lags behind the national average, contributing to the levelling-up aim of rebalancing the economic geography of the UK over the long term. Pathways for achieving this involve the diffusion, adoption and commercialisation of innovative products and solutions, and the transfer of knowledge, to firms and organisations in the region where the accelerators are based. They also include the attraction of inward investment, highly skilled R&D workers and companies and organisations within the region. Taken together these effects, it is hoped, will boost growth, create jobs and raise productivity and wages. Beyond the economic benefits, the accelerators are also aimed at solving some of the biggest societal and environmental challenges, such as climate change and poor health.
It must be said that £100m is a relatively small amount of money for achieving such grand ambitions. To put this into context, governmental spend on R&D activities in 2020 was over £15bn with half of government R&D activity taking place in the highly productive golden triangle regions of London, East of England and South East. Added to this is the relatively short lifespan of the innovation accelerator programme, with government funding only sustaining delivery for two years. For the innovation accelerators to have an impact on rebalancing the UK’s economic and social geography, and indeed the distribution of R&D activity, there needs to be a high return on investment.
Estimating the potential impact and return on investment of the innovation accelerators requires that the long-term sustained effects are captured and not just short-term outputs from the programme delivery phase. Whilst the creation of jobs, leverage of match funding and support offered to local businesses during the two-year delivery phase are relatively easy to estimate and quantify, the longer-term economic, social and environmental impacts are much more difficult.
The economic impact of diffusion, adoption, commercialisation and transfer of new technologies, solutions and knowledge depends on a number of other factors, including the sectors directly involved and their linkages with others, the sustainment of effects beyond the two-year delivery phase, the effect on local and neighbouring places, and the strength of the local innovation ecosystem consisting universities, firms, other R&D assets and the institutions coordinating their activities. Estimating the societal and environmental impact depends entirely on the types of technologies and solutions being adopted and commercialised, such as for net zero, and on the fit between supply and demand for innovation outputs at the local level, in the case of healthcare for example. There may also be disbenefits to consider, such as an increase in regional inequality as higher-paid R&D positions are created, or the displacement of activity from one place to another, especially if clustering is to be encouraged.
City REDI and The Economic Intelligence Unit (previously Black Country Economic Intelligence Unit) attempted to model the impact of a hypothetical sustainability-focused innovation accelerator following the release of the White Paper last year. We used an Oxford Economics forecast model to estimate the regional impact of the delivery phase of the hypothetical accelerator and found it to be relatively negligible. Modelling the longer-term sustained impacts of adoption, diffusion and commercialisation proved challenging due to the complexities and uncertainties involved. However, based on related work in the green tech area, we know that the inclusion of these longer-term aspects and other social and environmental factors, such as health, housing, emissions, and air quality, can have a pronounced effect on the expected investment return profile and anticipated regional impact.
As the accelerators move into the delivery phase, monitoring and evaluation will be important to capture the outputs, outcomes and learnings of the intervention. Doing so will support the ex-post appraisal of impact to inform and improve the delivery of similar future proposals and ensure value for money.
This blog was written by Kelvin Humphreys, Business Case Lead & Principal Analyst, City-REDI / WM REDI, University of Birmingham and Charlie Hopkirk, Principal Analyst, The Economic Intelligence Unit.
The views expressed in this analysis post are those of the authors and not necessarily those of City-REDI / WM REDI or the University of Birmingham.