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Industrial Strategy Building a Britain fit for the future Industrial Strategy White Paper 2 Contents Foreword from the Prime Minister 04 Foreword from the Secretary of State 06 Introduction 08 Grand Challenges 30 Ideas 56 People 92 Infrastructure 126 Business Environment 162 Places 214 Conclusion: Britain and the world 240 Industrial Strategy White Paper 4 Foreword from the Prime Minister Over the last seven years, we have made huge progress in restoring our public finances and rescuing our economy from the brink of bankruptcy. Thanks to the sacrifices of the British people, the deficit is now down two-thirds since 2010, the unemployment rate is at its lowest in over 40 years and we have had 19 continuous quarters of economic growth. We should take enormous pride in these achievements and the difference they are making for many families and businesses in our country. But at the same time, we must also recognise there are some communities which have struggled to keep pace with changes in the global economy and as a result not fully shared in the prosperity that growth has delivered. For me it is not enough to see growth in the national economy if your local economy is shrinking. It is not ambitious enough to have record jobs growth, unless those jobs are secure and delivering real growth in wages. And we are not fulfilling Britain’s potential if, despite having scientists and universities renowned the world over, we cannot turn their ideas into the products and services on which the industries of the future will be built. That is why one of my first actions as Prime Minister was to begin the development of a modern Industrial Strategy that would help businesses to create high quality, well paid jobs right across the country. This document is a vital step in delivering that vision. More than just a set of announcements, it heralds a new approach to how government and business can work together to shape a stronger, fairer economy. At its heart it epitomises my belief in a strong and strategic state that intervenes decisively wherever it can make a difference. It is rooted in the conviction that a successful free- market economy must be built on firm foundations: the skills of its workers, the quality of the infrastructure, and a fair and predictable business environment. And where these are missing it takes energy and partnership between government and the private sector to address the problems. 5 That is exactly what this Industrial Strategy aims to do. It will help young people develop the skills they need to do the high-paid, high-skilled jobs of the future. It backs our country for the long- term: creating the conditions where successful businesses can emerge and grow, and helping them to invest in the future of our nation. And it identifies the industries that are of strategic value to our economy and works to create a partnership between government and industry to nurture them. In doing so, it will help propel Britain to global leadership of the industries of the future - from artificial intelligence and big data to clean energy and self-driving vehicles. Two centuries ago it was our industrial revolution which led the world. Thirty years ago, it was our bold, pro-market reforms which set an example for others to follow. Today, our ambition is just as high. As we leave the European Union and forge a new path for ourselves, so we will build a Britain fit for the future and fulfil the mission that I set on my first day as Prime Minister: to make our United Kingdom a country that truly works for everyone. The Prime Minister 6 Industrial Strategy White Paper Foreword from the Secretary of State We are at one of the most important, exciting and challenging times in the history of global enterprise. Powered by new technologies, the way we live our lives as workers, citizens and consumers is being transformed across the world. Britain is extraordinarily well-placed to benefit from this new industrial revolution. We are an open enterprising economy, built on invention, innovation and competition. Our universities and research institutions are among the best in the world. We have a deserved reputation for being a dependable and confident place to do business, with high standards, respected institutions, and the reliable rule of law. We have achieved near historic levels of employment. We are a crossing point for the world because of our geographic position, the English language, our strong ties, our openness to ideas and our vibrant culture. We have many industries - from financial services to advanced manufacturing, from the life sciences to the creative industries – which are world leading. To benefit from the opportunities before us, we need to prepare to seize them. This would be needed at any time, and Britain’s decision to leave the European Union makes it even more important. More decisions about our economic future will be in our own hands, and it is vital that we take them. In our Industrial Strategy we set out how we will build on our strengths, extend them into the future and capitalise on the opportunities before us. A serious strategy must also address the weaknesses that keep us from achieving our full potential. For all the excellence of our world- beating companies, the high calibre of our workforce and the prosperity of many areas, we have businesses, people and places whose level of productivity is well below what can be achieved. By improving productivity while keeping employment high, we can earn more – raising living standards, providing funds to support our public services and improving the quality of life for all our citizens. So this Industrial Strategy deliberately strengthens the five foundations of productivity: ideas, people, infrastructure, business environment and places. As well as setting a path to improved productivity, our Industrial Strategy sets out four areas where Britain can lead the global technological revolution. These four Grand Challenges – in artificial intelligence and big data; clean growth; the future of mobility; and meeting the needs of an ageing society – have been identified on the advice of the our leading scientists and technologists. They will be supported by investment from the Industrial Strategy Challenge Fund and matched by commercial investment. Our Industrial Strategy will inform decisions now, and in the future. Other countries have benefited from establishing policies and institutions which endure. That is our aim. Through the consultation on our Green Paper, over 2,000 organisations from all parts of the United Kingdom have helped shape this strategy. That partnership with innovators, inventors, job creators, local leaders, the devolved administrations, workers and consumers will continue as we work together to make our country fit for the future. 7 Rt Hon Greg Clark MP Secretary of State for Business, Energy and Industrial Strategy Industrial Strategy White Paper 8 Introduction 9 Nam quiaeperibus eictur adic te proratam, aut dicium quo quam aceaqui blatemo luptaepudam. Ide inte pererum arum nihitat as inctate nim harum et duciis ad ut ariberibust, sequunt od eium quibus, tentus et unt ommolor ecaero ipsam. Tem veligenis ullorer rorition enis eum quiae posam, sin ratquissima volecer sperumquam que erum Industrial Strategy White Paper Overview: We will create an economy that boosts productivity and earning power throughout the UK Our five foundations align to our vision for a transformed economy 5 foundations of productivity Ideas the world’s most innovative economy People good jobs and greater earning power for all Infrastructure a major upgrade to the UK’s infrastructure Business environment the best place to start and grow a business Places prosperous communities across the UK We will set Grand Challenges to put the United Kingdom at the forefront of the industries of the future: AI & Data Economy We will put the UK at the forefront of the artificial intelligence and data revolution Clean Growth We will maximise the advantages for UK industry from the global shift to clean growth Future of Mobility We will become a world leader in the way people, goods and services move Ageing Society We will harness the power of innovation to help meet the needs of an ageing society 10 11 Key policies include: Ideas ` ` Raise total research and development (R&D) investment to 2.4 per cent of GDP by 2027 ` ` Increase the rate of R&D tax credit to 12 per cent ` ` Invest £725m in new Industrial Strategy Challenge Fund programmes to capture the value of innovation People ` ` Establish a technical education system that rivals the best in the world to stand alongside our world-class higher education system ` ` Invest an additional £406m in maths, digital and technical education, helping to address the shortage of science, technology, engineering and maths (STEM) skills ` ` Create a new National Retraining Scheme that supports people to re-skill, beginning with a £64m investment for digital and construction training Infrastructure ` ` Increase the National Productivity Investment Fund to £31bn, supporting investments in transport, housing and digital infrastructure ` ` Support electric vehicles through £400m charging infrastructure investment and an extra £100m to extend the plug-in car grant ` ` Boost our digital infrastructure with over £1bn of public investment, including £176m for 5G and £200m for local areas to encourage roll out of full-fibre networks Business Environment ` ` Launch and roll-out Sector Deals – partnerships between government and industry aiming to increase sector productivity. The first Sector Deals are in life sciences, construction, artificial intelligence and the automotive sector ` ` Drive over £20bn of investment in innovative and high potential businesses, including through establishing a new £2.5bn Investment Fund, incubated in the British Business Bank ` ` Launch a review of the actions that could be most effective in improving the productivity and growth of small and medium-sized businesses, including how to address what has been called the ‘long tail’ of lower productivity firms Places ` ` Agree Local Industrial Strategies that build on local strengths and deliver on economic opportunities ` ` Create a new Transforming Cities fund that will provide £1.7bn for intra-city transport. This will fund projects that drive productivity by improving connections within city regions P̀rovide £42m to pilot a Teacher Development Premium. This will test the impact of a £1000 budget for high-quality professional development for teachers working in areas that have fallen behind ` We will ensure our Industrial Strategy will endure by creating an independent Industrial Strategy Council that will assess our progress and make recommendations to the government. Industrial Strategy White Paper 12 The challenge for the future The United Kingdom is a successful, competitive, open economy. We have many strengths on which we can build, and some weaknesses we need to address. As we leave the European Union we need to raise our game at home and on the world stage. This can be done if we seize the opportunities of the years ahead – and it is essential if the British people are to enjoy prosperous lives with fulfilling work and high quality public services. At the same time, the world is changing in fundamental ways. Technological innovations are transforming how we live and work. The proportion of older people in our society is growing. The way we generate and use energy is changing rapidly. The Industrial Strategy sets out how we are building a Britain fit for the future – how we will help businesses create better, higher-paying jobs in every part of the United Kingdom with investment in the skills, industries and infrastructure of the future. It ensures that our country and its citizens can embrace and benefit from the opportunity of technological change. Technological innovations are transforming how we live and work 13 Our vision is for: ` ` the world’s most innovative economy ` ` good jobs and greater earning power for all ` ` a major upgrade to the UK’s infrastructure ` ` the best