Driving innovation in Leeds City Region

It’s all too easy to think that the abstract aggregates of economists – GDP, GVA, labour productivity – don’t have a lot to do with people’s everyday lives. In the words of a northern lady heckling a distinguished economist during the referendum campaign, “That’s your bloody GDP, not ours”.

The attitude is understandable, and yet these abstractions reflect a truth that that underlies the intuitions people have about the economy. GDP per person and real wages have stagnated since the global financial crisis. Labour productivity – the amount of value produced per hour of work – has also stagnated, but so has the sense that people are working harder without getting much better off.

And the gulf in prosperity that people sense between London and the prosperous Southeast and the North is real, reflected in a gap in the per capita gross value added across the regions.

West and North Yorkshire are by no means the poorest or least productive parts of the UK, but the figures show that the region produces about £21,000 of added value per person – less that the UK average of £25,000, and nearly 35% down on what’s produced in one of the richer parts of the UK, Oxfordshire. That figure translates directly into lower wages and a lower standard of living for our people.

What does it take to have an economy with higher productivity? It’s simply a question of being more able to make high value goods and services that we can sell – to the rest of the UK, and to the rest of the world.

A big part of that is innovation – that continuous process of being able to do the same things better, or to make entirely new goods and services that people are prepared to pay a premium for. That’s why the LEP’s new report on innovation in Yorkshire is so valuable.

Promoting research & development

The innovation picture for West and North Yorkshire is mixed. Most Yorkshire businesses are innovating, and the region has world class universities that are well connected to the business base. But in the more formal types of innovation, where businesses systematically carry our research and development - R&D - to produce new and technologically innovative products, our region still lags.

Over the whole of the Yorkshire and Humber region, businesses spent £938 million on research and development. That’s an impressive number, but it’s still too small a share of the UK’s total of nearly £24 billion in business R&D.

R&D isn’t everything – many companies are able to create valuable new innovations without a formal R&D process, by adapting existing technologies from other industries or competitors, by working with customers and suppliers, or just by continuously improving what they already do well.

But it’s often R&D that can lead to finding new ways of cutting costs and increasing profits, or developing entirely new products that can command a premium price.

Economists tell us that companies can’t be expected to do all the heavy lifting in R&D themselves. It’s all too easy for the innovation that one company introduces to be adopted by their competitors. That’s good for consumers and benefits the economy more widely, but it means that the innovating company doesn’t get the full benefit of their R&D investment.

That’s why the government supports business R&D through the R&D tax credit scheme. But Yorkshire businesses are leaving this money on the table – Yorkshire and Humber businesses claimed tax credits worth £170 million in 16/17, only 4% of the national total.

Building on successes

Business innovation needs to be supported in other ways besides direct subsidy for R&D – it needs to benefit from the expertise in our universities, businesses need to be able to hire the best people with high skills levels, there need to be the networks through which new ideas and new technologies can spread.

And it needs the far-sighted investors who are willing to back great new ideas. In all these areas, the Innovation Report tells us we need to do better.

West and North Yorkshire have got some great strengths – areas where there’s critical mass of great businesses, both traditional and new. There’s a strong agri-food sector, where provenance and quality are key strengths; and the new medical technology that’s going to be needed to keep an ageing population active and well.

New digital and media is strong in Leeds, and innovation is creating new markets for Yorkshire’s traditional specialisation in textiles.

History matters, but the trick is going to be to take what the region is good at and turbocharge those strengths. We need to build the innovation capacity, to develop new technologies and making sure businesses are taking every opportunity those technologies offer to create more value.

Our universities will be an important part of this, through the research they do, the people they train, and the expertise they can contribute to the business base.

We need to go further, though, with new institutions explicitly created for translational research, to nucleate new clusters of expertise, supporting the development of highly innovative business clusters.

The outcome, if we are successful, won’t be abstract, it should be very tangible, in the form of successful businesses, better jobs, and wider prosperity for our region.