As economic growth in the UK has slowed, inequality has grown. This double challenge has reached a point where a wholesale rethink, or is called for.

As part of this, a more inclusive industrial strategy needs to be place-based to address the spatial imbalances that have evolved over decades. Much of this has been said before and many of these issues are flagged in the government¡¯²õ for the next decade ¨C the latest in a long line of such documents.

But we are now at the point when the evidence and the data enable more precise policy interventions focused on the latent potential of individual city-regions, connecting transport infrastructure, housing, skills and business support.

The June spending review rightly highlights the need to focus on improvements to regional innovation systems, with universities playing a stronger role, as a means to promote more distributed and inclusive economic growth. Universities improve skill levels and develop new technologies, which both underpin firm-level innovation.

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Hence, there is good reason to steer existing and new funding, particularly from the Department for Science, Innovation and Technology and UK Research and Innovation (UKRI), into place-based, industry-led programmes for inclusive growth. There is , better leveraged to improve local firm-level productivity and innovation.

This does not necessarily mean university-based research should be more focused on the needs of local industry. But it does mean that where there is existing alignment, funding should target the specific gaps in technology transfer, commercialisation and skills to enable firms to leverage university-based R&D to develop better products, services and processes. There are commercialisation opportunities where, for example, there is a cluster of firms in fields such as AI, translational medicine or creative industries and there are local universities that can contribute knowledge, skills or technology.

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However, a word of caution is necessary. Where compatible areas of R&D supply and demand do not coexist, any attempt by government agencies to create it would be a waste of money. This has been a source of policy failure in the past, as city-regions pursued ambitions that exceeded their economic potential, or they lacked the capacity to develop a locally tailored industrial strategy at all.

As regards university strategy, one size does not fit all. Some universities that are not doing ¡°leading research¡± (however defined) could focus usefully on building joint capabilities with local firms (partnering to run digital boot camps, for example) and on more applied R&D, and upskilling the local workforce to fill gaps. But we should think less in terms of a hierarchy related to the Research Excellence Framework and more in terms of a portfolio of potential local contributions related to the Knowledge Excellence Framework.

Place-based funding, such as UKRI¡¯²õ , and , have taken us in the right direction. These programmes explicitly target local coalitions of universities, firms and regional agencies. Recipients have to calculate local economic and social impact and related multiplier effects over time, although this is still ¡°work in progress¡±. The recently announced Local Innovation Partnerships Fund?¨C to which the spending review has allocated ?410 million?¨C?takes this a step further, devolving funds to city-region mayors. This is a good idea as long they can sidestep local politics and target investment into long-term growth.

So there is much to be positive about. But a second word of caution. University spin-outs and start-ups might have an MIT-type appeal to policymakers but the evidence (including a very published just last month) shows that they are not the right vehicles for regional inclusive growth. Even with policy interventions and funding to ¡°embed¡± them in the region, they tend to boost private equity rather than create jobs. They rarely scale or create local ¡°multiplier¡± effects, and they often move to new locations anyway, particularly if they are acquired by larger firms based elsewhere.

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Even when they do stay and scale, they tend to employ smaller numbers of high-skilled workers, often displacing others further from available jobs and income. For example, growing a high-tech cluster of firms developing new satellite-based sensors around a university that specialises in quantum research will attract inward (and foreign direct) investment and more high-skilled workers. But while this is good for productivity, it will also cause local prices to rise (particularly for housing), thereby displacing lower-income workers from city centres, beyond a commuting distance they can afford. This is ¡°exclusive growth¡±: higher-income groups benefit but unemployment and the cost of benefits can increase.

This is not to say we should not invest in spin-outs and start-ups at all, and it was disappointing to read earlier this week that the number of UK spin-outs being founded is?declining. But a different point of intervention deserves more attention. One is to focus more funding, with appropriate commitments and monitoring, on ¡°innovation intermediaries¡±. These are organisations such as the (part of the High Value Manufacturing Catapult), the University of Sheffield¡¯²õ Advanced Manufacturing Research Centre and the Warwick Manufacturing Group at the University of Warwick, which earn income from firms looking to improve their ability to innovate.

Such centres already run programmes for upskilling, helping lower-income communities, and focus on demand-led technology commercialisation. They improve the diffusion of innovative processes and practices, which do a lot more to address the productivity tail than spin-outs do.

Clearly, though, new investments of this type should focus on other industry and service sectors, rather than just manufacturing, in line with the growth potential of specific regions. This could be technology-led, such as a quantum sensors, AI or aerospace, Alternatively, it could be centred on creative industries: art, media, fashion or advertising.

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Spin-outs are all very well but, by themselves, they will do little to impart greater momentum to the wheels of British industry. Such ¡°smart specialisation¡± strategies are the best way to target valuable public funding on the places, industries and people that need it most.

Simon Collinson?is Tsingshan chair professor in the at Zhejiang University and honorary professor at the University of Birmingham.

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