Industry TalkRegular Industry Development Updates, Opinions and Talking Points relating to Manufacturing, the Supply Chain and Logistics.
Brexit – Ditch the Fear, Embrace Innovation
The UK is open for business – and it is time to step outside this vicious circle that is driving confidence down to an all-time low. Whether it is businesses leaving the UK or complex customs arrangements, the worse the headlines, the more negative business leaders feel. So how can the tide be turned? The truth is that 5.4 million UK SMEs are not going to throw in the towel; they are going to continue to form the backbone of the UK economy. But to succeed they need support – and that means investment and the creation of a culture predicated on innovation.
Successful economies take Research & Development incredibly seriously – it is built in to their DNA. And the UK needs to adopt the same approach. In addition to the Government’s commitment to raising R&D investment in the UK from the current 1.6% of GDP to 2.4% by 2027 – which is a fantastic start – we need to better celebrate our successes in innovation.
The future of the UK economy will depend on the creation of an environment that enables SMEs across the country to innovate and succeed. As Adam Kene, Managing Director, Kene Partners, and Danny Lopez, Non-Executive Director, Innovate Finance and member of the Kene Partners Advisory Board confirm, the UK now has a chance to put a flag in the ground, to build on a strong innovation foundation and look forward to a bright future.
Attitude and Culture
Pundits may be divided on the UK’s future post Brexit, but one fact is absolutely key: the response of businesses of every size must be proactive. This is not a time for sitting back, retrenching and waiting to see what happens. It is time to innovate, to look for new markets and take the fight to the competition.
Key to this approach is a cultural shift – a willingness to explore new opportunities, to invest in innovative ideas and build stronger links between business and academia. This is not new: while the UK may not have the same level of R&D investment as other countries, we have an extremely strong track record in technology and innovation – as well as a foundation of government tax incentives and investment. The country has an excellent infrastructure, and world leading universities providing access to a depth and breadth of exceptional skills.
The concern has been that so few companies – both SMEs and larger organisations – understand the government led investment opportunities available or make any attempt to access these invaluable resources. The foundation is there; the fundamental requirement now is to place innovation at the centre of every business’ agenda – and to ensure that every company, irrespective of size or market focus, not only understands but actively explores the innovation led investment opportunities available.
R&D Tax Credit
The UK’s government’s target of raising R&D investment in the UK from the current 1.6% of GDP to 2.4% by 2027 is bullish – although it falls far short of the 4.25% in Korea and 2.9% in Germany. Clearly private sector investment will form a key component – but the government is looking to lead from the front, with plans to increase the rate of R&D Tax Credit to 12 per cent and invest £725m in the new Industry Strategy Challenge Fund programmes to capture the value of innovation.
It is, however, absolutely essential that the Strategy addresses a worrying lack of business awareness regarding available support. R&D Tax Credits have been in place for 19 years, yet just 42,000 UK businesses applied for and received funding last year, and the vast majority were first time claimants. There is without doubt a degree of misunderstanding about the ‘R&D’ concept. These tax credits are not simply available to those in white lab coats. They are available for any company that develops new products, processes or services or enhances pre-existing ones. These tax credits can either complement or act as an alternative to innovation grants and are accessible to companies of all sizes and sectors.
What does that mean in practice? Take the bakery that decides there is a market for a gluten free pie range but needs investment to support recipe development and new machinery. The business may not want to go cap in hand to the bank for an overdraft facility and management may fear the loss of control associated with private equity investment. But this, too, is innovation – using government incentives the firm could receive a sum of up to six figures that could be used not only for essential recipe testing and new machinery, but also extending in-house training schemes, creating new branding and packaging, rolling out marketing campaigns and reaching out to new retail outlets. Not only can all this activity be funded by R&D Tax Credits, it benefits multiple businesses.
Indeed, for every £1 invested in R&D, it is estimated that £2.60 is spent across the extended supplier ecosystem. A very virtuous circle indeed. Furthermore, this is not one off financial support – the entire R&D Tax Credit model is predicated on continuous investment and innovation. The incentive scheme is designed to keep companies pushing forward for continual improvement and competitive advantage.
In this post Brexit world, it is essential that the UK is seen as open for business. As a nation we also need to address our well documented productivity issues. And we need to be proactive about gaining access to new international markets to compete on a global stage. We also need to celebrate our successes, and continually reinforce the quality of skills, infrastructure and resources in this country – as well as favourable tax models – to ensure inward investment in the future.
And there are lessons to be learnt from other nations: not least the phenomenal speed with which economies can be transformed. Just look at the Asian power houses, including Korea; innovation – and a commitment to research and development – is at the heart of that transformation. As the UK embarks upon business in a post Brexit world, it is essential to build on a fantastic foundation of innovation in key sectors such as financial services, life sciences, defence, aerospace and advanced manufacturing and support the SMEs that are the backbone of the UK economy.
Without an innovative SME landscape domestically, there will be little chance of retaining any global competitive standing. With a strong ecosystem and innovative businesses in every sector, in contrast, the UK will continue to attract inward investment – ensuring the country retains its position as both competitive and globally focused. As we move into a new era of business opportunities, innovation will be key to turning the tide, reinvigorating competitive businesses and recreating high levels of confidence.