Europe 2020: Scottish National Reform Programme 2016

Chapter 3: Innovation and R&D

Innovation is vital for improving economic growth, and Scotland has many strengths in this area. It has a strong commitment to research and science, a highly-skilled workforce and world-renowned universities producing high-impact research.

This chapter outlines the actions taking place throughout Scotland aimed at fostering a culture of innovation and R&D. It also highlights action that create wider support for innovation through the business environment, supporting entrepreneurship, and developing Scotland's digital economy, highlighting the Scottish Government's support for the EU's flagship initiatives, 'Innovation Union' and 'Digital Agenda for Europe'.

Europe 2020 headline target:

Raising the combined public and private levels in research and development to 3 per cent of GDP.

Current Scottish Performance

Scotland's innovation performance is measured through a range of indicators, with Table 3 outlining the current performance.

Table 3 - Current Scottish Performance Against Innovation and R&D Indicators

Indicator	Current Level	Change Over Year	Reference Period
Gross Expenditure on Research and Development [23]	1.55% of Scottish GDP	0.06% pts increase	2013
Weighted index of Scottish Universities' Income from Knowledge Exchange Activities [24]	9.2% above the baseline year of 2007-08	2.4% below the previous year	2013-14
Proportion of innovation active firms in Scotland [25]	51%	7.0% pts above previous reference period (2010-12)	2012-14

As shown in Table 3, Scotland is performing well against each of the innovation indicators. Over the year to 2013, Scotland's Gross Expenditure on R&D as a share of GDP increased; the share of Scottish Universities' income from knowledge exchange activities in 2013-14 is well above the 2007-08 baseline level, despite falling slightly since the previous year; and the proportion of innovation active firms in 2010-12 was 10 percentage points above the previous reference period (2008-10)

Horizon 2020

Scotland is an important participant in Horizon 2020 ^[26] - the European Union's programme for Research and Innovation, with the latest data to October 2015 indicating that Scottish organisations secured in excess of €158 million, representing around 11 per cent of total funding awarded to UK organisations. ^[27] Scottish Higher Education organisations and research institutes have been the main beneficiaries, securing over 83 per cent (€132 million) of all funding awarded to Scottish organisations.

The Innovation Scotland Partnership Group ( ISPG) oversees the delivery and promotion of EU research and innovation programmes in Scotland. This ensures that EU research and innovation opportunities and activities remain a priority area for Scotland. Membership of the Group comprises representatives from innovation, science, academic research and European policy teams from the Scottish Government, the Scottish Funding Council, Scottish Enterprise, Highlands and Islands Enterprise, Scotland Europa and Enterprise Europe Scotland alongside representation from UK organisations including Innovate UK, Big Innovation Centre, and Nesta.

Boosting Innovation and Commercialisation in Scotland

Scotland's Economic Strategy emphasises the importance of innovation as a key driver of sustainable economic growth. Our approach is set out in Scotland CAN DO, ^[28] a framework which sets out the priority areas for Scotland to become a world-leading innovative and entrepreneurial nation. A range of actions are being taken forward to achieve this vision:

• The Scotland CAN DO Innovation Forum, ^[29] which draws its membership from the Scottish Government, businesses, and third sector partners, is focusing on increasing the contribution that innovation can make to the economy through driving up levels of business innovation. This is supported by the Innovation Scotland Policy Forum ( ISF),[30]30 a delivery group of the Scotland CAN DO Innovation Forum, which is working to enhance university-business engagement and greater collaboration between business and academia.
• Scotland's network of Innovation Centres ^[31] bring together university staff, research institutes, businesses and others to enhance innovation and entrepreneurship across Scotland's key sectors. There are currently eight Centres in Scotland, collectively spanning across Stratified Medicine, Sensors and Imaging Systems, Digital Health, Industrial Biotechnology, Oil and Gas, Big Data, Constructions and Aquaculture. The Centres are being supported by up to £120 million of funding from the Scottish Government over 2013-19, which is being administered by the Scottish Funding Council.
• The Scottish Government's £1 million Innovation Challenge Fund aims to encourage collaborative multi-disciplinary responses to Scotland's industrial and societal challenges. The Challenge calls for joint working across the Innovation Centres to deliver activities that demonstrate feasibility and routes to development in solutions to key issues. The first year of the challenge is 2015-16, and the focus of this year's fund is 'Transforming Cancer Care in Scotland' with three Innovation Centres working on this Cancer Care challenge in partnership with the Chief Scientist Office and the NHS. In future years, it is envisaged that the fund will focus on other challenges of national importance to Scotland.
• We are continuing to provide support for Interface ^[32] the free, national service which match-makes businesses with research resources in Scotland's Universities and research centres. Now in its tenth year, Interface has introduced over 2,149 businesses to academic partners, resulting in 1,250 company and university collaborative projects initiated. From these services 79 per cent of Interface client companies, have or will, increase their turnover. New activities through Interface include the development of an online specialist facilities platform to further demonstrate the range of opportunities available to businesses and to create pathways to simplify the current innovation support landscape for SMEs.
• In addition to supporting innovation activity in Scotland, the Scottish Government is increasing its support of international collaboration by piloting Innovation and Investment Hubs in Dublin, London and Brussels. The Hubs, supported by a commitment of £3.5 million through the Scottish Government's Budget 2016-17, are tasked with securing research and innovation partners, investors in Scottish innovation, and building on established exporting and inward investment expertise.

