Watchdog says Whitehall is too timid about taking stakes in British startups, leaving taxpayers at risk of missing out when they strike gold
Britain is funding the next generation of tech companies without making sure taxpayers get a slice of the action, MPs have warned.
In a new report shared with ahead of publication, the Public Accounts Committee (PAC) has accused UK Research and Innovation (UKRI) of being overly cautious about protecting taxpayers' interests. Rather than simply handing out grants, MPs want UKRI to consider taking equity stakes in more of the businesses it backs, giving the public a chance to cash in when those companies succeed.
According to the Department for Science, Innovation and Technology (DSIT), UK universities produce more spinouts and patents per pound of research funding than their US counterparts. But Britain is less adept at cashing in on its inventions.
British startups still struggle to attract the investment needed to grow without moving overseas, while universities have a patchy record when it comes to exploiting their intellectual property. UKRI, meanwhile, has been reluctant to impose tougher conditions on the research it funds, arguing that doing so could discourage companies from growing.
“This approach is far too cautious and we urge the Department to do much more to recover taxpayer's money when a successful company exploits research which the taxpayer, via UKRI, has paid for," the PAC said. It wants UKRI to review its standard funding terms, including whether it should take equity stakes in more companies benefiting from public money.
Sir Geoffrey Clifton-Brown, chair of the PAC, acknowledged that calling for the government to behave more like a venture capitalist might seem an odd position for a committee normally concerned with keeping public spending in check.
"It may strike followers of this Committee's work that our call for government to take a less cautious approach to taking a direct stake in British innovation is an unusual one," he said. "But we are a body dedicated to value for taxpayers' money, not hoarding it. The nations currently leading the global tech race did not achieve their positions by avoiding more entrepreneurial policies. This is a simple case for the government of nothing ventured, nothing gained."
The government has made some effort to help British tech firms. UKRI gives AI startups free access to taxpayer-funded supercomputers, while DSIT has changed its procurement rules to give UK companies a better shot at supplying £400 million worth of specialist AI chips.
The British Business Bank is also investing alongside pension funds, giving taxpayers a stake in some of the businesses receiving support. But efforts to attract more pension fund investment have been slower than ministers hoped, and MPs want DSIT to start measuring whether its various support schemes are actually helping British companies grow, rather than simply counting how much money it hands out.
There's also the question of where all that research funding ends up. London, the South East, and the East of England continue to receive half of UKRI's funding, despite years of government promises to spread investment more evenly across the country.
The North's share has improved from 12 to 20 percent over the past five years, but UKRI has yet to set specific regional funding targets. Clifton-Brown described the divide as "continuing and unacceptable," warning that progress could easily be reversed without a more deliberate effort to spread the cash around.
And while MPs want UKRI to be more adventurous with its investments, they're considerably less impressed with how it manages some of the projects already on its books.
The committee pointed to an airborne laboratory upgrade that UKRI abandoned after spending £46 million of its £49 million budget. Funding was finally canceled five years after the decision to upgrade the aircraft, prompting MPs to question why the plug hadn't been pulled sooner.
Elsewhere, around 45 percent of the Science and Technology Facilities Council's estate is in unacceptable condition, and restoring university-owned research infrastructure to full working order would cost an estimated £5.6 billion. The PAC also criticized UKRI for failing to ensure a replacement for the ARCHER2 national supercomputer would be ready before the existing machine shuts down, leaving an expected 13-month gap.
It seems Whitehall has mastered the art of spending money on innovation, but getting any back is another matter. ®