Theresa May has repeatedly called on businesses to invest more in innovation – specifically in research and development (R&D).
In an effort to boost the UK’s sluggish productivity growth, her government has set an ambitious target of 2.4 per cent of GDP invested in UK R&D within 10 years.
But policymakers are missing a trick when it comes to the businesses that are the focus of this target.
While the UK’s creative industries – from advertising, to design, to games – are a clear national strength, they are excluded from the support which could help them (and the wider UK economy) to grow.
The government uses an overly narrow definition of R&D that doesn’t play to national strengths, and leaves out the arts, humanities and social sciences.
Consequently, much of the research and development that happens in the creative industries – based on content development rather than just building new widgets – is excluded from official figures. Because of this oversight, creative businesses are also excluded from the incentives that the government provides to help businesses to do more R&D – such as public funding and significant tax relief.
This is madness when you consider that the UK’s creative industries account for £91.8bn of Gross Value Added – or 5.3 per cent of the whole economy.
And other parts of the government seem to understand their significance – creative industries have been prioritised by the Industrial Strategy, and in March the Business and Culture Departments announced a landmark deal with the sector, worth £72m.
Britain’s creative content is a clear export strength. Last year, I was on a government trade mission to South Korea, which looked at opportunities for British companies in games, virtual reality, and visual effects – and it was this creativity that the companies there asked about most.
Of course, new tech can be transformative, but it also needs smartly researched design and innovative content – and the Brits are known for providing both.
Nor is this sector standing still. Businesses in the creative industries report that they do almost as much R&D as the manufacturing sector, when using a broader definition, as professor Stephen Roper and Areti Gkypali from the Enterprise Research Centre find in their new Nesta research, published today.
If this broader definition were used for the incentives too, just think how much more they could do.
R&D investment is understood to be a key mechanism in raising productivity levels, so this isn’t just about creative businesses getting a boost, but about improving the UK’s economic growth. That’s why the government is so keen to support it, with R&D tax credits for SMEs.
And this applies just as much to the creative sector, currently excluded from such incentives – earlier this year, Nesta’s “Creative Nation” report showed how the UK’s productivity would grow faster if we could enable small creative businesses to scale up.
We need to get back to basics. The purpose of the government’s R&D policies is to support business and to grow the economy.
They should take pride in adopting a more inclusive definition that would help the UK’s world-beating creative sector to grow.