Wales trails rest of UK in innovation and exports
HOW innovative is the UK? That is the question the latest UK Innovation Survey report attempts to answer after surveying 14,570 businesses over the period 2020-22.
It focuses on a range of key factors including the business adoption of innovation, investments in different types of innovation, and the drivers and barriers to innovation.
According to the survey, the UK economy is becoming less innovative, with only 36% of UK businesses being innovation-active between 2020 and 2022 as compared to 45% in 2018-2020.
The percentage of innovationactive businesses was highest in England (37%) followed by Scotland and Northern Ireland (both 32%). Wales had only 31% of businesses as active innovators, which was lower than any English region and making it the least innovative part of the UK. In addition, the percentages of innovation-active businesses in all four countries were lower than in previous years, with Wales having the largest percentage decrease.
In terms of investment, only 18% of businesses invested in software, down from 24% in 2018-20, and hardware investments dropped from 23% to 17%. Despite these reductions, these areas remain critical to business investment strategies, emphasising their continued importance in both operational and strategic plans. In 2022, 14% of businesses reported investing in internal R&D, while machinery and equipment investments were reported by 13% of businesses. This may reflect a shift towards more immediate, less capital-intensive innovation strategies amid economic uncertainties and an increasing focus on tangible assets that can drive immediate operational efficiencies.
Geographical disparities in investment trends are also evident in the survey. For example, north-east England saw the highest investment in machinery and equipment at 16%, contrasting sharply with London’s 8%, which can be attributed to the capital’s heavy concentration on the service sector rather than manufacturing or production-heavy industries.
The West Midlands leads in software investment, likely due to its burgeoning tech industry and supportive regional policies. In contrast, south-east England is noted for its hardware investments, benefiting from its proximity to major economic hubs and logistics infrastructure. Conversely, Wales and south-west England are lagging in both areas, possibly due to less developed technological infrastructure or differing business priorities.
External R&D remains a minor focus for innovative firms, with only 5% of innovation expenditure dedicated to this area, suggesting a potential area of underinvestment that could impact long-term innovation capacity. Despite this, collaboration is a key theme in the survey, with high engagement rates in other co-operative innovation activities with suppliers, clients and within enterprise groups. However, only a third of firms are collaborating with universities in the UK, which is disappointing given the knowledge and expertise that exists within the higher education sector.
Financial support for innovation has declined, with only 4% of businesses reporting receipt of funding support from the UK central government in 2020-22, down from 6% in 2018-20. This reduction could pose significant challenges for smaller enterprises or those in sectors heavily dependent on public grants for research and development initiatives.
In terms of exports, 16% of all UK businesses reported engaging in export activities in 2020-22, with the lowest proportion being found in Wales. Notably, those innovative firms reported higher export rates, illustrating the link between innovation activities and international market reach.
The survey shows that the innovation environment has faced numerous challenges in recent times, with the Covid-19 pandemic and rising energy costs being cited as significant barriers. These factors have not only constrained operational capacities during that period, but also meant that businesses had little option but to redirect their innovation strategies towards more immediate, survival-oriented goals. Interestingly, regulatory requirements and changing market conditions continue to be significant drivers of innovation and many businesses are innovating in direct response to these external pressures by focusing on improving the quality of goods and services and meeting evolving standards.
Therefore, the latest UK Innovation Survey suggests that the period between 2020 and 2022 has been one of recalibration and realignment for UK businesses in terms of innovation, leading to a decrease not only in the number of innovation-active firms, but also a reduction in spending on innovation activities during this period.
This is disappointing as there has been a considerable increase in the amount of funding allocated by the UK Government to research and development.
Given this, it is crucial that higher levels of resource and finance are made available to enable businesses to commercialise innovations and, in particular, more effort must be made to utilise greater collaboration with higher education.