The Industrial Strategy Challenge Fund announced in the Budget 2017 is a good idea - but is it the right answer?

The allocation of £270m to the new Industrial Strategy Challenge Fund (ISCF) fund makes perfect sense, but only if its investments are made in a radically new way. What's most urgently needed, as we highlighted in our report Boosting Finance for Engineering and Technology, is flexible and sustained funding for Britain’s innovative science-based and creative businesses, over the long-term - an investment horizon of an absolute minimum of five years.  

The established funding industry is looking for proven technologies, a long track record of consistent cash flows and so on. The ISCF should be actively managed and must seek out British businesses working with genuinely innovative technologies and in new markets. A narrow focus on battery powered vehicles, artificial intelligence/robotics and developing new drugs risks excluding other valuable new technologies.

There is also still a need for wider funding for a very large number and a very wide range of high technology capital intensive companies, from small, even start-up enterprises, to those seeking development or growth capital – in the jargon - companies seeking to “scale-up”.

Despite excellent initiatives by some organisations, most notably Innovate UK, there is still a funding gap for companies reliant on up-front investment in R&D and Intellectual Property. This new fund will only make a real difference if the money is allocated to organisations that can’t already get funding from existing sources. This almost certainly means allocating the cash in the form of grants, convertible loans/equity instruments, via additional simple but directly targeted tax incentives, or all of these measures. A further complication here is Brexit. At present such measures are subject to EU state aid rules and the Government should keep the rules behind this fund under review as Brexit negotiations progress.

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