Wales Sees SME Share of Innovation Funding Balloon

SMEs in Wales have vastly increased their share of Innovate UK grant funding in the past year, at a time when the economic contribution of smaller businesses is under the spotlight.

A study by innovation funding specialist Catax shows that, of all innovation grant funding that went to business projects started in Wales this year, the proportion awarded to SMEs rose to 86.6% — up 50.4 percentage points from 36.2% in 2021.

For projects begun in 2022, Welsh SMEs were awarded £7.5 million while larger companies in Wales were awarded £1.2 million.

In stark contrast, for 2021, SMEs in Wales secured £10 million, while larger firms were awarded £17.5 million.

On a national basis, the proportion awarded to UK SMEs rose to 88.2% in 2022 — up 16.4 percentage points from 71.8% in 2021, itself little changed on 2020.

Innovate UK is the UK’s national innovation agency. The way SMEs are handed the lion’s share of business funding is testament to the important research and development they undertake.

And yet it is SMEs that have recently come under attack from the Government. Chancellor Jeremy Hunt announced in the Autumn Statement last month that the amount of tax relief SMEs receive would be reduced for expenditure incurred from 1st April 2023.

SMEs are currently allowed to deduct an extra 130% of qualifying costs from their profits but this will reduce to 86% (plus the normal 100% deduction). For loss-making companies, SMEs will be entitled to a tax credit worth up to 10% of the total surrenderable loss, instead of the current 14.5%. Conversely, the Research & Development Expenditure Credit (RDEC) scheme for larger companies was made more generous.

Laura O’Neill, Grants Manager at innovation funding specialist Catax, said:

“These results show very clearly how smaller companies are fundamentally important to the drive for innovation taking place in the UK. The vast majority of innovation grant money awarded to businesses is won not by large corporations but by SMEs.

“Yet the contribution SMEs make to the UK economy is at serious risk of being overlooked. Many of them are the larger companies of tomorrow, whose journey to success and growth is often obscured by the inevitable interest of other companies and subsequent acquisition.”

Innovate UK also awards grants to charities, public sector organisations, academic institutions, Public Sector Research Establishments (PSREs), Research & Technology Organisations (RTOs) and catapults. These were excluded for the purposes of the study.

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