Europe 2020: Scottish national reform programme 2017

Chapter 4: Innovation and R&D

Innovation is vital for improving economic growth and Scotland has many strengths in this area. It has a strong commitment to research and science, a highly-skilled workforce and world-renowned universities producing high-impact research.

This chapter outlines the actions taking place throughout Scotland aimed at fostering a culture of innovation and R&D. It also highlights action that create wider support for innovation through the business environment, supporting entrepreneurship, and developing Scotland's digital economy, highlighting the Scottish Government's support for the EU's flagship initiatives, 'Innovation Union' and 'Digital Agenda for Europe'.

Europe 2020 headline target:

Raising the combined public and private levels in research to 3 per cent of GDP.

Current Scottish Performance

Scotland's entrepreneurship, innovation and R&D performance is measured through a range of indicators, with Table 3 outlining current performance on key indicators.

Table 3 - Current Scottish Performance against Entrepreneurship, Innovation and R&D Indicators

Indicator	Current Level	Change Over Year	Reference Period
The total number of VAT/ PAYE registered private sector enterprises in Scotland per 10,000 adults [13]	390 businesses per 10,000 adults	Above the rate of 382 in the previous year	2016
Gross expenditure on research and development as a share of GDP [14]	1.46% of Scottish GDP (0.274% pts above the baseline year of 2006)	Unchanged on the previous year	2015
Weighted, inflation-adjusted index of the Scottish Funding Council's Knowledge Transfer Metrics [15]	0.3% above the baseline year of 2007-08	7.9% below the previous year	2014-15
Proportion of innovation active businesses in Scotland [16]	50.4%	7.1% pts above previous reference period (2010-12)	2012-14

Table 3 shows that:

• The 2016 registered business stock rate of 390 businesses per 10,000 adults represents an increase from the 2015 rate of 382 businesses per 10,000 adults. Note that the 2016 rate is the highest rate recorded since the start of the series in 2005.
• In 2015, Scotland's Gross Expenditure on R&D as a share of GDP was 1.46% (as it was in 2014) - however spend in 2015 was well above the 2006 baseline level.
• The knowledge exchange index is estimated to have fallen by 7.9 per cent between 2013-14 and 2014-15, driven by a decline in income from venturing. Since 2007-08 the index has remained relatively stable, with the current level at just 0.3% above the baseline year. However, fluctuations over time suggest that we should not read too much into one year's change in the index as some of the components can be quite volatile.
• The proportion of innovation active businesses in 2012-14 was 7.1 percentage points above the previous reference period (2010-12).

Boosting Innovation in Scotland

Through Scotland's Economic Strategy, and the Programme for Government, the Scottish Government is fostering a culture of innovation and research and development. Scotland CAN DO is our statement of intent to be a world-leading entrepreneurial and innovative nation: a CAN DO place for business. Developed and delivered jointly with partners across the public, private and third sectors, it embodies a shared vision where growth and innovation go hand-in-hand with wider benefits to all of society. An example of the collaboration that drives Scotland CAN DO is the Scottish EDGE Fund. Led by a partnership of public, private and third sector interests, the Scottish EDGE delivers investments of up to £150,000 to those early-stage businesses with the most growth potential. To date, 234 businesses have received an EDGE award, and these businesses have generated an additional £45.06 million in turnover, secured £44.12 million in additional investment, and created 818 jobs.

The CAN DO Innovation Action Plan, published on 11 January 2017 ^[17] , focuses on the steps the Scottish Government can take now to improve Scotland's innovation.

Key priorities of the Plan are to:

1. Directly encourage more business innovation
2. Use public sector needs and spend to catalyse innovation
3. Support innovation across sectors and places
4. Make best use of University research knowledge and talent to drive growth and equip Scotland's people with the tools and skills needed to innovate.

Key Policies

To implement the CAN DO Innovation Action Plan to help encourage more businesses in Scotland to increase their level of innovation commitment:

• Utilise public sector needs and spend to catalyse innovation through public sector challenges such as the Innovation Centre Challenge Fund and CivTech.
• Develop a more innovative and entrepreneurial culture and drive increased business demand for innovation
• To simplify and streamline innovation support, finance and bureaucracy.
• Scotland CAN DO sets out some immediate steps to improve Scotland's innovation performance in advance of a wider review of innovation which will report in Spring 2017. The plan aims to create a culture in Scotland that supports ambitious businesses to use innovation to grow, underpinned by a clear, easy to navigate, well connected system of information, advice and support. The plan includes the use of public sector investment to catalyse innovation, with projects such as CivTech, the world's first cross public sector technology accelerator.

