British economic policy would benefit from more Olympic discipline
This post is by Green Alliance director Matthew Spencer and independent energy consultant Paul Arwas, the authors of Green Alliance’s new pamphlet Nurturing UK cleantech enterprise which is published today . It appeared first on BusinessGreen.
We now know that when the British Cycling team swept the medals board at the 2012 Olympics it wasn’t a lucky breakthrough, but the result of 15 years of steady funding and a long process of incremental improvement under the cool eye of its coach Sir David Brailsford.
The British economy has been underperforming for decades because of low levels of business innovation, but in contrast the policy response to this critical challenge has been fickle and changes almost every year. Ministers lurch between throwing money at breakthroughs like graphene and abandoning programmes that were set up by their predecessors.
Our research looks at one very innovative part of the UK economy, the cleantech sector, but it illustrates the wider problem of short-termism within UK economic policy.
Successive government have set up new institutions to oversee its low carbon innovation programmes and not invested in existing organisations, so Labour set up the Carbon Trust and the Energy Technology Institute, and the coalition stopped core funding the Carbon Trust and set up new Catapult centres.
The financing gap
Each time this happens programme learning is lost in the rush to set up new initiatives. British Cycling built its programme with early backing from the National Lottery, which started 15 years before the London Olympics, a clear mandate from government, and an unflinching approach to raising performance. In contrast we have had four organisations with overlapping responsibilities for cleantech innovation set up since 2001, and most of them have to renegotiate their public funding every year.
In the 2000s the lack of capital for cleantech companies was identified as one of the big barriers to innovation, and public Venture Capital funds were established to help co-fund the most promising companies with private investors. The best funds pulled in millions of pounds of private investment into British start-up companies.
Fast forward to the 2010s amidst a massive drop in private VC investment, a crisis in small business funding, and most public venture funds have closed. Our research shows that in 2011 there were over 1,000 cleantech companies seeking early stage VC funding in the UK, but only 30 of them were successful.
The paradox is that we are going to lose a generation of promising clean tech enterprises at the same time that we are making multi-billion public commitments to deploying low carbon energy technology. Unless we take the job of nurturing the best business talent more seriously we will end up importing this technology and paying too much to decarbonise our economy.
R&D support needed for small businesses
One of the things government could do to alleviate this acute financing gap is to redirect ten per cent of its £1 billion R&D tax credit, which largely favours big cash rich companies to smaller business, via a dedicated public growth capital fund for promising UK cleantech firms. A self-sustaining fund could be created by one of our existing innovation institutions with £100m of the existing R&D tax credit, and it could stop many of our most promising start-up businesses going to the wall.
Why isn’t technical data being openly shared?
We were also shocked to find that much of the data from publicly funded low carbon research is not made public.
David Brailsford’s meticulous problem solving in Britain’s cycling team was founded on data. In a survey of one of the biggest government funded low carbon research schemes we found that only a sixth of the projects had published full technical data. This should be a legal requirement of any public funding for research, since data is the foundation on which new learning occurs in an open economy, and neither businesses receiving grants or innovation organisations should be allowed to keep it locked away.
Bringing down the cost through high standards
Unlike the Olympic cycling effort better cleantech performance is not predicated on increased total public funding but on using it better. We already spend £500 million a year on low carbon research and demonstration and £5 billion pounds a year on deploying low carbon energy technology. The priority should be to apply rigour and high standards to our low carbon programme so that we bring down technology costs and increase UK business benefits.
History shows that Whitehall is too flighty to manage this process, and that ministers are better placed to define the long term goals for policy rather than creating new innovation programmes. We have some fine innovation institutions in the UK. We should give them the freedom and long term security to work to the UK’s technology strengths and support our most talented people. It’s a discipline that worked for our cyclists, and it would work for our economy.