place to start and grow a business ` ` prosperous communities across the UK To achieve this, we must ensure every part of our country realises its full potential. We are taking action now, including making the biggest ever increase in public investment in research and development, establishing a new fund to drive productivity by improving connections within city regions, and agreeing Sector Deals which will drive transformation in investment and productivity across the economy. This Industrial Strategy is for the long term. It provides a policy framework against which major private and public sector investment decisions can be made with confidence. It is a strategy that is being implemented with, not just for, British enterprise – with the full involvement of innovators, investors, job creators, workers and consumers in England, Scotland, Wales and Northern Ireland. It is also a strategy that recognises and respects the devolution settlements of Scotland, Wales and Northern Ireland. With many of the policies that can drive productivity being devolved, it is a strategy that necessarily brings our work together with that of the devolved administrations as we work in partnership to get the best possible outcome for every part of the UK. The strategy set out in this paper is the work of many people, businesses, local leaders and institutions. It builds on nearly 2,000 formal responses to the public consultation on our Green Paper, Building our Industrial Strategy1, from all types of organisation, sectors of the economy, groups of businesses and individuals – and many thousands of contributions through our programme of engagement throughout the UK over the last 10 months. Industrial Strategy White Paper 14 Our approach Our consultation reinforced the importance of five foundations of productivity – the essential attributes of every successful economy. These are Ideas, People, Infrastructure, Business Environment and Places. Our focus on them responds to the detailed feedback to the Green Paper. Our five foundations align to our vision for a transformed economy – a transformation that is already taking place and will accelerate over the course of the coming decades: . Our five foundations Ideas the world’s most innovative economy People good jobs and greater earning power for all Infrastructure a major upgrade to the UK’s infrastructure Business Environment the best place to start and grow a business Places prosperous communities across the UK Through this process we have also identified Grand Challenges which we will set for the UK government and wider economy. These are in response to global forces that will shape our rapidly changing future, and which the UK must embrace to ensure we harness all the opportunities they present. The Grand Challenges commit to: ` ` put the UK at the forefront of the artificial intelligence and data revolution; ` ` maximise the advantages for UK industry of the global shift to clean growth; ` ` become a world leader in shaping the future of mobility; and ` ` harness the power of innovation to help meet the needs of an ageing society. Our foundations and Grand Challenges are set out in the sections that follow. This strategy also refers to a number of policies that will be added to over time to support the foundations and drive the UK’s transformation. 15 We will: Ideas ` ` raise total research and development (R&D) investment to 2.4 per cent of GDP by 2027; ` ` increase the rate of R&D tax credit to 12 per cent; ` ` invest £725m in new Industrial Strategy Challenge Fund programmes to capture the value of innovation; People ` ` establish a technical education system that rivals the best in the world to stand alongside our world-class higher education system; ` ` invest an additional £406m in maths, digital and technical education, helping to address the shortage of science, technology, engineering and maths (STEM) skills; ` ` create a new National Retraining Scheme that supports people to re-skill, beginning with a £64m investment for digital and construction training; Infrastructure ` ` increase the National Productivity Investment Fund to £31bn, supporting investments in transport, housing and digital infrastructure; ` ` support electric vehicles through £400m charging infrastructure investment and an extra £100m to extend the plug-in car grant; ` ` boost our digital infrastructure with over £1bn of public investment, including £176m for 5G and £200m for local areas to encourage roll out of full-fibre networks; Business Environment ` ` launch and roll-out Sector Deals – partnerships between government and industry aiming to increase sector productivity. The first Sector Deals are in life sciences, construction, artificial intelligence and the automotive sector; ` ` drive over £20bn of investment in innovative and high potential businesses, including through establishing a new £2.5bn Investment Fund, incubated in the British Business Bank; ̀launch a review of the actions that could be most effective in improving the productivity and growth of small and medium-sized businesses, including how to address what has been called the ‘long tail’ of lower productivity firms; ` Industrial Strategy White Paper 16 Places ` ` agree Local Industrial Strategies that build on local strengths and deliver on economic opportunities; ` ` create a new Transforming Cities fund that will provide £1.7bn for intra-city transport. This will fund projects that drive productivity by improving connections within city regions; and ` ` provide £42m to pilot a Teacher Development Premium. This will test the impact of a £1000 budget for high-quality professional development for teachers working in areas that have fallen behind. These policies, alongside the many others set out in this document, are the first strategic actions of a long-term approach to transform our levels of productivity and our earning power as a nation, as businesses, as places, and as individuals. We are ready to be judged on our performance in implementing them. We will agree Local Industrial Strategies that identify and build on strengths across the country 17 Building on our strengths The UK is a fundamentally strong economy, with widely admired institutions and some of the world’s leading businesses and universities. We have some of the highest employment rates in Europe2. We are a location of choice for businesses at the cutting edge of innovation and technology, attracting more overseas investment in R&D than many major countries, including Germany, France and China3. Our flexible labour market, high levels of employment and competitive environment – with high standards and a dependable rule of law – make us a great place to do business. Source: United Nations Conference on Trade and Development (2017) World Investment Report 2017 Inward foreign direct investment $400 $300 $200 $100 $0 UK inward investment compared to other countries USD billions2016 2007 USAUKChinaHong KongNetherlandsSingaporeBritish Virgin IslandsBrazilAustraliaCayman IslandsIndiaRussian FederationCanadaBelgiumItaly Industrial Strategy White Paper 18 We are ranked seventh globally in the World Bank’s Ease of Doing Business Index4. Our strengths are many and diverse: from our scientific and financial prowess to the vitality of our cultural and artistic life. We have many creative and innovative businesses and we are strong in key sectors, from automotive and aerospace to food and drink and creative industries. We have millions of jobs in financial, professional and business services, which are also our country’s biggest exporters5. We are at the cutting edge of technologies such as satellites and synthetic biology. Countries are keen to invest in our education and learn from our discoveries in health care. The UK ranks in the top five in the Global Innovation Index6. We need to make the most of these strengths so that we can be at the forefront of emerging technologies and industries in the years ahead. The UK also contains some of the world’s most attractive places to live, work, invest and be entertained. London is a world-leading hub for financial services, creative industries, tech businesses and more; a global city which continues to be a magnet for international businesses and talent. In recent years the UK’s ‘Core Cities’, including Birmingham, Manchester and Glasgow7, have seen their economies transformed, while many smaller cities and towns such as Milton Keynes, Oxford and Cambridge have been hotspots for job creation. We must promote growth through fostering clusters and connectivity across cities, towns and surrounding areas. 19 Addressing our weaknesses For all these strengths, we have an urgent need to improve. In recent decades we have not made the most of our export potential, invested too little, and have not nurtured some of the skills we need. Too many of the UK’s cities outside the capital underperform against the national average. We cannot tackle our problems unless we openly acknowledge them and accept we all share the responsibility for addressing them. Our analysis and the responses to our Green Paper point to some important weaknesses in the UK economy that we are determined, unflinchingly, to correct. In particular, Britain’s productivity has long lagged behind that of our competitors8. At a time of astonishing technological advance, output per hour worked in the British economy has been weak since the financial crisis9. Source: Data based on analysis of ONS national accounts and ASHE data (courtesy of Professor Paul Gregg, the University of Bath). *Hourly earnings is defined as mean compensation per employee hour. Hourly earnings and output per hour, index: 1993=100 150 140 130 120 110 100 90 80 70 60 50 Hourly earnings Output per hour 2015 2010 2005 2000 1995 1990 1985 1980 1975 Rising wages depend on growing productivity Industrial Strategy White Paper 20 We are proud of our flexible labour market that has delivered jobs for millions and we have achieved near record employment rates10, but this must now be accompanied by the sustained higher productivity that is the essential requirement for higher wages. Unless we improve productivity while holding on to high employment, we cannot raise living standards and quality of life for all our citizens. Our relatively weak productivity performance is, to a significant degree, a problem of composition: we have some of the most productive businesses, people and places in the world but also a ‘long tail’ of underperformance. Britain’s top businesses are among the most admired in the world, but if the long tail of lower productivity persists, it will hold back UK growth, wages and living standards11. By addressing the disparities we can improve our overall productivity and earning power. Taking action now These are challenges that have been recognised by previous governments - we can learn from their successes as well as try to avoid their mistakes. We successfully rebuilt our automotive industry by deliberately attracting investment from abroad, notably from Japan and more recently from India and continental Europe. The initiatives of previous governments such as the advanced manufacturing strategies, the Eight Great Technologies, and the Catapult network have all contributed to our international reputation. These are strengths we can draw on and they present further opportunities to improve productivity and create good new jobs. The very speed of technological change and the convergence of technologies present enormous opportunities. We are a nimble economy and we can move quickly to take advantage of innovations. We also have smart consumers who reward entrepreneurs developing new products and services. We know that the earliest adopters of new technologies are able to reap the greatest rewards in terms of additional jobs and increased revenue. 