The delivery on the Autumn Statement on Wednesday was preceded by the publication of the Independent Review of University Spin-outs and the response from government on Tuesday, and accompanied by the publication of the Harrington Review of Foreign Direct Investment and the Government response as well as the Government response to the Independent Review of the UK’s Research, Development and Innovation Organisational Landscape (Nurse Review). Alongside the Nurse Review, UKRI published data and analysis on the financial sustainability of research in the UK.

Independent Review of University Spin-outs[1]

The Independent Review of University Spin-outs was commissioned by the Government in March 2023 from Professor Irene Tracey CBE FRS FMedSci, Vice-Chancellor of the University of Oxford and Dr Andrew Williamson, Managing Partner of Cambridge Innovation Capital. The purpose of the Review was to, ‘look at the distribution of performance across universities to identify best practice in university spin-outs and licencing deals.’

The Review recognises that within the UK there are established and emerging spin-out ecosystems. The UK should aim to provide long term support to realise the growth in all spin-out ecosystems but this must be done in a manner that does not undermine universities’ already precarious financial sustainability. The published Review makes eleven recommendations. A summary of recommendations is included below:

  1. “Accelerate towards innovation-friendly university policies that all parties, including investors, should adhere to where they are underpinned by guidance co-developed between investors, founders, and universities.” TenU’s University Spin-out Investment Terms (USIT) Guide is identified as a key resource.
  2. More reliable, transparent data on spin-outs is needed. The ongoing review of the Higher Education Business & Community Interaction (HE-BCI) dataset should seek to deliver this.
  3. Higher Education Innovation Funding (HEIF) and devolved government equivalent funds should be used to reduce the reliance of technology transfer offices (TTOs) on spin-out income.
  4. Shared TTOs should be created at regional and / or sector levels to support smaller universities.
  5. Government should increase proof-of-concept funds to help de-risk spin-outs and increase their attractiveness to investors. Noted examples included the Medical Research Council’s Developmental Pathway Funding Scheme (DPFS) and the Innovate UK ICURe programme.
  6. Research commercialisation should be in Research Excellence Framework (REF) 2028.
  7. Consolidate and expand support for founders.
  8. UKRI should ensure all PhD students have access to voluntary entrepreneurship training and opportunities to undertake related internships.
  9. Universities to make sure that, when working with affiliated investment funds (e.g. funds established by regional consortia of universities) they retain the freedom to engage other investors.
  10. “Government should continue its reforms to ensure that UK capital markets are able to provide the financing to incentivise companies to stay in the UK.”
  11. “Government should improve the provision of funds to enable movement or porosity between academia and industry.”

Response to the Review, including by NCUB, has been positive. The recognition of the success of spin-outs, the contribution of universities to the economy and acknowledgment of the financial constraints that universities face has been welcomed. It is notable that the proposed direction of HEIF funding is not accompanied by an explicit recommendation to uplift this funding though the Government response states, “Research England will review the Higher Education Innovation Fund (HEIF) to ensure commercialisation functions in universities are appropriately funded and incentivised.”

The Government response to Review[2] published simultaneously accepted all of the recommendations. Measures announced in the response and the Autumn Statement include the provision of an additional £20 million for a cross-disciplinary proof-of-concept research funding scheme. This fund should be used to help prospective founders in UK universities develop confidence in their concept and demonstrate its commercial potential before spinning out. Additionally, notably, the response states that, “government will work with UKRI and the National Academies to develop opportunities to improve their fellowship offer for commercialisation, including the option of ‘academic returner’ fellows.” NCUB’s 2023 Taskforce on intersectoral mobility, Pathways to Success, recommended that, “public research funders – at a minimum UKRI and the National Academies – establish a new Task and Finish Group to review publicly-funded UK intersectoral mobility programmes and propose a future funding and delivery framework.”[3] There remains an opportunity to take a holistic approach to intersectoral mobility and the benefits it can bring to the system.

Autumn Statement[4]

An innovation-led economy must allow businesses to access capital to grow and invest in the UK. The Autumn Statement announces a number of measures to this end. The most substantive measures relate to unlocking investment in high-growth companies from pension funds, building on the Mansion House reforms announced by the Chancellor in July. These measures, which have also been laid out to the Pensions Regulator and the CEO of the Financial Conduct Authority, included: (1) driving towards fewer, larger defined contribution (DC) schemes, recognising that larger schemes are better placed to invest in growth equity, (2) a government commitment of £250 million to a Long-term Investment for Technology and Science (LIFTS) initiative that will create new investment vehicles tailored to the needs of pension funds, (3) confirmation that the Government will establish a Growth Fund with the British Business Bank to give pension funds access to investment opportunities in promising businesses, (4) a number of measures to increase opportunities for defined benefit schemes to invest in productive finance, (5) plans to unlock around £30bn of investment in private equity from the Local Government Pension Scheme, and (6) a new Venture Capital Fellowship scheme to support the next generation of world-leading investors.