The Scottish Government is additionally supporting innovation by:

• Developing an innovation prize to reward, and invest in, innovation in Scottish companies.
• Supporting digital innovation through CivTech.
• Increased investment in Interface, Scotland's hub to connect business and academia.
• Encouraging public sector and large and small firms to collaborate through Scottish Enterprise's £2.9 million Open Innovation programme.
• Scotland CAN DO SCALE - an education programme aimed at developing entrepreneurial skills and innovative ideas.
• Continuing to support its network of eight Innovation Centres which use academic expertise to address real world business issues. The Scottish Funding Council has committed up to £120 million over six years (2013-2019).
• Developing a plan for establishing a National Manufacturing Institute for Scotland that will act as a hub for continuous innovation to ensure Scotland remains a sustainable and competitive place to do business.
• Committing further funding to establish and embed Innovation and Investment Hubs in London, Brussels, Dublin, and Berlin.

Scotland's universities are a key asset in the drive to increase Scotland's productivity and inclusive growth as demonstrated by their active and valued participation in a range of international research and innovation programmes including Horizon 2020 - the European Union's programme for Research and Innovation. Data to March 2017 indicates that Scottish organisations secured almost €352 million, representing around 10.8 per cent of total funding awarded to UK organisations. Scottish Higher Education organisations and research institutes have secured almost 77 per cent (over €271.5 million) of all funding awarded to Scottish organisations.

Scotland's network of Innovation Centres bring together universities, businesses and others to enhance innovation and entrepreneurship across key sectors. There are currently eight Centres, collectively spanning Stratified Medicine, Sensors and Imaging Systems, Digital Health, Industrial Biotechnology, Oil and Gas, Big Data, Construction and Aquaculture. The Centres are being supported by up to £120 million of funding from the Scottish Government over 2013-19, administered by the Scottish Funding Council.

Scottish Aquaculture Innovation Centre ( SAIC) - Control of sea lice

Farmed Scottish salmon is in high demand both in the UK and overseas, making it a £1.8 billion business every year and one of the UK's top two food exports. With an expected global population of nine billion by 2050, the opportunity facing the sector is immense - if it can overcome the key barriers to growth.

A key barrier identified by producers, is the need for greater control of sea lice; a naturally occurring parasite that affects salmon, costing the global aquaculture industry billions of dollars every year.

To help tackle the problem, industry, academia and the Scottish Aquaculture Innovation Centre ( SAIC) have together invested £7.3 million towards the applied research of alternative sea lice controls. Complementing these, 2016 saw SAIC coordinate a successful European Maritime and Fisheries Fund ( EMFF) bid on behalf of 11 companies, securing over £1.76 million towards non-medicinal approaches to sea lice.

This £1.76 million facilitated an investment of almost £8.5 million in novel technologies and approaches to be deployed in Scottish waters for the first time, so that they can be evaluated for their ability to reduce sea lice.

It's not just the companies involved in the supported projects that stand to benefit. As part of the EMFF award, SAIC will commission a research project to capture and share best practice with the wider sector.

Developing and refining optimum approaches to sea lice control promises significant benefits for the sector, potentially increasing production volumes from 171,722 tonnes to over 300,000 tonnes by 2030, and supporting an additional 9,000 jobs. There is also the potential to develop next generation technology for sale at home and abroad.

Encouraging Entrepreneurship and Building A Supportive Business Environment

As well as providing direct support for innovation, the Scottish Government is committed to ensuring that our business environment is supportive of new ventures, to help encourage companies to undertake a range of innovation and research activities. Our approach includes, for example, improving access to finance and offering start-up support and advice for new businesses.

Supporting business development in Scotland starts with the Business Gateway service, offering a first point of contact for all publicly funded advice to business in Scotland to support pre-start, early-stage and growing businesses. In 2015-16 the Business Gateway supported 9,087 businesses to begin trading - estimated to have created around 10,000 jobs - and offered local expert help and intensive growth assistance to a further 11,628.

Scotland's Enterprise Agencies focus on businesses with the potential to grow and those that are important to a sustainable and inclusive economy. An account management approach helped around 2,500 of Scotland's ambitious and high growth companies to increase turnover, particularly in international markets, and increase employment. This supported turn over increase in 2015-16 of around £740 million, the creation of 3,500 jobs and the retention of 855 jobs.

