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Innovation policy must be localised, granular and inclusive to level up the North

It was no coincidence that former chancellor George Osbourne launched his Northern Powerhouse vision from Manchester’s Museum of Science and Industry. Harnessing symbolism of the Industrial Revolution, innovation was placed at the heart of the attempt to rebalance the UK’s economy.

Broadly, one element of his strategy was to spark economic growth through the agglomeration of entrepreneurial businesses and research-intensive universities; an ‘innovation district’ model which borrowed liberally from the success of global exemplar cities such as Barcelona and Boston.

If the extent to which central government has followed through with support promised to elicit this knowledge-led renaissance of Northern city centres is a matter of debate, Manchester’s successful application of the model surely is not.

The latest estimates attribute a fifth of Manchester’s GVA – some £3.6bn – to the Oxford Road Corridor. Almost 9,000 businesses from startup to large corporate are based there, employing around 79,000; a number that’s grown more than 10% since Osbourne’s speech in 2014. Few could argue that these numbers represent anything but success for Manchester’s city centre.

Liverpool has its own version of the model. In place of a corridor, there is a quarter, but it too is proving a focal point for innovation in the city centre. The Knowledge Quarter is estimated to generate 15% of the city’s GVA, or around £1bn a year. On the other side of the Pennines, Leeds is following suit with a £450m investment to create its own innovation district. Newcastle’s Helix is perhaps the most progressive take on the concept; turning a large part of its urban centre into a ‘living lab’ with citizens’ experience of, and contribution to, innovation placed at the fore.

But one observation about the Northern Powerhouse agenda is that it is, or at least was, too focussed on city centres. Arguably, that same assessment holds true for successive attempts to formulate innovation policy, too.

A cursory top-level analysis might suggest that there has been a healthy and growing level of R&D taking place in Greater Manchester, or the Liverpool City Region. But when that is broken down within each combined authority, how much innovation is undertaken in Wigan, Bolton, or Salford, in comparison to Manchester City Centre? Likewise, in Wirral, Sefton or St Helens in contrast to central Liverpool?

According to data in IDM’s new report, Chasing Unicorns, to be unveiled at Invest North on 24 March, the answer is: not much. Innovation within city regions is skewed heavily by their centres.

This is important for national and local political leaders to consider when exploring future policy interventions which intersect three areas: the target to increase national expenditure on R&D to 2.4% as part of the Industrial Strategy; the levelling up agenda; and the recovery from COVID-19.

For both of the latter two policy areas, this unbalanced distribution of innovation within city regions matters, because the Chasing Unicorns data also demonstrates that the areas undertaking the least R&D also suffered the most severe economic effects of lockdown restrictions. Many have an overreliance on retail, leisure and factory work.

To unlock the highly-prized inclusive variant of regeneration, which has so far largely proved elusive, policymakers need to find a way to encourage the formation of dynamic, high-growth, knowledge-led businesses; not just in city centre prime sites, but in the towns and suburbs most in need of the economic boost.

As the role of city centres is re-examined during the recovery from COVID-19 there may be a once in a generation opportunity to re-balance not just the UK economy, but city-regions themselves.

By exploring the mosaic breakdown of areas within a region, policymakers can examine which areas require the largest carrots to incentivise innovation. This data needs to be granular. Often, science and technology are lumped together by policymakers. But as the pandemic has proved, businesses in these areas have markedly different requirements.

For some, location is a pre-requisite to innovation. Drug discovery and materials chemistry, for example, require high-specification physical laboratories. In contrast, many digital businesses do not. Tech giants Facebook, Twitter and Spotify have committed to less office space and more home working; smaller digital businesses are likely to follow suit. That raises interesting questions for city leaders and developers who have banked on fast-growing tech businesses occupying expensive Grade A city-centre office space.

A smarter approach might now be to examine which fiscal and policy levers might encourage innovative businesses to choose the right locations to form and create jobs in. This year marks the decade anniversary of Enterprise Zones in their most recent iteration. While they have had limited impact, the theory of choosing distinct areas in which to stimulate economic activity is sound. With his commitment to eight new freeports in the Budget earlier this month, the Chancellor clearly thinks so too.

New knowledge-zones with more generous R&D tax breaks, and diverted national R&D spending, to spur innovation in some of the North’s most economically deprived areas, would be a progressive and welcome next step.

Because levelling up cannot be solely measured on the economic output of the North’s core city centres. How that prosperity is shared within the region is just as important.

The original article can be found here:

Download IDM report here.


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