As early as March in 2025, it felt like the economy was feeling sorry for itself and that we were in for a bit of a slog. The CBI shared that sentiment, and it seemed like exactly the right time to put some facts around those feelings. This resulted in a strategic partnership as Source Advisors supported the CBI on a cornerstone piece of research – Innovation Investment: Firm foundations for growth.
Launching the research
On 25 February 2026, the findings of that research, and more importantly, a set of actionable recommendations were launched at Imperial College London. Lord Patrick Vallance (Minister of State for Science, Research and Innovation) shared his thoughts on the report and indicated the government actions that were already underway. A year on from what felt like a gloomy environment, Lord Vallance was able to offer a sense of commercial direction, transparency, a sense of purpose, and optimism. Based on the field work, it’s exactly what businesses need.
Findings of the research
It was disheartening to read that over half of the businesses that participated in the field work felt the UK was less competitive now than it was 3 years ago. They had reduced their investment in innovation accordingly. If there is any doubt that the UK’s global power is starting to diminish, here it is, and no one should find that acceptable. I don’t need to make the case for R&D being important to economic growth; I leave that to the scholars, economists, and leading inventors who can do that far better than me. So what do we do to change course and be a global leader?
Here you can read the full report and recommendations (or the summary), so I wanted to pull out my key takeaways from the excellent piece of work.
Demand side role
Simply put – government should be a buyer of UK innovation. They should have a greater appetite for taking risks in adopting innovation and stop being so bloody bureaucratic.
Government procurement is not something I think about too often, but policy signalling is. There is a very strong reason why these two should always be hand in glove. It is not for government to fix the problem, but it is for government to articulate the problem that needs to be solved for the benefit of the country. If a business decides to accept the challenge and deliver, then government should be its first client.
Through that lens, the challenge-based approach, the 8 sectors named in the industrial strategy start forming a much more coherent strategy.
The result would be that those businesses that are early adopters of technology and innovation wouldn’t always carry the greatest risk. It would be shared, have balance, and wouldn’t feel as if you were going out on a limb.
Recommendation 4.1a, therefore, is a top priority for me to really make this happen
Innovation champions
We at Source Advisors are privileged in that we obsess about our clients’ innovation activity. What was clear from the research is that for many businesses, including their boards, innovation isn’t championed as much as it could be. Sure, stories about commitment to innovation are told in investment documents, websites, etc., but when it comes to signing off on the business case, the cost-benefit analysis, it all can become just too hard. We see this evidence in UK patent applications vs major global rivals such as Germany, China, USA. We need to shift gears to have some brave leaders willing to stick their necks out and have an appetite for failure.
We can’t, nor should we, rely on government alone, as we will get nowhere, as Lord Vallance said at the launch, it is business that is crucial.
Adopters and innovators
Even typing that title (yes, I wrote this, not ChatGPT), I had to change it to ‘and’ instead of ‘versus’ – this is not one over the other. This is how the ecosystem hangs together in its very fabric. We are an ideas nation, innovators, who let others run with it to scale and then bring a greater appetite for adoption. Our insatiable curiosity is too often followed by British reticence and caution.
R&D tax relief came up frequently from businesses airing their frustrations around the administrative issues and lack of understanding from HMRC. We have absolutely seen HMRC push far closer towards defining R&D as pure innovation. This interpretation of the scheme is a concern. R&D tax relief is brilliant at engaging a large audience, giving certainty to benefit, and deploying funds effectively, and all three of those sentiments have been damaged. For the adopters, we need a path forward.
A recommendation we put forward was 4.3d. If R&D tax relief, as we know it, is now in a steady state, which I hope it is, there is a gap around tax incentives that accelerate the adoption of technology. We need the ecosystem to work in the round, not only in parts. The aim should be to get the very most, squeeze every drop of value, from taxpayers’ funds. Keeping businesses investing in innovation, skills, and technology is a non-negotiable, and tax incentives are a very useful tool.
So what?
We made it clear from the outset that we didn’t want to engage in this research project if it became a talking shop followed by a webpage no one visits. Following the launch, the CBI, with our support, will direct these recommendations to the most appropriate stakeholders to be considered. The research offers further support to what sounds like the excellent work Lord Vallance and his colleagues already have in motion.