Joint Working with International Partners

Scotland continues to be a leading member of the Vanguard Initiative ^[33] and has had a major role in shaping its work and direction. The Vanguard Initiative is pioneering new approaches to support EU industry internationalisation and competitiveness. Participating regions are working together to develop joint demonstration cases in key industry sectors, the final goal of which is full scale commercialisation. Vanguard Initiative regions work with the European Commission to highlight the challenges that exist and to identify solutions that can be implemented on a multi-level basis. Information on Scotland's joint work with other EU regions can be found in Box 3.

Box 3: Scotland's Participation in the Vanguard Initiative

Scotland participates in three of the five joint demonstration cases that are driving forward the work of the Vanguard Initiative. These projects include demonstration relating to:

• The Bioeconomy - a project aiming to demonstrate innovative uses use of non-food Biomass; and
• Efficient and Sustainable Manufacturing - a project aiming to demonstrate de- and re-manufacturing and the reuse of products, and environmentally-efficient manufacturing processes and solution.

Also, Scotland jointly leads a pilot project with the Basque Country on the development of Advanced Manufacturing for Energy Related Applications in Harsh Environments.

The aim is to strengthen a sector of European manufacturing that is well positioned to dominate global markets. After an initial mapping exercise and development of a technology roadmap a database was created with over 300 companies and organisations. Regional experts have been identified to lead in key areas of interest and propositions from key actors were further developed at a matchmaking event in Brussels.

The matchmaking event was held on 25 February 2016, supported by €400,000 of funding by DG Regio. The event was used to move the joint demonstration cases further forward and brought together Regional Technology Offices, companies and investors in focused partnering sessions as well as parallel sessions including one from the European Investment Bank on the European Fund for Strategic Investment ( EFSI).

Encouraging Entrepreneurship and building a Supportive Business Environment

As well as providing direct support for innovation, the Scottish Government is committed to ensuring that our business environment is supportive of new ventures, to help encourage companies to undertake a range of innovation and research activities. Our approach includes, for example, improving access to finance, offering start-up support and advice for new businesses, and encouraging entrepreneurship.

To support business development, Business Gateway ^[34] offers a first point of contact for all publicly-funded advice to potential pre-start, early stage and established businesses in Scotland. In 2014-15, Business Gateway assisted in the formation of 10,103 new businesses.

In addition, the enhancement of the Business Gateway service with Local Advisory services and Local Expert Help funded through the SME Growth Programme has supported a further 9,500 businesses, giving access to expertise and local knowledge that may not previously have been available to these companies.New funding through ERDF has recently been agreed to help Business Gateway focus on growth, aiming to support over 30,000 businesses in the period 2016-18 with financial and non-financial support and helping to generate almost 10,000 increased jobs.

Encouraging Entrepreneurship

To help encourage entrepreneurial activity from a young age, Scotland's Enterprising Schools ^[35] Project offers a one-stop shop to help schools develop a whole-school approach to entrepreneurial thinking. Schools are encouraged to self-evaluate using a Professional Reflection tool to help them measure where they are on their enterprise journey and set actions for improvement. Scotland's Enterprising Schools was launched in September 2015 with £300,000 of funding support, and already has 80 educators as members of the professional learning community.

The Scottish Encouraging Dynamic Growth Entrepreneurs ( EDGE) Fund ^[36] is continuing to support and encourage entrepreneurial activity among early-stage businesses, delivering investments of up to £100,000 to those with most growth potential. Over the seven rounds of funding completed to date, 479 new Scottish jobs have been created, £21.6 million of additional turnover has been generated and £18.7 million of additional funding has been created.

Access to Finance

The ability for SMEs to access finance is important for funding business investment, ensuring businesses meet their full growth potential and encouraging business start-ups. Support for this includes:

• The SME holding Fund, which will provide microcredit finance of up to £25,000, loans of up to £100,000, and equity investment of up to £2 million to Scottish SMEs, through £40 million of European Regional Development Fund ( ERDF) funding. The Fund is in the process of appointing delivery partners from the public and private sectors, who will match the European money on a 60:40 basis, thereby bringing an additional £60 million, providing in total at least £100 million to be available to SMEs in Scotland to fund their growth and export ambitions over the next 3 years.
• The Scottish Investment Bank, which offers risk capital and debt finance to new, innovative, technology-based companies. In 2014-15 SIB invested £66.5 million in 155 companies, leveraging additional investment of £99 million for the private sector. The £113 million Scottish Loan Fund, which provides loan finance to growth and export-oriented companies through the SIB, has distributed over £61.2 million to 29 companies to date.

Developing Digital Infrastructure

Scotland's Economic Strategy emphasises the need to invest in our digital infrastructure to improve connectivity, helping our cities, towns and regions to drive growth and compete internationally.

The Superfast Scotland projects extended access to superfast broadband infrastructure to 85 per cent of premises across Scotland by December 2015, and will extend to 95 per cent by 2017-18. These include the £146 million Highlands and Islands project, and the Rest of Scotland project, which is supported by around £157.6 million of public sector funding alongside investment of £106.7 million from BT.

We are also taking action to improve the use of digital connectivity in the delivery of public services. The first major partnership project in the digital delivery of public services, the Scottish Wide Area Network ( SWAN) ^[37] is delivering cost efficiencies for public sector organisations by aggregating demand for a single public services communications network in Scotland. More than 5,000 sites are now connected to SWAN and 18 organisations are using or have signed up to use the service. In addition, discussions are underway with a further 48 organisations about their future use of SWAN.

In addition, the Digital Transformation Service ^[38] has been established to enable Scottish Central Government to initiate effectively designed digital and ICT projects. Attracting the skills we need is one of the biggest barriers we face and this service is designed explicitly to allow us to develop and deploy our digital talent to greatest effect across the whole of Central Government.