Stronger support for innovation in transport sector can unlock economic, environmental and consumer benefits – NAO report

• DfT plans to spend approximately £1.1 billion on innovation activities between 2022-23 and 2029-30, reflecting its increased focus in this area. 
• DfT has strengthened its support for innovation and is addressing barriers – but still lacks a strong process for prioritising innovation funding and could better support innovative ideas through to widespread use. 
• “DfT should better define how its innovation activity can help deliver its priorities – including clarifying how much risk it is willing to take – as well as collect the data it needs to manage and assess this activity,” says head of the NAO.

The Department for Transport (DfT) has strengthened how it supports the use of new science and technology in the transport sector, such as maritime decarbonisation and sustainable aviation fuel – but it must establish a clearer risk appetite to guide its investment decisions and provide better support to see innovative concepts through to widespread practical use, according to a new National Audit Office (NAO) report.¹

DfT views innovation as key to tackling some of the challenges facing the transport sector today. It plans to spend approximately £1.1 billion on innovation activities between 2022-23 and 2029-30 across various work programmes and transport modes, 72% of which relates to decarbonisation programmes.²

One example is DfT's support for the uptake of sustainable aviation fuel, which is produced from a range of sustainable waste materials and can be blended with standard jet fuel for use in existing jet engines, leading to lower greenhouse gas emissions.³

But the new report by the independent public spending watchdog finds that DfT does not have a strong process for prioritising its innovation funding to support its three departmental priorities.⁴ In comparison, DfT's three highest-spending arm's-length bodies, Network Rail, National Highways and HS2 Ltd, have clearer processes for prioritising and managing their respective portfolios.⁵ DfT also has limited strategic oversight of its innovation activity, leading to potential missed opportunities for coordination across different modes of transport.

Effective innovation requires actively seeking well-managed risk taking, as the path to achieving desired outcomes is not necessarily clear or known. However, DfT has not set out a clear risk appetite to guide its decisions to invest in innovation. Doing so would help it decide what level and types of risk to take in its projects and manage high-risk activity.

It has also identified several internal barriers to successfully supporting innovation – including a risk-averse culture, a lack of clear messaging from leadership and a staff knowledge gap – and has taken steps to address these,⁶ although more work is needed to embed a broader culture of innovation across the department.

DfT has a range of funding, commercial and regulatory policy interventions at its disposal, but it acknowledges that it could make better and more systematic use of these across the department to influence innovation activity. DfT is also considering what it needs to do to better support innovation from early conceptual stages through to widespread use.

While DfT has made positive efforts to engage with stakeholders across the transport sector, its limited coordination with and between its arm's length bodies risks duplication of innovation activity.

The NAO recommends that DfT:

• strengthens how it prioritises its funding across the innovation outcomes it is seeking
• defines, embeds and uses its risk appetite for innovation activity
• decides how it can more actively manage its innovation activities within the department
• assesses the effectiveness of its interventions through more thematic monitoring and evaluation
• puts in place more effective coordination of innovation activity with, and between, its arm's length bodies
• identifies ways to address any barriers to the adoption of the innovations it funds

Gareth Davies, head of the NAO, said:

“DfT has taken positive steps to raise the profile of innovation within the department and widen the type of interventions it makes in this area.

“To achieve good value for money, DfT should better define how its innovation activity can help deliver its priorities – including clarifying how much risk it is willing to take – as well as collect the data it needs to manage and assess this activity.”

ENDS
Notes to editors

1. See Figure 2 in the report for a list of DfT's innovation programmes and how they relate to its priority goals.
2. See Figure 5 in the report for more information on DfT's support for the uptake of sustainable aviation fuel. Other case examples of innovation activities can also be found throughout the report.
3. The three priorities are growth; greener, safer and healthier transport; and improving transport for people.
4. Network Rail, National Highways and HS2 Ltd have a combined annual spend of around £81 million on research and development.
5. Transport industry representatives have also identified several obstacles that are preventing DfT from more effectively supporting innovation. These include a risk-averse culture; contractual and procurement processes that work against experimentation and place disproportionate burdens on smaller companies; concerns about intellectual property rights; and the need for better support to move trials to commercial end products.