Back in November’s Spending Review, there were some changes announced to Innovation Support. Key among these were a boost in funding for the Catapult centres and a shift of some of Innovate UK’s support from grants towards loans. Today we have published a paper going into detail about these changes, in particular how the transfer to loans could best work from the perspective of manufacturers.
In a nutshell:
We support the government’s aim of making the UK the best place in Europe to innovate
- Certainty of funding is a good thing
- The switch to loans represents a risk to innovation support
- A cautious approach must be taken to loans provision
A bit more detail:
If the UK is to become the best place in Europe to innovate, then innovation support will need to be put on a longer-term positive trajectory.
The government wants the UK to be the best place in Europe to innovate, something manufacturers support. But they don’t think we’re there yet. Manufacturers see support to commercialise new technology as an area where we lag behind competitors, 61% of manufacturers think the UK “could do better” in this area and a further 8% feel “this kind of support is virtually non-existent”. If the UK is to become the best place in Europe to innovate, then innovation support will need to be put on a longer-term positive trajectory.
The fact that the Spending Review has provided clarity about Innovate UK’s funding is positive, as it will enable Innovate UK to plan for the future. It also gives companies a degree of certainty about what support will be available. However, this stability is being delivered through a transfer of support from grants to loans, and this presents a risk.
The switch from much of Innovate UK’s grants support to loans presents risks for UK innovation support
The switch from much of Innovate UK’s grants support to loans presents risks for UK innovation support.
The switch of much of Innovate UK’s grants support to loans presents risks for UK innovation support. For manufacturers, support must offer more than just finance. While some loans provision may be helpful, the scale of the change could reduce the breadth of Innovate UK’s offer, particularly its ability to support collaborative schemes that help companies access facilities and expertise.
Companies need a breadth of support
For manufacturers, there are a range of barriers to innovation. Access to finance is an issue, but access to facilities and expertise come out top. Other support must be in place to address the other issues associated with innovation.
The move to loans could hurt Catapult centres
Additional core funding for Catapults is welcome, but the centres also need to access competitive funding streams. Innovate UK’s collaborative/thematic grants are currently available to the centres as a competitive funding source. If these were changed to loans they would no longer be an appropriate funding mechanism for the Catapult centres, which could counteract the impact of increased core funding.
To ensure the potential for benefits is maximised – and damage is limited – a cautious approach must be taken to loans provision
Loans must be designed to help those companies where access to external finance is a problem
Most manufacturers don’t actually use external finance to fund their innovation, either because they do not need to or because they view external finance as inappropriate for something as risky as innovation. Therefore, there is a need to be realistic about who loans will be appropriate for and make sure they are well-geared for these companies.
Soft loans from government are most likely to be appropriate for the very-smallest companies and start-ups, which tend both to be more reliant on external finance, and less able to access it, especially as these companies might not have started trading yet.
Loans must de-risk innovation without adding complexity
For loans to help manufacturers do more innovation, companies tell us the loans must take some of the risk out of their hands. Income-contingent loans are one way to achieve this. However, what income this refers to must be clearly defined or it risks causing confusion and reducing uptake. For established companies it can be difficult to determine one way or another whether a specific innovation project had led to additional income.
Careful monitoring of the uptake and impact of loans will be needed
Loans won’t work unless companies take them up. Levels of uptake should therefore be closely monitored, as lower uptake compared with previous schemes may be an indication that there are innovative companies now going unsupported.
The move to loans cannot simply be a fiscal one, if we are going to make the UK the best place in Europe to innovate, the ultimate outcome must be better than what we have now. This could be achieved by creating simple and speedy application processes that expedite access to support compared with current provision. In addition, loans could improve support in some respects if repayments were cycled back into the system, thereby enabling a greater number of companies to access funding.
Ultimately loans cannot be the only support that Innovate UK provides
Ultimately, a breadth of support is necessary for innovation is necessary. As well as maintaining CR&D to support Catapult centres, small scale grants such as Smart, and the KTP scheme (which facilitates collaboration between universities and businesses by engaging recent graduates) are top of manufacturers’ priorities.
Still want to know more?
Read the full paper here.