Is UK innovation slowing down? David Bott of the Technology Strategy Board explains how the TSB's funding competitions work and what money left over at Year End might indicate.
“When I worked in industry money was reasonably easy to understand. For each product you sold you worried about the cost of making it and what a customer would pay for it. You always needed a sufficient amount in the bank to cover your costs – that sort of thing.
As a part of government, albeit at arms length, I have had to learn a whole new way of thinking about money.
What most people know about us is our competitions and that support selected projects in the form of grants. However, we are responsible to government for what we spend, and it is not the same.
“We run two types of competitions. In our thematic areas, we focus on the areas that our wide-ranging consultation has told us are barriers to progress. We know that each area of activity has a different timescale – the aerospace industry plans on a 15-20 year time horizon, the automotive about 10 and the electronics and digital industries 1-2 years. Healthcare used to be slower, but the speed of scientific development these days makes them more equivalent to the electronics industry. Our thematic activities seek to address these differences. In our competitions that are un-themed, such as Smart, the projects have a complex mixture of timescales, but since the work is invariably at an early stage of development, speed is usually important.
“The question we have at the moment is whether the under-spend at the end of the year is because we are not predicting the overall spend profile correctly, or whether innovation is slowing down in the UK.”
“From the first announcement of a new competition (which has often been trailed widely through our Delivery Plan, on _connect and through the relevant trade bodies), lots of things have to happen.
In our thematic areas, companies will look at the competitions’ scope and consider whether they can address the challenge raised. They will think about who they might work with, sketch out a path to achieve their goal and so on. They will then submit an expression of interest. If successful, they then have to build a more robust plan to deliver the goal, agree the terms of the collaboration and work out how much money they want and when they want it! Doing all this properly takes time.
For unthemed, single company competitions, these activities happen faster, but it still usually takes a few months to turn an idea into a robust plan.
“If we start a collaborative competition in April (the beginning, for us, of a new financial year), then it is likely that the Funders Panel at which we decide who will get the money will happen in November. We then issue conditional grant offer letters. Once we have those returned the project can start. We allow a month or so for this process (it depends on the size of the project and the extent of collaboration if it’s a multi-company project). We normally pay quarterly in arrears, so the first invoice usually comes into us in March. If it’s a three year project, we get an invoice for about eight percent of the cost of the grant – but not always, some projects start slowly and build expenditure, some need to buy something to start – there is no standard project spend profile.
“For an average length project, over the following three years, we get invoices every quarter until the money is fully spent – and the project delivers its output to the company or consortium. So we are still supporting companies four years after a competition started. We have a model that allows us to make sure we don’t over commit, as the commitments from successive years of competitions build up on top of one another to make up what we spend.
That’s when it works. Sometimes companies don’t start within a couple of months of the grant offer letter. There can be many reasons for this. Occasionally, there are questions at our end – the need for all the partners in a consortium to sign the collaboration agreement is a common cause of delay. Sometimes, companies did not have all their matched funding in place and choose to delay. In some sectors, it is necessary to start a project in alignment with a season, or a larger programme that the product or service is targeted on.
“Once started, very few projects run smoothly or to programme. Given that they are aimed at doing something new and that we are trying to support things that wouldn’t normally be supported, that is not surprising. This requires the project team to re-assess their options, and almost certainly re-profile their spend. Our monitoring system should take account of this and adjust our view of spend accordingly. Sometimes things just don’t work out and project should stop – no-one wants to waste money.
“What we have noticed over the last two years is that projects are calling down their spend slower than anticipated. Whereas we can accommodate a small number of projects starting late and going slower, if it happens on any scale, we end up with money left at the end of the year.
This is where another aspect of being part of government kicks in. Every year, at the end of the financial year, any money you haven’t proof that you need to spend (they do allow accrual against work done – so companies need to keep us informed on what they are doing, another role for the Monitoring Officers) goes back to the Treasury, the clock resets and you start using next years money the following day.
“The question we have at the moment is whether the under-spend at the end of the year is because we are not predicting the overall spend profile correctly or whether innovation is slowing down in the UK.”
David Bott is Director of Innovation Programmes at the Technology Strategy Board