Inaccessible funding could stunt growth & innovation, Ayming finds

22 May 2017 5 min. read

The UK’s annual investment in small (SME) and medium (MSE) enterprises totals one of the lowest in the developed world, a new study from professional services firm Ayming has found. Further to this, while the UK remains one of the global centres of innovation, the document raises concerns that a wide range of UK and EU based funding sources, aimed at stimulating innovation, are not sufficiently advertised or have poorly constructed application procedures. The result is that small businesses which drive the UK’s economic growth lack the support to take risks, meaning the future economy as a whole misses out on valuable new methods and technologies.

As whole new environments are opened up by technological trends and advances, innovation remains a key driver of value creation. Thanks to small and nimble up-and-coming competitors seizing on this potential meanwhile, larger, better-established companies are forced to continuously re-evaluate and refurbish services of their own, as the new kids on the block create low-cost, high-impact propositions that disrupt whole industries – with the likes of Airbnb, or Uber currently leading the charge against traditional industry staples.

The UK is no stranger to bolstering innovators with public funds, with UK scientists and engineers have managing to create ideas and devices that have become essential to modern life thanks to state support – with the world changing births of the light-switch and of modern computing both now taken for granted. Last year, London was named the globe’s best city for innovative startups (with a focus on the digital domain), and across the country dozens of innovation hubs have grown to maturity, becoming hotspots for entrepreneurs and breakthrough innovations.

However, a new report from Ayming, formerly Alma Consulting Group, has concluded that more can still be done to champion the next generation of great innovators. In the study exploring the UK’s overall innovation landscape Ayming’s paper more specifically examines how better matching between innovation spending in the UK with the ideas of SMEs and MSEs could lead to a better functioning marketplace as a whole.

GDP expenditure on R&D and innovation

Trailing competitors

A key finding of researchers was that when it comes to sheer spending, the UK trails other economies. As a share of total GDP, investment in innovation in the UK presently amounts to just 1.67%, well below the top spenders globally. Compared to the UK’s major economic counterparts, even while total gross expenditure remains relatively low in the continued atmosphere of post-crisis spending cuts, the proportion invested on innovators is low. Sound Korea for instance, invests as much as 4.5% of its GDP into innovation, while the EU28 average 2.02%, and the US spends an estimated 2.8%. Other commonly cited developed countries also outstrip the UK by a significant margin.

Passing comment on the UK’s surprisingly low ranking, with regards to investment in SME and MSEs, Martin Hook, Managing Director at Ayming stated, “We still linger embarrassingly at the bottom of the G8 when it comes to spending on research and development (R&D).”

In terms of value for money however, despite low spending, the UK remains one of the major contributors to innovation in the EU, ranking second after Switzerland in terms of total innovation impact. One major factor supporting innovation is the UK’s education system – which despite increasing financial pressures remains perceived as world class – while the UK government also provides a wide range of support mechanisms, including a range of tax credits, which have continued to stimulate UK innovation.

Despite performing poorly in terms of funding, the UK has therefore managed to keep its reputation as one of the most innovative countries globally, even while total gross expenditure as a share of GDP remains relatively low.

2014-15 investment by Innovate UK

Missing out

One of the major programmes that supports innovation in the UK is the in 2007 founded Innovate UK. Official figures published in March 2015 revealed that since 2007 the programme and its and private-sector partners have invested more than £3 billion in upwards of 5,000 companies. Across a range of programmes, this investment has generated at least £7 billion in value and created 35,000 new jobs.

The organisation is just one of the many means of securing funding for innovation and R&D in the UK, which exist alongside a wide range of EU based programmes, which likewise seek to stimulate innovation. Many of these programmes offer money that is relatively unconditional, giving many businesses a no-strings-attached opportunity to realise their potential. Surprisingly however, Ayming’s analysis suggests that many businesses are not taking advantage of these programmes.

According to the paper, there are a number of reasons as to why the wide range of available incentives and grants are being missed by business across the UK. One major barrier is the poor communication of EU based programmes about the possibilities available to UK businesses. This also applies to tax credits from the UK government, information about which is often not easy to understand. The application processes themselves are also plagued with heavy with jargon and require volumes of information via seemingly endless questions. While a considerable amount of money is available then, the system of bureaucratic hoops companies must jump through to obtain it makes the application process a logistical nightmare that often blocks companies from accessing assistance they need most, and putting many more off the process altogether.

Ayming’s researchers conclude that many organisations do not realise that their everyday activities may well already be considered innovative in relation to the criteria for tax credits, meaning that they are missing out on available support. Furthermore, many businesses – whose future existence depends on innovation – may be able to take the kinds of risks to be innovative if the available funding, and the procedures to acquire it, were made clearer by the institutions that provide for the availability of that funding.