21 GDP per hour worked, 2016, index: UK=100 Germany France US Italy UK Canada Japan 40 50 60 70 80 90 100 110 120 130 140 Country UK productivity relative to other G7 countries The role of government We have learned from previous attempts at industrial strategy – what has worked, and what has not. It is important to have a clear understanding of what a government can and cannot do. We believe in the power of the competitive market - competition, open financial markets, and the profit motive are the foundations of the success of the UK. Indeed the best way to improve productivity is to increase exposure to competition. But governments have a responsibility that extends beyond promoting competition. We have to work systematically through the factors responsible for higher productivity and earning power – the five foundations of Ideas, People, Infrastructure, Business Environment and Places that are central to this White Paper. Source: ONS (2017) International Comparisons of Labour Productivity. Industrial Strategy White Paper 22 Governments in successful economies have recognised their strategic power and leadership role, allowing them to coordinate and convene efforts to develop and disseminate new technologies and industries. Individuals, businesses and researchers are motivated by ambitious missions – global and national challenges that need to be tackled by breaking down traditional barriers and finding new ways of doing things. From sequencing the human genome and tackling Aids to hosting the 2012 Olympics, we have seen successive governments identify ambitious missions that drive new endeavours. Governments can make long-term investment that no single commercial or academic player can take alone. The modern nation state is the most powerful means we have of pooling risk. We are willing to take these risks, which means accepting not all will work out successfully. An industrial strategy that avoids risk is no industrial strategy at all. We have studied previous attempts at industrial strategy, which have had successes as well as failures. One lesson is that governments cannot do this on their own, instructing and planning but never listening or consulting. So our Industrial Strategy is a partnership with businesses, workers, universities and colleges, local government and the devolved administrations where we work together to achieve our goals. From sequencing the human genome to hosting the London 2012 Olympic and Paralympic Games, we have seen successive governments identify ambitious missions that drive new endeavours 23 Grand Challenges It is not enough just to look at the economy we have. We must make preparations for the economy we need to become. We need to be acutely aware and take advantage of the world-changing trends which will shape Britain in the decades ahead. This is where the government must provide the strategic leadership set out above to support the development of new technologies and position the UK at the forefront of the industries of the future. In this Industrial Strategy we propose a number of Grand Challenges. These are developments in technology that are set to transform industries and societies around the world, and in which the UK – if we muster our forces across sectors – has the opportunity to play a leading global role. These Grand Challenges are an invitation to business, academia and civil society to work together to innovate and develop new technologies and industries in areas of strategic importance to our country. We set them out in more detail in the next chapter. Following extensive consultation during the consultation for our Green Paper, our four Grand Challenges will be: putting the UK at the forefront of the artificial intelligence and data revolution; maximising the advantages for UK industry from the global shift to clean growth; being a world leader in shaping the future of mobility; and harnessing the power of innovation to help meet the needs of an ageing society. Industrial Strategy White Paper 24 Global Britain The decision to leave the European Union was not a decision to retreat from the world. In fact we need to embrace it – to trade more not less. We must remain an open, liberal market economy. There are opportunities to be gained upon leaving the EU. The opportunity to become more protectionist is not one of them. Britain’s future has to be one of free trade with the whole world, including with the rest of Europe. The EU accounts for the largest proportion of UK trade12. The size and proximity of the EU single market and our close connections with it mean the EU will always be a major trading partner. The government believes it is overwhelmingly in our mutual interest to agree a comprehensive and ambitious UK-EU economic partnership that enables the most free and frictionless trade possible with minimal disruption to business. We should be optimistic and ambitious about what we can achieve, as we share the same beliefs in free trade, rigorous and fair competition, strong consumer rights and high standards. There will, inevitably, be uncertainty while we determine the precise nature of our future trading arrangement with Britain’s future has to be one of free trade 25 the EU. To minimise this, we are seeking to agree an implementation period, of around two years, to allow business time to adapt to the new arrangements. This will ensure that no one has to go through two sets of changes, and will allow businesses to make decisions once there is greater certainty about the final outcome. Our Industrial Strategy is designed to place us at the forefront in finding solutions to both UK and global emerging trends and challenges. As set out in our paper Preparing for Our Future Trade Policy13, we will reach out to old friends and new allies in expanding access to markets, supporting our businesses to export, and welcoming investment and collaboration from emerging and established partners from across the globe. The International Monetary Fund projects that above 80 per cent of world growth is likely to come from outside the EU in the near future14; we need to be ready for the opportunities such growth will bring. We are in discussions with a number of countries about future options, including full Free Trade Agreements. But Free Trade Agreements are not the only tools at our disposal. We aim to put in place mechanisms to improve trading relations and remove barriers affecting UK businesses, and we will work closely with the devolved administrations as we forge new and deeper trade relationships around the world. Our Industrial Strategy will be flexible to take account of developments in negotiations between the UK and the EU or changes in the global economy. While our Industrial Strategy will adapt, we will always be consistent in maintaining the principles of an open economy and fair competition that creates the conditions for businesses to thrive. Industrial Strategy White Paper 26 Partnership with the devolved administrations The truly generational challenges and opportunities to which our Industrial Strategy responds apply throughout the UK. In addressing these issues we recognise and respect the devolution settlement and the empowerment it has offered the people of Scotland, Wales and Northern Ireland. There are important aspects of the five foundations of Ideas, People, Infrastructure, Business Environment, and Places that are associated with policies that are devolved, and we are committed to working in partnership across all four nations to reach the best possible outcome for every part of the UK. Our Union offers a unique opportunity. The UK government and the devolved administrations can each learn from each other in areas of common interest. For example, Scotland has made great strides in energy efficiency and has one of the most effective systems for translating advances in life sciences into improved patient care. Wales’s Sêr Cymru programme is attracting leading scientific talent matched to its innovation strengths. Northern Ireland is fostering a burgeoning cybersecurity business and research community. Wales’s Sêr Cymru programme is designed to attract the highest calibre candidates to work in research groups in Welsh universities, such as Cardiff 27 Devolution has never meant that the UK government does not exist to serve the people and the economies of the devolved nations. This is exemplified in the funding we provide throughout the UK to support innovation excellence, and next generation digital infrastructure to connect urban and rural communities, and in the promotion of our national strengths as part of the GREAT campaign. We also know that it is collaboration between our governments that results in some of the most powerful actions taken within the devolved nations. The six City Deals agreed in Scotland and Wales are testament to the impact that partnerships within the devolved nations can achieve. These deals have yielded ambitious investments driven by priorities identified by communities themselves, with a £1.6bn UK government investment bringing forward more than £3bn in funding from other partners. And we remain committed to further ambitious City and Growth Deals across Wales, Northern Ireland and Scotland. The Scottish Government and the previous Northern Ireland Executive have also recently published industrial and economic strategies and the Welsh Government is to do the same in the coming weeks. These publications reflect ambitious thinking for each economy and identify priorities that align fundamentally with the five foundations of this Industrial Strategy, whether in Scotland’s focus on innovation and entrepreneurship or Northern Ireland’s emphasis on inclusive growth. In our Green Paper we committed to working with the devolved administrations as part of ministerial forums. This joint working has proven valuable, and as we implement our long-term strategy we will recommit to that partnership, seeking to tackle our shared opportunities with a focus on: addressing our shared Grand Challenges; making Sector Deals work for businesses across the UK; ensuring that our institutions collaborate for maximum impact; and working together on priorities for places. Industrial Strategy White Paper 28 A strategy for the long term, with benefits now The responses to the consultation showed us that people and business want confidence that our Industrial Strategy will endure – that it is a framework they can use for decision making and that it can be expected to last. The best way to secure this is for the strategy to command the widest possible support. We must earn this through the quality of the decisions we take and by sharing the evidence on which they are based. Yet commitment must not mean inflexibility – we need systems that adjust to new evidence and new challenges. One key to this is data. Governments must practise what they preach about the opportunities of the data revolution. That means being innovative in how we collect and analyse economic data. To support evaluation and further understanding of the economy, we aim to make the UK the best understood major economy. We will be developing a joint programme of work with the Office for National Statistics, academics and other stakeholders that will identify the gaps in our evidence base. The UK government also stands ready to work with the devolved administrations, where appropriate, to ensure the strongest possible data is held and used across the UK; in particular as we continue to transfer powers from the 29 UK to the Scottish Parliament in line with the Scotland Act 2016. We want to make more micro-level data available so people can study and understand our economy. This will enable us to improve significantly how we identify strengths and weaknesses in specific parts of the country. It will provide a shared evidence base on which we can build our Industrial Strategy. We must have the right reporting mechanisms in place to ensure we achieve our ambitions. The Economy and Industrial Strategy Cabinet Committee, chaired by the Prime Minister, will remain responsible for our strategic vision and for driving delivery across government. We will create an independent Industrial Strategy Council that will develop measures to assess and evaluate our Industrial Strategy and make recommendations to the government. The Council will have access to relevant government data and will be funded to commission specific evaluation projects as appropriate. It will be drawn from leading business