Early-stage support: There is broadly a good spread of support at earlier stages of business development. It was noted that there is broadly a good spread of policy support for start-ups in the UK. This includes university funding, Innovate UK grants, venture capital funding schemes, R&D tax credits and British Business Bank provides equity support. It was pointed out that currently one of the main risks is removing a crucial step from the pipeline of support. However, it was also pointed out that there are nonetheless gaps across all stages of financial support, in particular for scale-up support.

The Investor Partnership Programme by Innovate UK, which aims to provide funding for small and medium sized businesses (SMEs) to help them grow and scale, was highlighted as a successful example, with participants noting that it benefits from a fast process and has had good impact so far. The Innovation-to-Commercialisation of University Research (ICURe) programme run by Innovate UK was also highlighted as a successful example of an early-stage research accelerator programme. It is designed to help researchers explore the commercial application and potential of their research. It also provides investors with an insight into early-stage research and helps them better understand its potential.

Availability of skills: Availability of skills forms part of a broader set of factors that can encourage businesses to invest in R&I. It was suggested that the translation of R&I and business development pathway requires combined skill sets. Incubating R&I in universities requires business input across a range of considerations, such as data quality, potential applications and manufacturing capability. The Industrial Cooperative Awards in Science and Technology (CASE) by EPSRC provide funding for doctoral studentships where businesses have a leading role in the project. The programme aims to facilitate collaboration between universities and businesses and provide doctoral students with training in areas of particular strategic importance to the UK. It was suggested that this initiative can help to consider the industrial applications of research early on. This was cited as an example of a measure that forms part of a broader toolkit of support for businesses, in addition to funding.

Setting priorities: Government pointing to priority areas of focus for R&I can provide stability and certainty for businesses to invest. Participants considered that Government focus on priority areas can provide stability and certainty for businesses to invest. An example was given from the quantum sector, which has been backed up with a 10-year strategy and funding. This has provided longer-term certainty to quantum businesses in the UK that there will be commercialisation support. In another example, the Life Sciences Vision contained missions that target areas in which the UK wants to be globally leading, which provides a helpful focus point to engage businesses.

Lack of proof-of-concept support: The spin out process requires greater proof-of-concept support. Spin-out creation requires the presence of a clear pathway to commercialisation and an understanding of the innovation journey. A relatively common issue occurs whereby the spin-out process happens too early when the innovation is nascent without a clear route to commercialisation. It was suggested that incubation funding could help to keep businesses in universities longer until the innovation is more mature.

Lack of scale-up support: Later stages of the business development pathway lack sufficient support. There is a lack of adequate support for businesses at the scale-up stage. In particular, it was suggested that medium-sized R&D-led businesses, which form a large part of business-driven R&D activity in the UK, currently lack support. Series B funding was reported to be a significant challenge in the UK. While there are many funding pots, these are often not large enough. There are also sector-specific challenges – for example, for deep-tech companies, there are no ‘price setters’ who know how to value a deep-tech company post Series A funding. Attendees suggested that scale-up funding is where the Mansion House reforms could have a significant impact.  An additional challenge during the later stages of development is the potential requirement for expensive infrastructure. The lack of financial support at these stages of development means that the UK often fails to keep many medium sized businesses.

Lack of clarity around R&D tax credits: R&D tax credits have suffered from instability in recent years. Participants stressed that policies around R&D tax credits have been subjected to a lack of stability over recent years. While the recent announcements on R&D tax credits in the Autumn Statement in 2023 are a step in the right direction, participants felt that these amount to ‘damage limitation’ to remedy previous changes over the last year. It was felt that the changes reflect a poor understanding of how tax credits impact businesses in different sectors. For example, deep tech businesses will respond differently compared to more traditional manufacturing businesses that do R&D. There needs to be greater clarity around the level at which they are set, and how stable that will be.

Policy design and implementation: The implementation of R&D tax credits is hampered by both policy design and a lack of sector-specific expertise within Treasury and HMRC. There is a sense that the R&D tax credits process, including definitions around what constitutes R&D, are being overseen by HMRC Tax Inspectors who do not always have the necessary sector-specific expertise. Related to this, there are challenges related to the definition of R&D within the policy. It was initially written in 2004 and was designed to be sector agnostic. There have been attempts to consult on the definition and modernise it, however businesses still find it difficult to work with.

Public procurement: There is scope to better leverage public procurement to de-risk innovation and shape markets. There is scope for the UK Government to better leverage public procurement to act as an early adopter of innovation, to de-risk the translation pathway and create confidence among investors. It was suggested that the UK Government tends to signal its interest quite late compared to other countries. For example, despite publishing a 10-year strategy for quantum, the UK Government has not yet signalled its intent to procure a quantum computer. In addition, the requirement for procurement policy to be based on value for money presents a challenge for innovative businesses that do not operate in established markets.

Provide better support: Improve financial support for different stages of the business development pathway.

Provide proof of concept funding for early-stage companies.

Provide sufficient proof of concept funding that would enable earlier-stage pre-seed stage companies time within a university or research institution to develop a clearer pathway to commercialisation for an innovation ahead of spin out.

Enable access to later-stage venture capital funding.

Provide better support for medium sized companies. This includes access to scaling up capital for Series B venture capital funding. The Mansion House Compact, by unlocking new sources of UK-based capital such as pension funds, could have an impact here.

Review the investment thresholds for the EIS and SEIS schemes.

Update the investment thresholds for the Enterprise Investment Scheme (EIS) and Seed Enterprise Investment Scheme (SEIS) to reflect present levels of inflation. The limits to the amounts that venture capital trusts can invest using the schemes are based on outdated thresholds, which limits the amounts available within Series B rounds of funding for businesses. Although the schemes provide a good incentive, in practice there is a need to update these to ensure they remain relevant to the current investment landscape.

Design and implementation: Support the successful implementation of R&D tax credits.

Build sufficient resource within HMRC operational teams.

Build R&D sector technical expertise within HMRC so that they have a better understanding of how to apply R&D tax credits to different types of businesses. Compliance officers should be trained to have a better understanding of how R&D tax credits interact with R&D-led businesses across different sectors. This will require a more joined-up role between DSIT and the Treasury.

Revise the definition of R&D

Revise the definition of R&D within tax credits to ensure it reflects the needs of R&D-led businesses across new and emerging sectors, while focusing on the Government’s priorities for science and technology. This should include tightening up the definition and updating the examples that are featured within it.

Pro-innovation public procurement: Develop innovation-friendly public procurement processes within Government. The Government should better leverage public procurement as a tool to support the pull-through of innovation. This would give businesses greater confidence to invest in R&D, by helping to shape markets and de-risking R&I activities. This should include revising the requirement to demonstrate value for money for businesses developing cutting edge innovations in new and emerging sectors.

Incentivise capital R&D investments: Incentivise capital R&D investments by including it as an eligible cost for R&D tax relief. Full expensing of capital allowances should include R&D. It was suggested that one way of incentivising capital R&D investments would be to include it as an eligible cost for R&D tax relief. R&D tax relief is explicitly intended to incentivise R&D (including R&D capital investments), and it also allows loss-making companies to obtain cash payments in return for making R&D capital investments, therefore incentivising those investments.

Advice and signposting: Develop better advice and signposting to help businesses navigate the innovation funding landscape. Develop clearer advice as well as improved signposting to help businesses understand and navigate the landscape of financial support that exists. This should be in the form of clear and accessible information that organisations can place on their websites.