In April 2025, the Department for Science, Innovation and Technology (DSIT) announced a substantial allocation of £13.9 billion for research and development (R&D) for the fiscal year 2025–2026. Of this, UK Research and Innovation (UKRI) is set to receive £8.811 billion, emphasising the UK government’s commitment to bolstering the UK’s position as a global leader in science and innovation. Within UKRI’s allocation, Innovate UK, the agency responsible for driving business-led innovation, has been granted £948 million. While this significant funding boost is welcomed, its effective deployment is crucial, especially in light of recent evaluations of Innovate UK’s support mechanisms for small and medium-sized enterprises (SMEs).
Substantial Investment Reflects Government Priorities
The government’s decision to allocate £13.9 billion to DSIT’s R&D budget reflects a strategic emphasis on innovation as a catalyst for economic growth and societal advancement. This investment is expected to stimulate private sector contributions, with each pound of public R&D funding anticipated to leverage an additional £2 of private investment over time. Such financial commitments are designed to support the government’s five national missions and the eight growth sectors outlined in the modern Industrial Strategy. These include:
- advanced manufacturing
- clean energy industries
- creative industries
- defence
- digital and technologies
- financial services
- life sciences
- professional and business services
Innovate UK’s allocation of £948 million is intended to support a variety of initiatives, including collaborative R&D projects, support for startups and SMEs, and the development of regional innovation clusters.
Addressing Challenges in SME Support
Despite the increased funding, Innovate UK faces challenges in effectively supporting SMEs. Earlier this year, the agency temporarily halted its Smart Grants programme to conduct a comprehensive review aimed at enhancing support for SMEs. The pause was prompted by concerns over oversubscription and low success rates, with some reports indicating success rates as low as 2%. This situation led to significant resource expenditure by applicants and highlighted the need for a more efficient and targeted funding approach.
Innovate UK’s review aims to develop a more tailored support package that prioritises businesses with high growth potential and streamlines the application process. This initiative aligns with governmental objectives to focus public spending on companies poised for scaling and job creation.
Ensuring Effective Allocation and Implementation
While the increased funding for Innovate UK is a positive development, its impact will be determined by the effectiveness of its deployment. Innovate UK must address the issues identified in its recent review to ensure that the substantial financial resources translate into tangible benefits for SMEs and the broader economy. This includes refining grant programmes to improve accessibility and success rates, reducing bureaucratic hurdles, and ensuring that support is directed toward businesses with the capacity to scale and innovate.
Moreover, Innovate UK should focus on fostering strong regional innovation ecosystems, supporting the development of clusters that can drive local economic growth and contribute to the national economy. By addressing these areas, Innovate UK can maximise the return on investment from the increased funding and fulfil its mandate to drive business-led innovation in the UK.
