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Summary

innovation is the process by which new ideas generate economic and social value. it is instrumental in delivering the economic and productivity gains associated with investment in research and offers a key route to developing new tools and approaches for tackling major societal challenges and improving quality of life.

Government has a pivotal role to play in stimulating innovation. While innovation offers many potential benefits at the level of an individual firm, government support is often essential to encourage companies to engage in innovation. This is because innovation is an inherently risky process with an uncertain outcome, the benefits may only materialise over very long timescales and the innovator often accrues only a small proportion of the overall benefit generated. By creating a conducive policy environment, using procurement intelligently and providing targeted direct support, the public sector can be highly effective at enticing the private sector to invest in innovation.

Other countries' governments have increasingly embraced these arguments, prioritising investment in innovation and the creation of policy frameworks that encourage others to invest in innovation.

In the context of this growing international competition, if the UK is perceived as offering a less attractive location for innovation activities, there is a high risk that companies will choose to make their knowledge-based investments elsewhere. It is certain that innovation will happen irrespective of the UK's policies - what is at risk is our ability to drive and benefit from it.

The case for continued investment in our research base as a means of fuelling future prosperity is compelling and has been widely articulated. However, this is necessary but not sufficient to safeguard our ability to compete globally: a concomitant focus on our innovation investment and performance is essential to ensure that we benefit from the potential in our research base. A clear and robust commitment to targeted, coherent and stable support - both direct and indirect - is essential if the government is to meet its ambition to tackle the UK's productivity challenge and secure our position as one of the richest economies in the world.