Levelling up and innovation: How R&D and other policy can reduce regional inequality

This insight reviews the evidence on what innovation policies are likely to contribute to levelling up by increasing productivity in places outside of London and the South East, and compares this to the government’s current approach.  

Its main findings are: 

• There is a clear case for government intervention to promote research and development (R&D) because the benefits of innovations spread beyond the original innovator to broader society and overall returns are large.
• Competitively awarded grants are the best R&D policy tool to drive levelling up. Varying tax credits regionally would be inefficient, and spending on R&D is most effective when decisions are made by academics based on criteria set by government (which can include regional criteria). This is the government’s broad approach to spending the big increase in public R&D funding planned over the 2020s.
• Public R&D should be targeted at places with the right environment. For R&D to translate to higher productivity in an area requires the right types of businesses and skills in the area to capitalise on the innovation, so R&D should be focused on places with existing strengths.
• Government should look to encourage the sharing of good ideas, not just the generation of new ones. Most sectors do not rely heavily on R&D, and better productivity in lower-tech sectors would make a big contribution to levelling up. 

This insight includes recommendation to government to ensure innovation policies contribute to levelling up: 

• The government should make its R&D levelling up mission more ambitious, requiring that the share of public funding going to areas outside the South East grows.
• The government should develop policies to ensure more public R&D spending in a place contributes to productivity growth. 
• The government should explore ways to increase the sharing of good practice in lower-tech sectors, including through management training programmes.