men and women, investors, economists and academics from across the UK. The real test of a successful strategy is the consequences it has for the lives of our fellow citizens. That must mean more good jobs and better pay. We are committed to high quality jobs for all UK citizens: that is why we will be responding to and building on the recommendations of the Matthew Taylor Review to ensure that employment rights are protected and workers can benefit from new technology. By addressing these challenges we will be able to achieve the central objective of our Industrial Strategy – to improve living standards and economic growth across the country. This strategy is our long-term plan to ensure that people in all parts of the UK are able to lead fulfilling and prosperous lives, and that we can all make the most of the opportunities that lie ahead. Industrial Strategy White Paper 30 Grand Challenges 31 The fourth industrial revolution is of a scale, speed and complexity that is unprecedented Industrial Strategy White Paper 32 Grand Challenges We will set Grand Challenges to put the United Kingdom at the forefront of the industries of the future. The world is undergoing a technological revolution. Artificial intelligence (AI) will transform the way we live and work, from the way we diagnose and treat cancer to the security of online transactions. This fourth industrial revolution is of a scale, speed and complexity that is unprecedented. The first industrial revolution mechanised production using water and steam power; the second created mass production using electric power; the third automated production using electronics and information technology. This fourth revolution is characterised by a fusion of technologies that is blurring the lines between the physical, digital and biological worlds15. It will disrupt nearly every sector in every country, creating new opportunities and challenges for people, places and businesses to which we must respond. This is not the only seismic global change to which the UK needs to respond. We owe it to ourselves and future generations to lower carbon emissions and move towards cleaner growth; we are facing a fundamental demographic shift as our population ages; and we are on the cusp of a profound shift in how we move people, goods and services around our towns, cities and countryside. We need to make the most of the global market opportunities these changes present. We must also embrace the technological advances that improve productivity across many sectors, as well as the quality of our everyday lives. A truly strategic government must do more than just fix the foundations: it must also plan for a rapidly changing future, look to shape new markets and industries, and build the UK’s competitive advantage. The public and private sector must work with universities, researches and civil society to put the UK at the forefront of these revolutions, breaking down conventional barriers within and between business sectors and academic disciplines. This is what the Grand Challenges will achieve. History shows governments around the world have taken advantage of global challenges. In the 1970s, the UK government was instrumental in developing the North Sea oil and gas industry. More recently, thanks to tailored public support, the UK has built the largest off-shore wind capacity of any country16 and developed world class gene sequencing technologies. Overseas, Germany’s Industrie 4.017 is an example of a government helping prepare the country to take advantage of major trends, while in the United States the Defense Advanced Research Projects Agency (DARPA) and other 33 ‘A truly strategic government must do more than just fix the foundations: it must also plan for a rapidly changing future.’ public research institutions have played a significant role in developing the technologies behind the internet and smartphone, spurring the growth of entire new markets. Other countries are already looking to capitalise upon the fourth industrial revolution. Japan, for example, has deliberate strategies to prepare for and to embrace these transformational changes in technology. The ability to meet our Grand Challenges rests on broad capabilities. The DARPA programme has been effective because it is part of a much wider research and development (R&D) effort. Our capacity to act nimbly and effectively depends on maintaining capacities across a wide range of technologies and disciplines. We can engage now with the challenge of AI because of previous investments in high performance computing. Similarly, we can rise to the challenge of an ageing society because we have already invested in resources such as the UK Biobank, which tracks the health information of 500,000 volunteers18, and we have a lead in understanding the interaction between genes and environment. We must continue to support a broad range of key capabilities and emerging technologies. We also need to be clear where our distinctive advantages lie. We will build on our existing strengths, from cybersecurity, machine learning, microelectronics design and composite compound chip technology to biotechnologies and life sciences such as genetics and cell therapies. At the same time we must develop new strengths in emerging sectors. We must do this as a partnership between businesses, scientists, investors, educators and policy makers to take full advantage of the transformational potential of these trends to improve people’s lives, their work and the nation’s productivity. This partnership must be UK-wide, embracing our four nations. The UK government needs to work in collaboration with the governments and businesses of Scotland, Wales and Northern Ireland. Just as we committed in the Green Paper to holding ministerial forums with each devolved administration, we will work together to rise to each of the Grand Challenges. Industrial Strategy White Paper 34 What are the Grand Challenges? We have taken evidence from our Green Paper consultation, and worked with scientific leaders – the Government Office for Science, UK Research and Innovation (the Research Councils and Innovate UK), the Council for Science and Technology and the national academies – to identify four Grand Challenges. We will: ` ` put the UK at the forefront of the artificial intelligence and data revolution; ` ` maximise the advantages for UK industry from the global shift to clean growth; ` ` become a world leader in shaping the future of mobility; and ̀harness the power of innovation to help meet the needs of an ageing society. ` We must not expect that every individual action will bring guaranteed or immediate success. Through inviting competing proposals and ideas, the government will identify, support and fund a range of promising projects. We must not let a fear of failure make us unimaginative or risk averse. The government must be willing to back a broad portfolio of risky initiatives rather than be constrained by the possibility of individual failures. To respond to the Grand Challenges, business, academia, civil society and We will build on our strengths, including in cybersecurity machine learning, microelectronics design and composite compound chip technology 35 ‘Business, academia, civil society and the government must engage together, bringing their expertise and entrepreneurial spirit, to drive us all towards success.’ the government must work together, bringing their expertise and entrepreneurial spirit, to drive us all towards success. By setting out strategic visions and a positive role for government we hope to attract the engagement of some of the brightest minds from across the private and public sectors. For each Grand Challenge, we will ask leading figures from industry and academia to act as expert advisors, led by a ‘Business Champion’. Working alongside ministers, these figures will be responsible for engaging a diverse range of industry voices and raising the profile of the challenge. They will advise on how to make the most of the global opportunity it presents and review how we can work together to respond to it – such as improving supply and increasing demand in nascent markets, and ensuring that innovations can diffuse and scale. We will look to appoint Business Champions and external advisers in early 2018. We will ensure that the government makes the most of all its policy levers to achieve success. Levers include regulations, funding and Sector Deals. We will also direct the government’s convening power, promote exports and inward investments, and build consumer trust in new technologies. Where appropriate, teams will develop ‘missions’ to tackle the Grand Challenges. They involve tackling specific problems, such as reducing carbon emissions by a given percentage over a specific year period19, using well defined and concrete goals to allow progress to be monitored and assessed, and the option to change course when appropriate. Progress on each Grand Challenge will be regularly reviewed to ensure that policies are having the desired impact, we are focusing on the correct issues, and we are aware of any changes in the UK’s advantage over other countries. In the next section we set out some early priorities for each of the four Grand Challenges. These will be developed in more detail with the Grand Challenge teams over the coming months including setting missions where appropriate. Industrial Strategy White Paper 36 Growing the AI & Data-Driven Economy We will put the UK at the forefront of the AI and data revolution. Artificial intelligence and machine learning are general purpose technologies already starting to transform the global economy. They can be seen as new industries in their own right, but they are also transforming business models across many sectors as they deploy vast datasets to identify better ways of doing complex tasks – from helping doctors diagnose medical conditions more effectively to allowing people to communicate across the globe using instantaneous speech recognition and translation software. Embedding AI across the UK will create thousands of good quality jobs and drive economic growth. A recent study found digital technologies including AI created a net total of 80,000 new jobs annually across a population similar to the UK20. By one estimate, AI could add £232bn to the UK economy by 203021. We start from a position of strength. The UK is already a world leader in AI, with the building blocks to make significant advances. We have some of the best research institutions in the world and SecondHands is a research project led by Ocado Technology that aims to design a collaborative robot that can offer help to maintenance technicians working in Ocado’s highly automated grocery warehouses 37 globally-recognised capability in AI-related disciplines, including maths, computer science, ethics and linguistics. We have substantial datasets in public institutions where AI can be explored safely and securely. We have great strengths in the underpinning technologies, from ARM’s microchips to the microcomputers of Raspberry Pi. UK innovators push boundaries in robotics and the internet of things. These strengths are the result of academic excellence, research ingenuity, smart business decisions, and investment by previous governments of different political persuasions. As with previous revolutionary technologies, these changes cannot be resisted and it would be irresponsible to fail to prepare. Meeting our Grand Challenge means maximising the opportunities created by AI and advanced data technologies, and responding to the potential impacts on society. It is a call for businesses, research institutions and the government to work together throughout the UK to invest in these technologies, encourage their adoption and set standards in secure, trusted use of data. The AI and data-driven economy Artificial intelligence: technologies with the ability to perform tasks that would otherwise require human intelligence, such as visual perception, speech recognition, and language translation Machine learning: a type of AI that allows computers to learn rapidly from large datasets without being explicitly programmed Data-driven economy: a digitally connected economy that realises significant value from connected, large- scale data that can be rapidly analysed by technology to generate insights and innovation ‘Embedding AI across the UK will create thousands of good quality jobs and drive economic growth. AI could add £232bn to the economy by 2030.’ Industrial Strategy White Paper 38 Cumulative average growth rate (CAGR), 2010-2016 Global venture capital investment in artifi cial intelligence 2010 2011 2012 2013 2014 2015 2016 £2.5 £2.0 £1.5 £1.0 £0.5 £0.0 57% CAGR GBP billionsWe must ensure that Britain is among the first countries to ensure that everyone benefits from this revolution. An early response to this challenge is the Artificial Intelligence Sector Deal, responding to the review by Professor Dame Wendy Hall and Jérôme Pesenti, Growing the AI Industry in the UK22. In consultation with a range of people with expertise in this area, we have identified four priorities for this Grand Challenge: We will make the UK a global centre for artificial intelligence and data-driven innovation We will build on our world-class research by working with industry to develop innovative uses of AI and advanced analytic technologies through the Industrial Strategy Challenge Fund*. For example, through the Industrial Strategy ‘Next generation of services’ project we will invest in developing applications of AI and data-driven innovation for service sectors; and, through the ‘Data to early diagnostics and precision medicine’ programme we will invest to enhance the power of health data to diagnose life-changing diseases at the earliest possible stage and develop precision treatments to cure them. * All wave 2 programmes are subject to final business case, when further details on funding will be made available Source: Hall, W. and Pesenti, J. (2017) Growing the Artificial Intelligence Industry in the UK. Growth is cumulative average growth rate 2010 to 2016 39 We will also support businesses with regulation that stimulates and facilitates innovation. Building on the ‘sandbox’ approaches that the Financial Conduct Authority and Ofgem, the energy regulator, have successfully implemented, we are establishing a £10m Regulators’ Pioneer Fund to support UK regulators to develop innovative approaches to emerging technologies. We will foster, attract and retain the best and brightest research talent. The Alan Turing Institute will become the national research centre for AI, supporting new Turing Fellowships. We will invest £45m to support additional PhDs in AI and related disciplines, increasing numbers by at least 200 extra places a year by 2020-21, aiming to expand the numbers in UK universities year-on-year into the next decade. We will also develop people’s skills to keep up with the speed of technological change by supporting universities and businesses to develop an industry- funded masters programme, with an initial scale of over 200 places. We will also work with industry to explore how best to train cross-discipline professionals to apply AI in their specialist areas, for example through conversion courses and continuing professional development. We will support sectors to boost their productivity through artificial intelligence and data analytic technologies A major source of productivity improvements comes from making the most of AI and machine learning across the economy. We are working with industry to establish an industry-led AI Council that can take a leadership role across sectors. The AI Council will be supported by a new government Office for AI. In partnership with industry and academia, these bodies will champion research and innovation, stimulate demand and accelerate uptake across all sectors of the economy. The office, working with the AI Council, will lead work to increase awareness of the advantages of advanced data analytic technologies and promote greater diversity in the AI workforce. ‘We will build on our world-class research by working with industry to develop innovative uses of AI and advanced analytic technologies through the Industrial Strategy Challenge Fund.’ Industrial Strategy White Paper 40 To support rapid adoption of AI technologies at scale, the Office for AI will work initially with six priority business sectors: cybersecurity; life sciences; construction; manufacturing; energy; and agricultural technology. The office will work in partnership with the new GovTech Catalyst to ensure the public sector can benefit from these technologies. It will also collaborate with partners to promote adoption, for example through the Digital Catapult’s ‘Machine Learning Garage’ programme launching in January. This programme will provide low-cost access to high quality machine learning computation power for start- ups, and support businesses of all sizes with expertise on cost-effective machine learning computation. As the global market expands, we will increase our export support for AI and data businesses. The Global Entrepreneur Programme will look to increase its focus on attracting AI and data-led businesses to establish headquarters in the UK. We will lead the world in safe and ethical use of data and artificial intelligence giving confidence and clarity to citizens and business AI and data are already creating enormous opportunities for us to understand more about everything, from our health to what we like to buy. But it is vital that we remove barriers to innovation and ensure that data is used in a way that is both safe and fair to individuals. The UK will take an international leadership role by investing £9m in a new Centre for Data Ethics and Innovation. This world-first advisory body will review the existing governance landscape and advise the government on how we can enable and ensure ethical, safe and innovative uses of data, including AI. This will include engaging with industry to explore establishing data trusts to facilitate easy and secure sharing of data. We will consult widely in due course on the detailed remit for this new centre. We will also strengthen overall data security, reinforcing the UK’s position as a global centre for cybersecurity. We will develop detailed recommendations over the next six months. We will help people develop the skills needed for jobs of the future AI and data analytics will change jobs and businesses, and we want people to be able to capitalise on these opportunities. Our Industrial Strategy builds on our work to develop people’s skills, investing an additional £406m in maths, digital and technical skills in England. This includes investing £84m over the next five years to deliver a comprehensive programme to improve the teaching of computing and drive up participation in computer science. We will up-skill 8,000 computer science teachers and work with industry to set up a new National Centre for Computing Education. 41 We will also promote a new adult digital skills entitlement to support basic training and our new National Retraining Scheme will help people re-skill and up-skill as the economy changes, including as a result of automation. This scheme will be informed by career learning pilots, which are testing barriers to adults engaging in learning, and the National Retraining Partnership. Initially it will focus on priority skills, including digital. As a first step, we will invest £30m to test the use of AI and innovative education technology (edtech) in online digital skills courses. We also need to build an evidence base about how technological change may affect different sectors, groups and places. Building on the work of Skills Advisory Panels and local Digital Skills Partnerships in England, the government and industry will explore how data analytics can be used to improve our understanding of employer demand for skills. One of the many applications of AI and data analytics technologies is to enable more efficient use of energy and resources. For example, intelligent algorithms applied to data on atmospheric conditions and soil moisture could dramatically reduce the amount of water needed for agriculture. Actions to support our first Grand Challenge will complement the second challenge we have identified – maximising the advantages to UK industry of the global shift to clean growth. ‘AI and data are already creating enormous opportunities for us to understand more about everything, from our health to what we like to buy.’ Industrial Strategy White Paper 42 Clean Growth We will maximise the advantages for UK industry from the global shift to clean growth – through leading the world in the development, manufacture and use of low carbon technologies, systems and services that cost less than high carbon alternatives. The move to cleaner economic growth – through low carbon technologies and the efficient use of resources – is one of the greatest industrial opportunities of our time. By one estimate, the UK’s clean economy could grow at four times the rate of GDP23. Whole new industries will be created and existing industries transformed as we move towards a low carbon, more resource-efficient economy. The Paris Agreement of 2015 commits countries to revolutionising power, transport, heating and cooling, industrial processes and agriculture. The effect of these changes will be felt by businesses throughout the economy, and will involve the reallocation of trillions of pounds of public and private finance towards the pursuit of cleaner growth. Stowe Global Coal Index and global green bonds issuance Shift of global investment towards the clean economy 2011 2012 2013 2014 2015 2016 2017 160 120 80 40 0 8000 6000 4000 2000 0 Billion USDGlobal green bond issuance Stowe Global Coal Index Source: Climate Bonds Initiative (2017); Stowe Global Indexes. *2017 green bond issuance is estimated. The Coal Index takes the last data of each month from Jan 11 to Oct 17 43 The UK has been at the forefront of encouraging the world to move towards clean growth. We are determined to play a leading role in providing the technologies, innovations, goods and services of this future. We want to support our strong automotive, aerospace and construction industries to increase their share of global markets as they shift to clean energy sources and efficient new materials. We want UK businesses to lead the development of new markets in areas such as smart energy systems and the ‘bio-economy’ – the use of renewable biological resources from land and sea to produce food, materials and energy. We also want everyone to feel the benefits of clean growth, so we will work to create a future where our cities benefit from cleaner air, our businesses from enhanced resource security and our countryside from regenerated natural capital. The UK is already one of the most successful countries at growing our economy while reducing emissions. We have cut emissions by more than 40 per cent24 since 1990, while our economy has grown by two thirds25. Our recently-published Clean Growth Strategy26 sets out our ambitious proposals for continuing this progress through the 2020s. We have world- leading capabilities in areas including electric vehicle manufacture, offshore wind, smart energy systems, sustainable construction, precision agriculture and green finance. With business, academia, the government and civil society working together, we can do more. We will aim to maximise UK businesses’ share of the global markets as they are transformed by the shift to clean growth, and make our country one of the best places in the world to develop and sell clean technologies. We will increase our support for innovation so that the costs of clean technologies, systems and services are reduced across all sectors, and we will collaborate on international initiatives such as Mission Innovation – a global partnership for clean energy research and development – to bring ‘The move to cleaner economic growth – through low carbon technologies and the efficient use of resources – is one of the greatest industrial opportunities of our time.’ Industrial Strategy White Paper 44 The UK has been at the forefront of the global move towards clean growth, with projects such as the Blyth wind farm in the north east of England 45 ‘Our long-term goals are to make clean technologies cost less than high carbon alternatives, and for UK businesses to take the lead in supplying them to global markets.’ the best minds together to accelerate progress. We will align our policies, regulations, taxes and investments to grow the markets for these new innovations so that they are successfully commercialised in the UK. Our long-term goals are to make clean technologies cost less than high carbon alternatives, and for UK businesses to take the lead in supplying them to global markets. We will take action to establish and extend UK leadership in the following early priority areas: We will develop smart systems for cheap and clean energy across power, heating and transport Smart systems transform our ability to use clean energy cost-effectively, and so will be in high demand globally. We are good at designing such systems. A national electricity grid was a great British technical achievement. Now we are setting ourselves the challenge of remodelling it so it can handle many different sources of clean energy, and use new technologies to store energy and manage demand. We will launch a new Industrial Strategy ‘Prospering from the energy revolution’ programme to develop world-leading local smart energy systems that deliver cheaper and cleaner energy across power, heating and transport, while creating high value jobs and export capabilities. Our world-leading Smart Systems and Flexibility Plan27 will build on the rollout of smart meters to grow the markets for these systems and technologies in the UK. We will continue to work closely with the nuclear and offshore wind industries to further drive down the costs of clean power, while building UK supply chains. We will also continue to explore the long-term options for clean heating and the many potential uses of low carbon hydrogen. We will transform construction techniques to dramatically improve efficiency A rapidly urbanising world needs buildings that can be constructed and operated more efficiently. Our new Industrial Strategy ‘Transforming Construction’ programme will take full Industrial Strategy White Paper 46 advantage of new technologies to provide safer, healthier and more affordable places to live and work that use dramatically less energy to build and run. It will ensure UK businesses develop world-leading capabilities in integrating construction, digital energy and efficiency technologies – the kind of system integration at which the UK excels. We have launched a call for evidence on additional measures to build a market for energy efficiency among homeowners. This will incentivise greater private investment in household and commercial building energy efficiency, to grow the markets for these types of buildings and technologies. We will make our energy- intensive industries competitive in the clean economy Global markets for clean and efficient industrial fuels, processes and materials are growing rapidly. We are investing £162m in innovation for low carbon industry, and developing a new strategy for the bio-economy. We will work with industry to stimulate further market investment in clean and efficient technologies and process, including through all manufacturing Sector Deals, and through developing a new scheme to support investment in industrial energy efficiency. This scheme will help large businesses install measures that will cut their energy use and bills, as well as improve their productivity. This will build on the 2050 Decarbonisation Action Plans that we have agreed with seven of the most energy-intensive sectors. We will grow the markets for innovative farming technologies and techniques such as the use of drones 47 We will put the UK at the forefront of the global move to high- efficiency agriculture Rising global demand for food and water is increasing the need for agriculture that produces more from less. Our new ‘Transforming food production: from farm to fork’ programme will put the UK at the forefront of advanced sustainable agriculture. Over the coming years,as we replace the Common Agricultural Policy, we will increase the incentives for investment in sustainable agriculture, helping to grow the markets for innovative technologies and techniques. With powers set to return from the EU, the UK government is in discussions with the devolved administrations over future arrangements. Our work will develop in line with the outcome of those discussions. We will make the UK the global standard- setter for finance that supports clean growth We will extend the UK’s global leadership in green finance – building on our world-leading financial sector – working with industry through our new Green Finance Taskforce. We are now working with the British Standards Institution and the City of London’s Green Finance Initiative to develop the world’s first green financial management standards. We use an enormous amount of energy to move people and goods from place to place: around 40 per cent of the UK’s total final energy use28. Developing UK leadership in low carbon transport is therefore a shared priority with our Future of Mobility Grand Challenge. We will invest in innovation to develop clean technologies across road, rail, aviation and maritime transport. ‘We are investing £162m in innovation for low-carbon industry, and also developing a new strategy for the bio-economy.’ Industrial Strategy White Paper 48 The Future of Mobility We will become a world leader in shaping the future of mobility. We are on the cusp of a profound change in how we move people, goods and services around our towns, cities and countryside. This is driven by extraordinary innovation in engineering, technology and business models. Significant investments are being made in the electrification and automation of road vehicles, in the modernisation of rail services to deliver higher capacity, speed and connectivity, and in the development of autonomous aerial and marine transport. New market entrants and new business models, such as ride-hailing services, ride sharing and ‘mobility as a service’, are challenging our assumptions about how we travel. These technologies can transform public transport. The UK’s road and rail network could dramatically reduce carbon emissions and other pollutants, congestion could be reduced through higher-density use of road space enabled by automated vehicles, and mobility could be available when we want it, where we want it and how we want it. New electric car registrations UK electric car ownership has increased rapidly since 2010 40 30 20 10 0 1.5% 1.0% 0.5% 0.0% 2010 2011 2012 2013 2014 2015 2016 ThousandsNew registrations (LHS) % of total new cars (RHS) Source: Department for Transport (2017) Vehicles statistics. *Electric car includes plug-in hybrids, 100% electric, range extended electric and fuel cell electric cars 49 ‘New market entrants and new business models, such as ride-hailing services, ride sharing and mobility as a service, are challenging our assumptions about how we travel.’ We have significant strengths in many of the most relevant areas of research and development, including artificial intelligence and complex vehicle engineering. We have dynamic businesses developing new mobility solutions, and innovative, strong and diverse automotive, rail, maritime and aviation sectors. We have a long history of bringing transport innovation to the world. We also have strengthening leadership at a local level, with mayors in English cities and City Deal Boards in Scotland and Wales actively pursuing new ways to address the complex transport needs of our cities. As the UK has the highest percentage of the population living in urban areas in the OECD we are well placed to contribute to these challenges of urbanisation29. We will build on the innovative work of the Office for Low Emission Vehicles, the Centre for Connected and Autonomous Vehicles and the Transport Catapult to look across the road transport system for opportunities to improve customers’ experience, drive efficiency and enable people to move around more freely. We will work with a full range of stakeholders across the UK to deliver this challenge. The government wants to see fully self-driving cars on the UK roads by 2021 Industrial Strategy White Paper 50 We have identified four early priorities: We will establish a flexible regulatory framework to encourage new modes of transport and new business models Mobility has always depended on standards. Our regulatory environment must evolve with the times to support the emergence of new technologies and new business models. We will ensure we continue to have one of the most open environments in the world for transport innovation and new services by undertaking a thorough regulatory review of all relevant legislation. The government wants to see fully self-driving cars, without a human operator, on UK roads by 2021. We will therefore make world-leading changes to the regulatory framework, including updating our code of practice for testing automated vehicles to allow developers to apply to test their vehicles nationwide without a human safety operator and carrying out a project with the Law Commission to set out proposals for a long-term regulatory framework for self-driving vehicles. We will seize the opportunities and address the challenges of moving from hydrocarbon to zero emission vehicles For zero emission vehicles to become universal the right framework is needed. Building on the work of the Faraday Battery Institute and the Office for Low Emission Vehicles programme, we have announced a package to support the transition to zero emission vehicles. This includes a new £400m Charging Infrastructure Investment Fund (£200m from the government to be matched by private investors); £100m new funding for the plug- in car grant; £40m R&D funding (matched by industry) for new charging technologies including on-street and wireless projects; and a commitment that the government will lead the way, making 25 per cent of all cars in the central government department fleet ultra-low emission by 2022. Building on these commitments, in the coming months we will publish a strategy on government support for the transition to zero emission road transport, ensuring the UK continues to be a world leader in the development, manufacture and use of these vehicles. 51 ‘We will ensure we continue to have one of the most open environments in the world for transport innovation and new services by undertaking a thorough regulatory review.’ We will prepare for a future of new mobility services, increased autonomy, journey- sharing and a blurring of the distinctions between private and public transport The future mobility marketplace is likely to operate differently to the transport system of today. We will consult with industry and others on the government’s role to support this, and publish a Future of Urban Mobility strategy within the next 12 months. The National Infrastructure Commission (NIC) will also launch a new innovation prize to determine how future roadbuilding should adapt to supporting self- driving cars, with the West Midlands, a UK centre of expertise on connected and autonomous vehicles, being a key testing location for the best entries. We will also be investing £5m from the 5G Testbeds and Trials programme for an initial trial, starting in 2018, of 5G applications and deployment on roads, including helping to test how we can maximise future productivity benefits from self-driving cars. We will explore ways to use data to accelerate development of new mobility services and enable the more effective operation of our transport system We will continue to invest in R&D and testbed infrastructure for connected and autonomous vehicles. We will explore how simulated digital environments can support and accelerate development of self-driving technology through an R&D competition to be launched by the Centre for Connected and Autonomous Vehicles, the first R&D competition of its kind in Europe. One of the main groups benefiting from this revolution is older people who may no longer be able to drive or have other difficulties with mobility. Our fourth challenge is focused on meeting the particular needs of an ageing society. Industrial Strategy White Paper 52 Ageing Society We will harness the power of innovation to help meet the needs of an ageing society. The UK population is ageing, as it is across the industrialised world. We are living longer than ever before; we have historically lower birth rates; a large cohort of people – the so-called ‘baby boomers’ born after the Second World War – are reaching retirement30. One in three children born in the UK today can expect to live to 10031. The prospect of longer lives will require people to plan their careers and retirement differently. Ageing populations will create new demands for technologies, products and services, including new care technologies, new housing models and innovative savings products for retirement. We have an obligation to help our older citizens lead independent, fulfilled lives, continuing to contribute to society. UK population and proportion of population aged 65 and over By 2046 almost 1 in 4 people will be 65 years old and over MillionsUK population (RHS) Aged 65 or over (%, LHS) 1976 1986 1996 2006 2016 2026 2036 2046 40% 30% 20% 10% 0% 80 60 40 20 14.2% 24.8% Source: ONS (2017) “Population estimates” *2016-based population projections are used 53 Innovation in age-related products and services can make a significant difference to UK productivity and individuals’ wellbeing, and will find a growing global market. Ageing also presents significant challenges to the economy, including greater caring demands on those of working age and increased health and social care costs. Without action, an ageing population could reduce the size of our workforce and lead to lower productivity. If we succeed, we will create an economy which works for everyone, regardless of age. A new generation of British businesses will be thriving in the growing global market for age-related products and services. Older people will be able to lead fuller, more independent lives, increasingly supported by smart home technologies, wearable devices and tech- enabled health and care services. British businesses will have redesigned jobs and workplaces to better use their older workers’ experience, enabling individuals to keep active and stay in work. Workers will have more flexibility to help balance their work with caring responsibilities. Younger generations will be able to plan for their longer careers with confidence. ‘One in three children born in the UK today can expect to live to 100. The prospect of longer lives will require people to plan their careers and retirement differently.’ Ageing populations will create new demands for technologies, products and services Industrial Strategy White Paper 54 Many countries are grappling with this challenge, most notably Japan. There are some distinctive British opportunities which build on our strengths. These include powerful health datasets in the NHS, world-leading design institutes, the artificial intelligence research community, a strong life sciences sector and the financial services industry. Making the most of these advantages could turn the ageing challenge into a global opportunity. We will take action to and extend UK leadership in four early priority areas: We will support new products and services for the growing global population of older people, meeting important social needs and realising the business opportunity for the UK Globally, there are likely to be two billion people over the age of 60 by 205032. UK businesses must take advantage of markets created by this rise in older consumers. Doing this could also improve people’s quality of life. Through a forthcoming Industrial Strategy ‘Healthy Ageing’ programme we will invest in innovation to help older people maintain their chosen lifestyle, and stay independent for longer. We will explore opportunities to work with UK businesses to encourage emerging consumer markets, and the development of innovative products and services that support people throughout their working life and into retirement. This could include new finance products or partnering with the retail tech sector to identify barriers to the development and diffusion of new products. We will support sectors to adapt to a changing and ageing workforce As people lead longer, healthier lives, they will need to save and work for longer to ensure they have a secure retirement. With an ageing workforce and fewer people entering the labour market from education and training, employers will need a more flexible labour market that can accommodate older workers. The government will continue to build on the Fuller Working Lives Strategy and has already appointed a Business Champion specifically for older workers. This signals our commitment to work with employers to promote the benefits of older workers to employers across England – in terms of their strategic approach and practical advice. We will also encourage industries to lead in adapting their workplaces to the requirements of an ageing workforce. To help realise the potential in the labour market, including amongst women, older workers, carers and disabled people, we will work with business to make flexible working a reality for all employees across Britain and to inform the evaluation of the Right to Request Flexible Working regulations. We will leverage our health data to improve health outcomes and UK leadership in life sciences The NHS generates powerful datasets that could be harnessed in a safe, fair and secure manner to develop 55 ‘There are some distinctive British opportunities which build on our strengths… Making the most of these advantages could turn the ageing challenge into a global opportunity.‘ new tools to diagnose and treat illness earlier. In response to Professor Sir John Bell’s life sciences review33, the government will be working to develop a number of regional Digital Innovation Hubs. These hubs will support the use of data for research purposes within the strict parameters set by the National Data Guardian. Health and social care are devolved but the technological challenges and benefits can be supported and seized across the UK. Through the Industrial Strategy ‘Data to early diagnostics and precision medicine’ programme, we will invest to continue to explore the application of data for better, more innovative health and care. We will support care providers to adapt their business models to changing demands, encouraging new models of care to develop and flourish The government’s forthcoming Green Paper on care and support in England will respond to the wide challenges facing the social care sector, setting out proposals for long-term, sustainable reform. The Industrial Strategy can play a role in supporting the care sector to adapt for the future. We will support the care sector to innovate and develop new business models, including by making better use of emerging technology through the Industrial Strategy Challenge Fund. We will also encourage care businesses to access the opportunities provided by the strengthened Growth Hub network. Next Steps What we have outlined here is just the start. Over the months ahead we want to work in partnership with businesses, universities, researchers and civil society on these Grand Challenges. All four are ambitious – and they are difficult. Success is not guaranteed. But trying to tackle them is not just worthwhile, it is essential. If we can rise to these challenges we will have equipped our country for a future that is not just prosperous but also socially and environmentally responsible. Industrial Strategy White Paper 56 Ideas 57 Our ability to innovate – to develop new ideas and deploy them - is one of Britain’s historic strengths Industrial Strategy White Paper 58 Ideas To be the world’s most innovative economy Our ability to innovate – to develop new ideas and deploy them – is one of Britain’s great historic strengths, from the jet engine and the bagless vacuum to MRI scanners and the World Wide Web. We are a global leader in science and research: top in measures of research excellence and home to four of the top 10 universities in the world. We need to do more to ensure our excellence in discovery translates into its application in industrial and commercial practices, and so into increased productivity. The government and the private sector need to invest more in research and development (R&D). We need to be better at turning exciting ideas into strong commercial products and services. And we must do more to grow innovation strengths in every part of the UK, as well as maintaining our position as a global leader in science and innovation. Through our Industrial Strategy, Britain will take a leading role in a new industrial revolution as significant as the last. We will drive change through the biggest increase in public investment in R&D in our history. We will ensure the UK is the best place for innovators, and through our Grand Challenges we will drive partnerships between the best minds in science and business throughout Britain. Key policies include: ` ` Raising total R&D investment to 2.4 per cent of GDP by 2027 ` ` Increasing the rate of R&D tax credit to 12 per cent ` ` Investing £725m in new Industrial Strategy Challenge Fund programmes to capture the value of innovation 59 Innovation is about new ideas, new ways of doing things, new products and services, new technologies and new business models. It can come from radical transformation or incremental improvements; from within a business or from a new insurgent; from a major scientific advance or the application of a known technology in a new process. Our ideas are crucial to the productivity improvements that boost our earning power. Our ability to innovate – to develop new ideas and deploy them – is one of Britain’s historic strengths. We are a nation of innovators: from Sir Frank Whittle’s jet engine to Sir Tim Berners-Lee’s World Wide Web; from Sir James Dyson’s bagless vacuum cleaner to the automatic kettle of Russell Hobbs. The UK is rated one of the most innovative countries in the world – an ‘innovation leader’ in the 2017 European UK fi eld-weighted citation impact across research fi elds The UK research base across research fi elds Humanities Business Social sciences Engineering Physical sciences Clinical sciences Mathematics Environmental sciences Biological sciences Health & medical sciences 2.0 1.5 1.0 0.5 0.0 2006 2010 2014 World Average (=1.0) ‘We will drive change through the biggest increase in public investment in research and development in our history.’ Source: Elsevier (2017) “International comparative performance of the UK Research Base 2016”. A field-weighted citation impact of 1.0 represents world average Industrial Strategy White Paper 60 Innovation Scoreboard and 23 per cent above the EU average performance34. We are recognised as a global leader in science and research, top in measures of research excellence35 and home to four of the top ten universities in the world36. We punch above our weight in delivering high-quality, impactful and diverse research work. We have leading-edge research and development (R&D) in many sectors and industries, including but not limited to life sciences, aerospace, automotive, technology, energy and the creative industries. We also have world-class service sectors including in law, accounting, financial services, advertising, architecture and insurance. We have a lively and thriving start-up environment. We produce and attract some of the most talented people in the world and draw in proportionally more internationally mobile R&D than other large countries37. While we score well on measures of research and innovation, we need to do more to ensure this translates into improvements in earning power. According to the UK Innovation Survey, just over half of our businesses are classed as innovative38, meaning there is significant potential to raise our game. There are four key challenges that this Industrial Strategy will address. Over half of UK firms are innovating. Of those firms: 51% used new business practices. 38% used new methods of organising their work. 36% introduced new products. 