Almost all high-growth UK businesses surveyed by BDO believe the Government’s Industrial Strategy could provide more support for innovation, despite widespread plans among respondents to increase their own spending.
The accountancy and advisory group’s Innovate to Grow research found that 94% of respondents saw room for improvement in the way the strategy supports innovation. The study covered 500 senior executives across five sectors identified as having high growth potential.
Nine in ten respondents expect their innovation spending to rise during the next two years, while 91% described previous returns on innovation investment as worthwhile or excellent. Financial constraints, skills shortages and regulatory barriers were the most commonly identified obstacles.
Asked what additional government action would be most useful, 50% selected greater support for innovation and research and development. Another 46% wanted more targeted skills and workforce policies, 42% called for stronger attention to their sector and 40% identified better access to finance and investment incentives.
Mark Sykes, BDO partner and head of consulting, said: “There are many UK businesses already investing in innovation and seeing a positive return.”
The findings distinguish between willingness to innovate and the conditions surrounding that investment. A company can believe a research programme produces worthwhile commercial returns while still limiting the size of the programme because finance, recruitment or regulatory requirements make expansion harder.
That distinction is particularly important in the mid-market. BDO estimates mid-sized companies generate more than 40% of private-sector revenue and employ 11.1m people, giving their investment decisions consequences well beyond the start-up and venture-capital ecosystem.
Innovation policy often concentrates on universities and young research-intensive companies, but established businesses face a different set of constraints. They may already have customers, manufacturing capacity and cash flow, yet every research project has to compete with acquisitions, new facilities, dividends and other uses of capital.
Financing costs can influence which projects make the cut. Research programmes with long payback periods become less attractive when borrowing is expensive or demand is uncertain, even if management still considers innovation central to the company’s long-term competitiveness.
Tax incentives and grants can reduce some of that risk, but predictability also matters. Businesses planning multiyear projects need to understand whether support will remain available and what expenditure qualifies. Repeated changes to schemes can reduce the value of an otherwise generous headline incentive.
Skills represent an equally persistent constraint. Advanced manufacturing, life sciences, clean energy and technology businesses compete for engineers, data specialists and experienced technical managers. Expanding innovation budgets without increasing the supply of those workers can lift recruitment costs rather than producing an equivalent increase in output.
The Industrial Strategy is intended to provide selected sectors with greater long-term policy certainty. The BDO responses suggest businesses are looking for clearer mechanisms connecting those objectives to decisions about capital, recruitment and commercialisation.
The survey covers a defined population of high-growth companies rather than the whole UK business sector, so its findings should not be treated as representative of every employer. Its focus is nonetheless relevant because those companies are among the businesses most likely to convert additional investment into new capacity, products and employment.
With 90% expecting innovation spending to rise, the immediate question is not whether respondents intend to invest. It is whether finance, skills and regulation allow that spending to reach sufficient scale. The answer will shape how much of the Government’s industrial-policy ambition is translated into activity inside companies rather than remaining at strategy level.
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