Why R&D Is Crucial, Yet Woefully Supported in the UK

Matching investment with SME commitment to innovation

Research and development (R&D) is the beating heart of any modern economy. It underpins technological advancement, drives productivity, and is the springboard for high-value jobs and global competitiveness. The UK has a proud history of innovation, from the steam engine to the World Wide Web. Yet, for all its ingenuity, R&D remains strikingly under-supported compared to our global peers.

Why R&D Matters More Than Ever

In times of such global uncertainty, chaos and crisis, we desperately need inventors, innovators, researchers, developers and creators. We need to make it easy for them to play, explore, and test. We need to incentivise them to take a chance, push the boundaries, look for new answers to new and old problems.  There is only so much cash-strapped SMEs can do: they have the energy, brains and desire but they need meaningful support that is straightforward to access and without so many strings that tie them up.

R&D is essential for tackling the big challenges such as climate change, healthcare, poverty, homelessness. It fuels everything from ground-breaking medicines to greener energy solutions and smarter software. Countries that invest in R&D don’t just invent new products; they create resilient, adaptable economies that better serve the needs of their communities.

The British R&D Scene

Despite its unquestionable importance, R&D in the UK has been chronically underfunded for years. As a percentage of GDP, Britain’s investment lags behind countries like Germany, the United States, and even the OECD average. While the government has set ambitious targets to boost R&D spending, the reality on the ground is often slow-moving and beset by funding gaps. We know, because we have been part of it.

Why Is Support So Lacking?

Political cycles: Short-termism in Policy often favours quick wins over long-term investment. R&D, by its very nature, can take years, sometimes decades to bear fruit. This doesn’t always fit comfortably with the demands of annual budgets and election promises.

Economic challenges: R&D, like training and development, is an easy target and early casualty of economic downturn.

Complex Funding Landscape: The design of the funding network makes navigating grants, tax credits, and innovation schemes a minefield, especially for smaller businesses and start-ups. Many simply lack the resources to access or apply for available support.

Risk Aversion: In uncertain economic times, both the public and private sectors can be reluctant to back high-risk, high-reward projects. The result? Promising ideas often fail to get off the ground.

Brain Drain: Talented researchers and entrepreneurs are sometimes tempted abroad by better opportunities, more funding, and stronger innovation ecosystems.

So, Who Is Doing R&D?

Many of the ground breaking discoveries are happening in the SME sector. Despite gross lack of support, this sector is full of entrepreneurial creatives and innovation investigators. They sacrifice profit (and often founder salaries) for knowledge, advancement and scientific breakthroughs. It comes at a significant cost.

According to the Federation of Small Businesses, at the start of 2024 there were 5.45 million small businesses (with 0 to 49 employees). Of those, according to Policy Bee, 1.16 million of these are micro-businesses with up to 10 employees.

Innovation Grant Funding is available to these companies and there is a system for claiming tax credits for R&D through the HMRC, but the system is complex, onerous, and often bound up in so much red tape that it absorbs an unsustainable amount of time: time that should be spent on actually doing R&D.

An example of this is that most grant funding comes with major caveats, usually requiring the company to contribute a large percentage of the R&D costs which is difficult for SMEs and micro companies who have limited funds.

Secondly, in order to receive the grant, companies have to specify exactly how they will spend all the money in advance: their expenditure has to be predicted in advance and ONLY spent according to those predictions. This makes a mockery of R&D where, by definition, we enter the unknown. So, companies are sometimes forced to spend on activities that through the course of the project become irrelevant, in order to claim their grant. The alternative is to go through a lengthy and complex process of renegotiating the spend allocation, with no guarantee that the amendment will be approved.

Thirdly, at the end of the funding period (and sometimes in the middle, as well), SMEs often have to fund accountants to carry out a detailed audit of project spend, adding to the financial burden.

What is more, companies applying for grant aid can often be made to feel like Oliver, going cap in hand asking for more. In the same way that legitimate social benefit claimants are sometimes pilloried as scroungers and cheats by politically uneducated groups, companies in receipt of grant funding are often treated suspiciously as if they are out to cheat the system. It can put many SMEs off applying for grant support. The hoops they have to jump through to prove they are legit can feel intimidating. And when HMRC randomly challenges your R&D tax credits claim (simply because it can), it can consume weeks of a company’s time.

Whoever said grant funding was free money? There must be a better way.

Checks and Balances

Checks and balances must obviously be put in place to ensure that tax-payer money is put to good use and directed to legitimate companies and projects. There is no question about that. We all saw what happened in the UK during the Covid epidemic when those checks and balances were set aside during the awarding of eyewatering PPE contracts to bogus and fraudulent companies.

But the system needs to be simplified and companies who want to do R&D should be encouraged. Failure to do comes at a heavy price and risks losing a country’s competitive edge. Whilst our universities and research institutions may be considered world-class, without investment, their discoveries won’t translate into homegrown industries and jobs. For too long, we have been a nation of inventors, but not innovators: a place where bright ideas are born but commercialised elsewhere.

The Future

Companies like ours will continue to invest in R&D because we are built that way. It’s in our DNA to be innovators, explorers and creators. But a country cannot rely on the goodwill of entrepreneurs who sacrifice all because they believe in a better future. At some point, the cash will run out, and that’s where governments must step in.

Partly written with the aid of AI