Does the government’s innovation budget go far enough?

Neal Gandhi
Neal Gandhi
Chief Executive Officer and Co-Founder

The UK government yesterday unveiled a budget which attempts to address the nation’s dire economic growth forecasts and boost ailing productivity.

With measures to promote tech businesses, driverless cars and AI, the Treasury is betting on the UK’s technology sector as the source of a turnaround. But does this innovation budget get enough money to where it’s needed?

Amid Brexit talks which are going from bad to worse, and multiple factions of the Tory party baying for bribes, Philip Hammond could be forgiven for looking a little downbeat as he held aloft the famous red box outside number ten Downing Street yesterday. This was a budget written in survival mode, designed to buy the government some breathing room and soften the delivery of some very bad news from the Office of Budget Responsibility: UK growth forecasts have been downgraded again, unemployment is expected to rise, and productivity – the hourly output of UK workers – remains stuck at pre-2008 levels.

The headlines were grabbed by the attempts to woo young voters – stamp duty cuts for first-time buyers and cheap rail fares for 26-30 year olds – and a Brexit preparations fund, but the industrial strategy measures in the budget were firmly focused on boosting investment into the UK’s technology sector.

Pocket change for skills and technology

The first of the measures which aimed to put Britain at the “forefront of this technological revolution” was an £8bn expansion of the National Productivity Investment Fund. This fund is supposed to be about upgrading Britain’s economic infrastructure, but most of it will be diverted to sorely-needed road and house building. So no great shakes there.

The next announcement was a £2.3bn boost to investment in R&D, though, as the chancellor admitted, this only aims to take our total investment in research and development up to 2.4% of GDP, only just ahead of the global average of 2.23% and way behind, for example, Japan at 3.28%

Next, we heard about the government’s ambition that a new tech business be founded in Britain, on average, every half an hour (it’s currently one per hour), before announcing £500m for “a range of initiatives from Artificial Intelligence, to 5G and full fibre broadband.” Given the disruptive potential of AI alone, that sounds like it’ll be the hardest-working half a billion pounds in history.

An extra £2.5bn for the British Business Bank to finance growth in innovative firms sounds like a lot, but it’s really only a 40% increase in the total stock of that organisation. If we’re serious about priming the pump for innovation, why not double it? It’s money that will return to the Treasury with interest.

Overall, it was a very underwhelming budget on the technology front and not one that could possibly put us in a “commanding position in a raft of tech and digital industries that will form the backbone of the global economy of the future.”

There was some extra funding for improving skills in the workforce, but £406m for maths and technical education only equates to around £50 per schoolchild (that’s not even factoring in further education).

Driverless Britain by 2021?

After making a big noises about a pledge to get driverless cars on Britain’s roads by 2021, there was nothing in the budget to support this ambition, just an extra £540m for infrastructure to support electric vehicles.

While debate rages around the realistic timeframe for the introduction and adoption of driverless technology, with the Chancellor seemingly on the opposite end of the spectrum to Jeremy Clarkson, the fact remains that automation in the transportation sector is already having a big impact on people’s lives and livelihoods. Nearly 2 million people in the UK are employed in the transport industry, and much of the recent rise in self-employment is likely down to people becoming Uber drivers and couriers. A transition to driverless technology must include alternative avenues for such workers if we’re to avoid social chaos.

Lack of acknowledgment of this in yet another budget, and a complete failure on the government’s part to back up prescient words with action, was sad to see. An “historic partnership, between government, the CBI and the TUC – to set the strategic direction for a National Retraining Scheme” is just a plan to make a plan. Has the Treasury been taking lessons from the Foreign Office in how to prepare for massive disruption?

HS2 and the sunk cost fallacy

An extra £300 million for HS2 is mere chump change when compared with the huge sums already allocated to the project (current estimates of its final cost are £55.7bn, but expect that number to expand significantly before you’re enjoying high-speed rail travel to the Northern Powerhouse/Midlands Engine). The sunk cost fallacy dictates that the government will press on with HS2 rather than abandon all the time and money invested in the project so far but, with a full 16 years to wait for the project to be completed and the rapid development of vactrain technology, is this a rational move?

Richard Branson’s Virgin Group has just made a major investment in Hyperloop One, the company pioneering electric powered point-to-point mass transit systems which will be two to three times faster than high-speed rail, more efficient, less polluting and have a smaller civil engineering footprint. That takes total investment in the company up to $245 million. It looks pretty safe to assume that Hyperloop is coming, so wouldn’t we better off concentrating our efforts on making the existing rail network useable while we wait for it? The government should at least be looking into this.

Politically safe, but lacking vision

This budget hasn’t rocked any boats, so its political objectives have been met. But the economic data coming out of the OBR, the IFS and the ONS does not paint a pretty picture. We have the talent, the workforce and the accumulated knowledge in Britain to be at the forefront of the next wave of technological innovation, as the Chancellor acknowledged in his budget speech, but until we have a government willing to deploy its considerable resources towards genuine investment in R&D, technology training and skills, and infrastructure that is fit for purpose, we’re going to lag behind. With Brexit looming, we need a visionary government to set our industrial strategy for the coming decades. In contrast to the rhetoric, this budget proved that as far as vision goes, we’re facing a big deficit.

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Neal Gandhi
Neal Gandhi
Chief Executive Officer and Co-Founder