Fuel for the digital economy engine

John Higgins, director general, Intellect

Amid the mind-boggling pledges, unruly protests and first-lady outfits that dominated the recent G20 meeting, there were growing signs that politicians are finally realising how powerfully IT can transform the global economy.

Whatever happens next, I believe the UK will be best prepared for any coming upturn if government provides the right support for innovation and research and development (R&D): the things that take good ideas and turn them into businesses, jobs and cash.

In a global digital economy, the UK’s ability to compete will rest in large part on its ability to produce new and innovative goods and services. Research conducted by Cass Business School’s Centre for New Technologies, Innovation and Entrepreneurship concluded that a latent pool of hidden innovators could potentially add £15bn to the UK economy by 2012 – providing the right conditions were created.

The talent, ideas and desire to innovate out of the downturn exist. It is up to the government to improve the provision for innovation and R&D so we can feel the benefits now and into the future.

There are four areas in which the government can improve support for innovation and the main tool in the government’s hands, R&D.

Direct support for private-sector R&D through the tax system targets help to the high-tech sector. Competition with other countries for research spend means there is no room for complacency.

Government should continue to improve the scope of the UK’s R&D tax credit where it can. In particular, it should work with companies that do not just have the “white coats and labs” model but instead see innovation happening on the job and on different sites.

The high-tech sector helps other businesses and government do their work more efficiently. The government should seriously consider providing incentives, at least temporarily, to other sectors to invest in the right high-tech products and services. Improvements in capital allowances that target technology and green-tech investments would enable other businesses to get leaner and greener.

Recessions are traditionally a time that seed startups and self-employment. Those seedlings, if allowed to flourish, will contribute immeasurably to future economic success and a rebalancing of the UK economy. But access to loans or equity has largely dried up because of the financial crisis.

Small-scale investors who are reluctant to invest in a volatile stock market could provide a mutually beneficial source of funding for startups. Government should support this financing by ensuring that funding to tech startups is available and clearly accessible.

The UK has an internationally recognised and world-class academic research base. Despite this, businesses and academia continue to have trouble collaborating on innovation activities. Only nine per cent of large firms and fewer than three per cent of small firms collaborate with public research organisations in the UK, well below the OECD average. In Finland, for example, the figures stand at 45 per cent and nine per cent respectively.

While there is no easy fix to this problem, it is a hurdle that some universities are beginning to overcome with the creation of innovation zones. Government should help by creating a national innovation portal that points businesses in the direction of potential partners within academia.

There are no doubt more immediate problems. But with an eye firmly on the future, the UK must promote innovation to drive economic growth, attract overseas investment and remain competitive in the new global digital economy.

John Higgins is director general of Intellect, the trade association for the UK IT industry. Read the blog at http://intellect.computing.co.uk