UKRI should speed up Industrial Strategy Challenge Fund approval processes, says NAO

The Industrial Strategy Challenge Fund is an ambitious programme and has succeeded in attracting interest, but the lengthy process to obtain funding could be off-putting to applicants, according to the National Audit Office (NAO).

The fund is led by UK Research and Innovation (UKRI), a non-departmental body reporting to the Department for Business, Energy and Industrial Strategy (BEIS), and was launched in 2017.

Its aim is to raise long-term productivity and living standards through innovative solutions, and the government has put aside £3bn for the fund during its eight-year lifetime.

An NAO report on the fund found that, so far, the government has underspent against the fund’s budget by 11%. This has been partly due to “delays in getting new challenges approved and up and running”, which has had a knock-on effect on UKRI’s ability to start spending on newly approved challenges.

“These delays are likely to push spending into the following years as commitments build up,” said the report. “This pressure, exacerbated by the impact of Covid-19, which will have slowed progress on some approved projects, may increase the risk of UKRI having to re-profile its future spending to fit within its annual budgets.”

During the third and most recent wave of funding, it took an average of 72 weeks – more than 16 months – to select and approve challenges for the fund.

The NAO report added: “Lengthy processes for agreeing challenges and then projects leads to delays in funding projects. A balance needs to be struck between making sure proposals for challenges and then bids from prospective grant recipients are of sufficient quality and approved quickly.”

Once the challenges had been approved and the competitions launched, it then took an average of 31 weeks to assess applications for funding and make an offer to the applicant.

“Successful applicants suggested the fund had supported projects which might not otherwise have taken place,” the report said. “While applicants were positive, some voiced concerns about the length of time taken to make funding awards and some had concerns about the ability of smaller companies to meet the co-investment requirements set for funding.”

It added: “Overly long processes might delay the impact of projects and might deter applicants. UKRI, working with BEIS and HM Treasury, should re-examine the arrangements for measuring the performance of the fund, in particular whether the array of current objectives provide a coherent direction and have sufficient focus on the impacts to be delivered from the money spent.”

Commenting on the report, Public Accounts Committee chair Meg Hillier said the fund had shown its worth “in supporting important projects like our vaccines programme”.

“But getting money out the door needs to reflect the real world of innovation,” she added. “With approvals processes taking over a year, the world may have moved on before funding even reaches projects.”

The report also found that funding had not been distributed equally around the country, with 44% going to London and the Southeast.

“Our analysis suggested that the geographical distribution of funding was not explained by the distribution of businesses undertaking research and development [R&D] activities in the economy,” said the NAO. “To date, UKRI has not had an explicit objective to consider the regional balance in its awards. In July 2020, the government stated that it was considering how spending on R&D and innovation should contribute to its ‘levelling up’ agenda.

“There is currently no clear link between the objectives set for the fund and the performance of the fund’s projects, making it more difficult for UKRI to measure the long-term impact of the fund as a whole.”

Although the fund has five objectives – to increase investment in R&D, increase engagement between academia and industry, increase collaboration between small companies and established ones, increase overseas investment in UK R&D and increase multi- and inter-disciplinary research – no expectations or baselines were set at the start.

UKRI has also had difficulties in recruiting staff to help administer the fund, the report added. For the third wave of the fund, UKRI estimated that it was 60% under capacity.