How the UK can lead in emerging tech without blowing a hole in the nation's finances
New report from Onward Science Superpower programme
We’ve said it before: leading in science and tech discovery is not enough to turn around Britain’s economy. We need to turn ideas into tangible technologies, create cutting-edge companies, and scale them to success.
There are a bucket-load of ideas for fixing this – we set out a few in our recent Future Frontiers report. But some (such as our National Engineering Biology Institute) are costly and will take time. So, with a new Government looking for quick wins, what can they do?
The answer: reform regulation.
Agile regulation should be an area of UK competitive advantage. Permissive, pro-innovation regulation can support the translation of R&D into new products and services, attract innovators from abroad, and make it easier for businesses to adopt new technologies fast — which is vital for growth.
Technology adoption delays account for 25% of per capita income differences across countries
Source: Harvard Business School
In a new report out today, Igniting Innovation, authored by Onward Policy Fellow Ben Greenstone and myself, we set out how Britain can build this regulatory edge. (Also covered in City AM this morning.)
The ties that bind: What’s holding us back?
First, international competition is rife. Countries are going to significant efforts to entice innovative companies and talent through regulation:
Estonia launched a sandbox for UK startups who are being hamstrung by UK regulation.
Italy introduced a “right to innovate” in 2020, which “enables derogations from regulations that inhibit new ideas, products or business models”.
Germany has taken a similar approach with what it calls “experimentation clauses”.
Britain’s regulators need to step up. But instead they’re falling short in two key ways.
1. Regulators are too slow
The Food Standard Authority (FSA) has yet to set guidance on gene editing despite new legislation last year and has only approved 14% of the requests it received since 2021. The Civil Aviation Authority has yet to authorise drone flights “beyond the line of sight” for remote pilots even though the US and Japan did so two years ago. Last year, three-quarters of clinical trial applications were not considered in the target 30 days by the Medicines and Healthcare products Regulatory Agency (MHRA), and were only addressed after significant intervention by the Government.
Authorisation application processing delays in last 24 months
Source: The City UK
2. Regulators overreach and overcomplicate the landscape
When restraint or careful coordination is needed, regulators get in the way. Regulators repeatedly irked the last government by overstepping – that’s not going to change with the new government.
Ministers clearly disagreed when the Competition and Markets Authority (CMA) blocked Microsoft’s acquisition of Activision. They chastised the FCA for its planned reforms to create a “consumer duty” out of concerns that it could impose significant new regulatory burdens on the sector. And then City Minister Bim Afolami reprimanded the Payment Systems Regulator’s proposed plan to force on banks and payment companies high reimbursement requirements.
Satellite maker Space Forge needed to consult 11 different regulators before being able to launch. A startup applying AI to contract review and drafting in financial services would need to engage with at least six regulators, and likely many more.
Illustration of potential regulatory interactions for an AI startup providing legal contract review
What’s causing this? Regulators are under-resourced and overstretched
Under-resourced. The FSA hasn’t kept up with the pace of development on novel foods. The MHRA has cut its workforce by a fifth. A senior data scientist in industry would have to take a 40% pay cut to work at Ofgem. Ofcom is being asked to make policy decisions such as when and where to verify ages. The CMA is now permitted to unilaterally demand changes to large firms’ business models.
UK regulator headcount, 2018-2021
Source: Onward analysis
Overstretched. Regulators are being asked to make more policy decisions. The new online safety regime requires Ofcom to decide on when and where age verification is required to access online services. The last government passed legislation to allow the CMA to unilaterally mandate changes to the business models of some of the world’s most successful companies.
The Government also can’t rein them in when they overstep. When the Government fundamentally disagrees with a regulatory decision that it considers seriously at odds with its strategy and innovation-minded ambitions, it has no powers to challenge beyond criticism.
Reforming for a regulatory edge: Tool up and focus in
So what can we do about it? Regulators need to do two things: ‘tool up’ by building capacity and ‘focus in’ on the activities that matter most.
1. Tool up
Specific regulation of emerging technologies should be enacted with sunset clauses of four years, forcing lawmakers to consider whether the law is working as intended and whether it remains necessary.
The Government should build a capability within the Regulatory Innovation Office to sit jointly with the Government Office for Science to ensure relevant technical expertise. It would continuously assess the UK’s statutory and regulatory landscape in relation to emerging technologies and provide regular recommendations for updating.
New legislation on emerging technologies should automatically exempt small businesses and business-to-business products and services, unless explicitly stated otherwise.
The Government should replicate the MHRA’s International Recognition Procedure so that emerging technologies which have already been approved by another trusted regulator abroad can apply for automatic approval in the UK within a month unless the relevant regulator actively blocks approval.
2. Focus in
The new Regulatory Innovation Office should be put on a statutory footing with a permanent team and be given powers to compel regulators to coordinate on emerging technologies.
The Government should create a ‘call-in’ mechanism to allow the Government to assess, and possibly amend or overrule a specific regulatory decision, which it can only deploy in extreme circumstances. Managed well, this power would give business an ability to ensure that democratically elected politicians stick to their word and can execute their wishes.
The UK has the potential to set itself apart in the global technology landscape through agile and pro-innovation regulation. By addressing its regulatory failings and implementing these reforms, Britain can attract top innovators, foster a thriving technology sector, and drive growth. It’s an opportunity ready to be seized.
Read the full report, Igniting Innovation, here.