Other key announcements in the Autumn Statement included a reduction in National Insurance, a permanent ‘full expensing’ – which allows companies to deduct 100% of the costs of capital equipment from their tax bill – and reforms to the welfare system. In terms of skills and talent, the Government reiterated their ambition to introduce “the Advanced British Standard” modelled on the International Baccalaureate and restated their focus on apprenticeships and technical training.  Ahead of the Autumn Statement, NCUB called for measures to demonstrate commitment to a strong research base, improve regional, national and international competitivity and build a highly, skilled adaptable workforce. In our response, we welcomed the move to full expensing and the adoption of recommendations of the Harrington Review but cautioned about the ongoing effect of frequent changes in industrial policy – in every year since 2021 the Government has changed its technological focus areas.

Harrington Review of Foreign Direct Investment

The Harrington Review, led by Lord Harrington of Watford, was commissioned in March 2023 to review the Government’s approach to attracting international investment. The product of extensive consultation the published Review makes six ‘headline recommendations’. These are repeated below.

  1. “Business investment strategy: Greater clarity on what government wants to achieve how and by when. Providing businesses with the stability and confidence they need to invest.
  2. Focussing government from reactive to proactive: Lift the profile of investment across govenrment, backed by a senior Minister, with accountabilities assigned to gear up a whole of govenrment effort. Underpinned by an upgrade of investment skills and a revived promotion campaign.
  3. Driving regional growth: Making better use of local insight to secure transformational investments.
  4. Investor feedback – improving the business environment: Delivering meaningful. Measurable improvements to the bsuness environment that will benefit all investors.
  5. A globally competitive Office for Investment (OfI): A clearly directed OfI, equipped with the authority, tools and flexibility to negotiate with business and secure strategically important deals for the UK.”
  6. Strategically targeted incentives: Concrete offers with a fixed time-line for decisions – that genuinely influence investor decision-making, providing the UK with a competitive edge.”

The content and sentiment of the Review reflect the statement in the 2020 NCUB Taskforce that, “the UK needs to act as a competitor in a global R&D and innovation market.” The recommendations are also consistent with analysis that NCUB commissioned as part of the Attracting International Investment in R&D[5] project. Specifically, that the UK’s capacity to attract investment is undermined by the fragmentation of responsibility across government and that people within businesses require timely practical assistance to win additional investment into the UK.

The response from government was, as with the Spin-out Review, published alongside the Review and integrated into the Autumn Statement. Of the six recommendations, the Government accepted four in principle (recommendation one, recommendation two, recommendation three and recommendation five). Notably, the Government did commit in the Autumn Statement to ‘additional resource and an improved toolkit for the Office for Investment.’ The Government response to recommendation four noted the ‘valuable investor feedback’ while the response to recommendation six elided the Business Investment Facility that the Review proposed. In the context of intense global competition and continued fragmentation of government, continued attention is needed to ensure that government engages with the full scope of the Harrington Review.

Government response to the Nurse Review

Finally, this week saw the publication of the Government response to the Nurse Review. Government commissioned the Independent Review of the Research, Development and Innovation (RDI) Organisational Landscape by Sir Paul Nurse OM CH FRS FMedSci HonFREng HonFBA MAE, Chief Executive and Director of the Francis Crick Institute in October 2021 to consider the full and varied policy and funding context within which RDI-performing organisations are set up and operate. The Review’s recommendations included reviewing the scope of research institutes and units and that government must increase its long-term commitment to invest more in RDI.

The Government response to the Nurse Review tends to focus on activity that is already underway – perhaps somewhat understandable given earlier commitments to increase public funding, and more recently association to Horizon Europe. Though notable commitments include ‘a new joint DSIT/UKRI metascience unit, funded with an initial commitment of £10m to conduct experiments to test and robustly evaluate the effectiveness of changes in the funding processes delivered by UKRI and other institutions’ and the ‘creation of a National Academy focussed on mathematical sciences.’

Within its response, government highlights work by UKRI on the financial sustainability of research. Alongside the government response, UKRI published a paper and data[6] developed by their research financial sustainability programme. This analysis identifies a ‘deficit of over £5 billion across the sector inn the 2021 to 2022 academic year’. The paper closes by restating the respective roles of government, UKRI and other funders, research performing organisations and individual researchers and innovators. It does not make any formal recommendations as to how to address the challenges that it and the Nurse Review describe.

The response to, and engagement with, the different Reviews within the Autumn Statement and elsewhere varied. In some sense this is to be expected as the Government nears the end of its current term. Indeed, commentary on the Autumn Statement has suggested that the tax cuts announces signal a spring general election[7].  Consequently, appetite for widespread systemic change is understandably limited. Stil, there is a risk that some of the benefits of the considerable amount of work that went into the various Reviews may be lost. Whatever next year brings in terms of a general election there remains work to do in all of the areas explored by these Reviews to ensure that the UK research and innovation remains globally competitive. In the first instance it would be beneficial to extract the most from the work that has already taken place. With regard the financial sustainability of research, the work that has been produced is useful but more is needed to act upon the implications of this analysis.