30% changed their marketing concepts or strategies. 25% innovated in their processes. Based on UK Innovation Survey Data 2015. Survey only includes enterprises with 10+ employees 61 Our first challenge is that neither the government nor the private sector is investing enough in R&D. This holds back the productivity of both public services and business. It means the UK risks losing out in the race to develop the technologies and innovations that will shape the businesses and markets of the future. We invest less in R&D than most of our competitors – 1.7 per cent of GDP compared to 2.8 per cent in the United States and 2.9 per cent in Germany39. Even after allowing for the structure of our economy – which is dominated by services rather than the traditionally R&D-intensive sectors like manufacturing – we still invest comparatively little40. Business investment in R&D in the UK is relatively low41. R&D performed in businesses is concentrated in a small number of big businesses and in a small number of sectors such as pharmaceuticals, motor vehicles and technology42. Indeed, just over three quarters of private R&D investment in the UK is driven by 400 businesses43. Fewer of our small and medium-sized enterprises (SMEs) introduce new products and processes than their European competitors44. Furthermore, the latest data shows that the UK’s strength in research is being challenged by emerging economies45. R&D is an example of public spending stimulating rather than displacing private spending: economies with high levels of public investment in R&D also typically have high levels of private investment46. In the UK every £1 of public investment on R&D attracts around £1.40 of private investment47. Our second challenge is improving our ability to turn exciting ideas into commercial products and services and capture their maximum value. Our world-class science and research does not always feed through to world-leading home-grown businesses. There have been major breakthroughs made in UK universities and research labs bought up by global businesses – from magnetic resonance imaging in the 1970s, lithium-ion batteries in the 1980s, monoclonal antibodies in the 1990s and genetic sequencing in the last decade. All of these are pioneering UK ideas being developed elsewhere or bought by businesses from overseas. Within R&D, the ‘D’ for development needs a particular boost. ‘R&D is an example of public spending stimulating rather than displacing private spending… In the UK every £1 of public investment on R&D attracts around £1.40 in private investment.’ Industrial Strategy White Paper 62 Much of our innovation tends to be in areas such as software and branding, including marketing and advertising48, which often require less patient capital to fund them. We are good at low-cost innovation and flexible start-ups but the long and patient process of getting a new technology to market is difficult. As a result many of our innovative businesses are nimble, flexible and imaginative but do not grow to be substantial, big or strong. There are exceptions, but in general British businesses’ R&D tends to favour quick routes to market, rather than long development times, and selling businesses to growing them. Our third challenge is to build research and innovation excellence across the UK. There is world class R&D and innovation across the UK, from excellent research in university departments and public research organisations to investments from leading businesses. We need to capitalise on these strengths and foster the local ecosystems that can support innovation and sustained growth. The Science and Innovation Audits49 – led by consortia of business, universities and Local Enterprise Partnerships in England and relevant agencies in the devolved nations – are revealing distinct local and regional strengths and opportunities for collaboration across the UK. But they are also exposing the barriers an area can face in building its strengths into an ecosystem that attracts investment and talent – such as access to skills or knowledge and the capacity of businesses to innovate. Gross domestic expenditure on R&D by source of fi nancing as a proportion of GDP, 2015 UK’s spending on research and development compared to other countries 4.5 4.0 3.5 3.0 2.5 2.0 1.5 1.0 0.5 0.0 KDRISRCHESWEJPNAUTDNKDEUFINUSABELOECDFRASVNISLNLDCZENORCANGBRIRLESTHUNITALUXPRTNZLESPSVKPOLGRCTURLVAMEXCHLNon-government fi nanced Government fi nanced Source: OECD (2017) “OECD Economic Surveys: United Kingdom 2017”. *2014 data for France, Ireland, Italy, Portugal and OECD aggregate. 2013 data for Belgium, Israel, Luxembourg and Sweden. Non-government financed includes finance from higher education, which may be partly government-financed; and from the rest of the world, which may include foreign and supranational government finance 63 Our fourth challenge is to ensure the UK remains a world leader in global science and innovation collaboration. A total of 17 per cent of UK R&D investment is financed from abroad50 and half of UK R&D performed in business was by overseas- owned businesses51. Half of all UK research publications in 2014 were internationally co-authored – a share that has increased every year since 2010 – with these articles tending to score more highly on excellence and impact52. This demonstrates that international collaboration is vital to our continued success. But UK leadership is being challenged by emerging economies and competition grows for research talent and private investment. For us to remain a leading R&D nation, we will need to capitalise on our strong reputation and continue to attract the top talent from around the world, including from EU member states. We must ensure we remain connected to other leading international sources of ideas and have the capacity to absorb the advances they are making, working closely with the devolved nations to make the most of strengths and opportunities across the UK. We need to make strategic choices to maximise our international collaborations to support UK priorities and the Grand Challenges. If we address all this together we will be stronger not just in R&D and wider innovation, but in maximising the productivity and earning power benefits for businesses and people throughout the country. By 2030 we want the UK to be the most innovative country in the world: a home to the most dynamic businesses at the cutting edge of new technologies and processes, and which supports all businesses to adopt new ways of working to help them prosper. This means investing in R&D and the skills needed in a changing work environment to maximise the rewards and benefits innovation can bring to everyone in the UK. ‘By 2030 we want the UK to be the most innovative country in the world: a home to the most dynamic businesses at the cutting edge of new technologies and processes.’ of total UK R&D investment 17% is financed from abroad Industrial Strategy White Paper 64 A nation of innovators 1668 Sir Isaac Newton invented the reflecting telescope 1825 George Stephenson invents the passenger railway 1843 Ada Lovelace created one of the first computer programmes 1880 Joseph Swan started manufacturing and selling light bulbs 1926 John Logie Baird was the first to transmit moving pictures 1967 Sir Godfrey Hounsfield conceives the idea for the CT Scanner 1978 First successful birth of a child after IVF treatment 2004 Discovery and isolation of a single free-standing atomic layer of carbon (graphene) at Manchester University 65 2011 Saturn Bioponics develop the world’s first three-dimensional crop growing system 2012 Susannah Clarke revolutionised joint replacements by using 3D printed technology allowing personalised joint replacement with fewer complications 2013 Surrey Satellite Technology’s S-band radar system, NovaSAR, which revolutionises navigation and surveillance communications wins an Innovation award from the Institution of Engineering and Technology (IET) 2015 Oxford Nanopore launch MinION a portable DNA sequencing USB device for on-the-go RNA/DNA sequencing which can be used to monitor viruses like Ebola or trace antibiotic resistance without the need for large scale computing infrastructure 2015 DeepMind’s AlphaGo defeats the reigning Go European Champion becoming the first programme to defeat a professional player, giving us deeper understanding of the power and flexibility of machine learning 2016 Double Negative wins its third Academy Award for its pioneering visual effects work on sci-fi psychological thriller Ex Machina 2017 Richard Henderson awarded the Nobel Chemistry Prize for developing cryo- electron microscopy for the high- resolution structure determination of biomolecules in solution Industrial Strategy White Paper 66 Our approach Investing in R&D to transform our economy. For the UK to become the most innovative country in the world we need a generational increase in public and private R&D investment. In this strategy we commit to reach 2.4 per cent of GDP investment in R&D by 2027 and to reach 3 per cent of GDP in the longer term, placing us in the top quartile of OECD countries. If we meet this target we will transform our economy. It could increase public and private R&D investment by as much as £80bn over the next 10 years, with much wider benefits across the UK economy. We could see a dramatic change in the use of R&D by industry, with our businesses creating the next generation of technologies to revolutionise productivity in all sectors from construction and agriculture to manufacturing and the creative industries. This will raise the standard of living and establish UK leadership in global markets. The UK will lead the way in the R&D driving our Grand Challenges: in artificial intelligence and data-driven technology, clean growth, the ageing society and mobility. Our Grand Challenges will be driven by R&D in artificial intelligence and data-driven technology, clean growth, adapting to an ageing society and future mobility 67 ‘Our vision for a knowledge- led economy is underpinned by world-leading research, world- class facilities and international collaborations that push scientific frontiers and attract the brightest talents.’ Our vision for a knowledge- led economy is underpinned by world-leading research, world-class facilities and international collaborations that push scientific frontiers and attract the brightest talents, from Nobel Prize winners to ambitious graduate students. ‘Innovation clusters’ will form and grow around our universities and research organisations, bringing together world-class research, business expertise and entrepreneurial drive. These clusters can create thousands of skilled jobs in R&D, innovation and wider sectors, driven by the growth in science, technology, engineering and maths (STEM) skills led by new teachers and more doctorates. These skilled people and businesses must be located throughout the UK, growing research and innovation strengths throughout England, as well as in Scotland, Wales and Northern Ireland. Increasing investment in R&D to 2.4 per cent of GDP in a decade is ambitious and will require concerted effort by the government and business. As a first step we will invest an additional £2.3bn over what was previously planned in 2021/22, raising total public investment in R&D to approximately £12.5bn in that year alone. This investment will see public R&D spending increase as a share of GDP every year. It means that we will have raised public investment in R&D from around £9.5bn last year (2016/17) to around £12.5bn in 2021/22. This is an extra £7bn over five years – the biggest ever increase in public funding of R&D. We will invest strategically in technologies and ideas closer to market to drive UK competitiveness, while also continuing to fund the curiosity-driven research that is fundamental to the quality of our work and ensures our place as a world- leading knowledge economy. We will work with industry in the coming months to develop a roadmap for meeting this target. This will provide a framework to drive business investment in R&D and focus on key sectors, technologies £12.5bn public investment in R&D in 2021/22 alone