In 2016, additional ERDF Business Competitiveness funding of £24 million plus match funding totalling £60 million was invested to enhance the existing provision to grow Scotland's small and medium sized enterprises ( SMEs). This would link support for innovation and investment to build international capability, particularly in key sectors including food and drink, energy, technology and engineering. The process would help to identify and develop the next generation of growth businesses in Scotland.

Access to Finance

The ability for SMEs to access finance is important for funding business investment, ensuring businesses meet their full growth potential and encouraging business start-ups. Support for this includes the SME Holding Fund, which is managed by the Scottish Government and financed by £40 million support from the 2014-2020 ERDF Programmes in Scotland. The Fund supports micro SMEs by improving their access to finance through a range of selected financial intermediaries or delivery agents who manage microfinance, debt and equity funds in Scotland.

The £40 million ERDF is further leveraged by public and private sector support so that more than 500 companies will receive at least £250 million in debt and equity funding to create 2,000 jobs by 31st December 2018. In this role, the Fund contributes to the Scottish Government's economic development strategy on access to finance and fosters EU objectives in support of entrepreneurship, growth, innovation, research and development, and employment.

Scottish Growth Scheme

The Scottish Government has announced a significant new initiative to stimulate economic growth in Scotland as part of the publication of the Programme for Government. The Scottish Growth Scheme will target SMEs that have significant growth potential, both in Scotland and abroad, in particular those that are technology intensive and which struggle to obtain finance through conventional means. The scheme will support investment through a combination of loans and guarantees, up to a maximum of £500 million over the next three years, with the mix determined by the needs and prospects of individual companies.

It is planned that the scheme will be open to new and early-stage high growth potential companies, particularly in technology-intensive sectors and businesses in emerging markets, such as financial technology (FinTech). The Scottish Government will work with banks to develop the scheme and their role in it.

Developing Digital Infrastructure

Scotland's Economic Strategy emphasises the need to invest in digital infrastructure to improve connectivity, helping our cities, towns and regions to drive growth and compete internationally.

The Digital Scotland Superfast Broadband ( DSSB) contracts remain on track to extend access to fibre broadband to 95 per cent of premises across Scotland by the end of 2017. We recognise that we can go further and, in the Programme for Government, confirmed our manifesto commitment to extend superfast broadband access to every premise in Scotland by 2021. Achieving 100% coverage will support rural development, and enable innovation and growth across the economy.

The Scottish Government's draft budget confirmed that up to £112 million will be invested during 2017/18 to improve digital infrastructure across Scotland. This is the first of a multi-year investment plan to deliver our digital ambitions. The funding will support the final phases of the DSSB programme, and enable new activity to begin on the Reaching 100% programme and 4G mobile infill. The Scottish Government also wishes to drive the development of 5G in Scotland, and will establish a 5G Hub in partnership with industry and academia in order to do so.

The Scottish Government is also taking action to improve the use of digital connectivity in the delivery of public services. The first major partnership project in the digital delivery of public services, the Scottish Wide Area Network ( SWAN) is delivering cost efficiencies for public sector organisations by aggregating demand for a single public services communications network in Scotland. SWAN now has 20 Members which represent 51 individual organisations. More than 5,000 sites are now connected to SWAN. In addition, discussions are underway with a further 41 organisations about their future use of SWAN.

The Scottish Government's refreshed Digital Strategy, published on 22 March 2017 ^[18] , makes clear that digital connectivity is a vital part of national infrastructure and sets out our commitment to achieving high quality connectivity throughout the whole of Scotland.

• In 2016 there were 390 businesses in Scotland per 10,000 adults
• UK Innovation Survey 2015 shows that 50.4 per cent of enterprises are innovation active in Scotland, an increase of 7.1 percentage points from 2013 Survey
• Scottish Government committed to Innovation and Investment Hubs in London, Brussels, Dublin, and Berlin
• Scottish higher education R&D spend as a percentage of GDP is ranked top of the twelve countries/regions of the UK
• Scottish organisations involved in a range of international research and innovation programmes, including EU programme Horizon 2020
• Scottish Enterprise Agencies helped around 2,500 of Scotland's ambitious and high growth companies to increase turnover. This supported turn over increase in 2015-16 of around £740 million, the creation of 3,500 jobs and the retention of 855 jobs
• Business Enterprise Research and Development expenditure in Scotland has increased by 41% in real terms since 2007. UK expenditure increased by 17% over this period
• Research and development employment in businesses is at its highest level on record, with 11,000 jobs in Scotland in 2015
• Scotland's university-based research amongst the best in the world and attracts many international partners
• In 2015-16 the Business Gateway supported 9,087 businesses to begin trading - estimated to have created around 10,000 jobs

Updated April 2017