Levelling up our productivity requires a new focus on technology diffusion

Ross Mudie argues that a renewed focus on technological diffusion is vital to levelling up our productivity growth and reducing place-based inequalities

10 February 2022

By Ross Mudie

7 minute read

Low levels of technological uptake in businesses is one of the major underlying factors explaining the UK’s stagnant productivity growth. Our current policy framework for encouraging technological uptake makes limited effort to engage low to middle Gross Value Added (GVA) sectors which has implications for left behind places. With high-tech, high-GVA businesses remaining the main beneficiaries of government support to adopt new technologies, this has contributed to unacceptably high place-based inequalities. The Levelling Up White Paper (LUWP) falls short on providing an overarching strategy and investment to support technological diffusion for these sectors and places, but greater proposed devolution may offer a way forward.

Why does the UK do poorly on diffusion?

At the core of the UK’s productivity troubles is the “hub without spokes” dilemma. Coined by Levelling Up Tsar Andy Haldane, he used this term to illustrate how despite being a world-leading innovation hub, the UK has become poor at capturing the benefits of productivity-enhancing technologies through low levels of uptake in businesses. Using our research and development (R&D) system to demonstrate this, he stated that the UK does R well…but it does D poorly, where the D refers not just to development but the diffusion and dissemination of innovation.[1]

Doing D poorly, as Haldane puts it, has meant that the UK’s R&D system is fragmented into two silos. While one side enjoys a seat at the frontier of global innovation in spheres as diverse as life sciences, artificial intelligence, and offshore energy, on the other side nearly 1 in 4 businesses are still yet to adopt basic ICT into their business management practises.[2] Our current approach to diffusion suffers from an over-emphasis on providing high-tech, high-GVA sectors with access to cutting edge innovation, which excludes the majority of businesses who are not supported to adopt productivity-enhancing technologies. While many in government are placing their hopes in frontier technological institutes such as the new Advanced Research and Innovation Agency (ARIA) to enhance our productivity growth, what may be more important is to strive to equip more businesses with the right tools to embed basic technologies into their daily operations. Failing to reach these businesses means that they are left to find their own way, and it can take decades for the benefits of productivity-enhancing technologies to be utilised by a majority.[3]

These issues have been exacerbated by a weak institutional framework for technological diffusion, with The Productivity Institute describing the UK as having a “hypercentralised” system that reflects a “pyramidal shaped state that fails to learn from its regions and localities.”[4] Key regional drivers of technological diffusion such as the Catapult and Growth Hub Networks are not dedicated diffusion institutions and are constrained by a grant-funding model that requires them to bid from pots of money set by central government, which are set depending on their priorities rather than the particular needs of places. As decentralisation of fiscal and political power is associated with lower regional disparities in productivity, supporting local institutions that can spur on the diffusion of technology will be integral to levelling up.[5]

Diffusion and the Levelling Up White Paper

The LUWP sets out welcome ambitions on R&D that have the potential to reduce our regional productivity gap. For instance, the paper shows ambition to increase total domestic public R&D investment outside the Greater South East by at least a third over the Spending Review period and at least 40% by 2030. There is also promise in the Innovation Accelerator pilot programme with the ambition to accelerate the development of innovation clusters, and in the move to add an organisational objective to UK Research & Innovation’s remit to deliver levelling up and embed local growth criteria into R&D fund design. These are small but positive steps in the right direction, but there still remains no overarching strategy for the diffusion of technology, meaning that we may continue to replicate what has led us here in the first place – doing R well, but D poorly, and with an emphasis on stellar high-GVA industries.

The flagship diffusion policy of the LUWP is Help to Grow, offering vouchers to offset some of the costs of productivity-enhancing software and “MBA-style” management training to leaders. While a welcome acknowledgement of the issue with £520m of funding, it is in many ways reflective of our hypercentralised system of diffusion that has struggled to rectify our productivity problem. Businesses on the scheme are provided with ‘grant tokens’ which can cover up to half the cost of one pre-approved software up to £5000, but they will receive no funding or support for implementation, training, or any additional infrastructure costs. Software options are limited to a list that is pre-approved by the Department for Business, Energy, and Industrial Strategy (BEIS), following the requirement for potential vendors to undergo a rigorous application process. Management training is only available to ‘decision makers’ in the business, such as CEO’s and Managing Directors. And for businesses who may be interested in signing up, they’ll be required to pay a £750 ‘joining fee’.

For all its positive intentions, these limitations mean that Help to Grow will struggle to level up our productivity. With a recent survey finding that nearly half of businesses who have implemented emerging technologies believing that they have failed to do so successfully, programmes that intend to boost productivity in businesses need to go beyond just covering some software costs and supporting CEO’s.[6]

Building on the White Paper

The adoption and diffusion of technology is acknowledged within the LUWP as one of the five elements critical to delivering on the 2030 mission on living standards, with a pledge to embed adoption and diffusion into business support schemes, particularly in areas with low productivity, and encourage collaboration with similar schemes in Scotland, Wales and Northern Ireland. While this is a welcome step, there is scant detail on how this will work.

The detail is to be determined by a new expert sub-committee on regional adoption and diffusion infrastructure. Yet in the face of a £300bn growth gap, the sub-committee has a mountain to climb. [7] The first point of action should be to build upon the mission of local devolution. Delivering simplified, long-term funding settlements to local leaders would enable them to develop strategies that address local gaps in physical, human, and social capital, that have served as a barrier to technological diffusion.


[1] Speech given by Andrew G Haldane, The UK’s Productivity Problem: Hub No Spokes. Bank of England [BOE]. Available at: https://www.bankofengland.co.u...

[2] ONS. (2018). Information and communication technology intensity and productivity. Available at : https://www.ons.gov.uk/economy/economicoutputandproductivity/productivitymeasures/articles/informationandcommunicationtechnologyintensityandproductivity/2018-10-05

[3] For more on this see Azhar, A. (2021). Exponential: How Accelerating Technology Is Leaving Us Behind and What to Do About It

[4] Pabst, A & Westwood, A. (2021) The Politics of Productivity: Institutions, Governance and Policy. Available at: https://www.productivity.ac.uk...

[5] Lessman, C. (2012). Regional Inequality and Decentralization: An Empirical Analysis. Available at: https://journals.sagepub.com/doi/10.1068/a44267

[6] British Telecom. (2020). The Future in 2020: The Definitive Review of how UK Businesses are Working with Emerging Technology. Available at: https://business.bt.com/conten...

[7] Wilkes, G. (2021). Productivity: Firing on all Cylinders. Institute for Government [IfG]. Available at: https://www.instituteforgovern...