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UK R&D Spending Decline Raises Questions for Growth Ambitions

Recent analysis has revealed that UK R&D spending has fallen by £2.8 billion in real terms since 2021, sparking concerns over the nation’s long-term growth ambitions. As the government continues to promote innovation-led recovery, this downward trend threatens to undermine competitiveness, productivity, and the ability of UK businesses to commercialise cutting-edge research.

Against this backdrop, advisory firms such as FI Group, specialists in R&D tax incentives and grant funding, are urging companies to act strategically to maintain momentum in innovation.

The Market Context: Why R&D Investment Matters

Globally, research and development is a recognised driver of productivity and competitiveness. According to OECD data, every £1 invested in R&D can generate multiple pounds in economic growth through knowledge transfer, commercialisation, and new business creation.

For the UK, where sectors such as life sciences, aerospace, energy, and digital technology underpin the industrial strategy, sustained investment is essential. Yet recent figures show businesses have scaled back spending in real terms, at a time when other countries, including Germany and the United States, are intensifying their R&D commitments.

Challenges Behind the Decline

Several factors are contributing to the contraction in UK R&D expenditure:

• Inflationary pressures reducing the real value of corporate and public investment.
• Uncertainty around tax incentives, including reforms to the SME scheme and the merged RDEC model.
• Global competition, with firms shifting activity to regions offering more generous incentives.
• Economic headwinds, leading many companies to cut or delay innovation projects.

Without intervention, these challenges could limit the UK’s ability to meet its target of becoming a science and technology superpower by 2030.

Opportunities for Businesses

Despite the decline, opportunities remain for firms willing to be proactive. Businesses can:

• Leverage R&D tax relief under the new merged scheme and the Enhanced R&D Intensive Support (ERIS) for loss-making SMEs.
• Apply for Innovate UK grants such as Smart Grants, Biomedical Catalyst, and the Industrial Energy Transformation Fund.
• Collaborate internationally through Horizon Europe, Eurostars, and other European funding streams, which the UK continues to access.
• Optimise innovation portfolios by balancing long-term research with projects closer to commercialisation.

FI Group’s International Grants Guide 2025 highlights that public-private partnerships and European programmes remain accessible to UK firms, offering significant non-dilutive support for R&D investment.

FI Group Insight: Expert Guidance Amid Change

According to Dr. Fawzi Abou-Chahine, Funding Director at FI Group UK, companies must take a strategic approach:

“Falling R&D spending is a wake-up call for businesses. By combining tax incentives with national and European grants, firms can offset inflationary pressures and maintain their innovation trajectories. The key is aligning projects with funder priorities and presenting compelling technical and commercial cases.”

With over 15,000 clients supported worldwide and £1.7bn in funding secured annually, FI Group provides both technical and financial expertise to help companies navigate complex R&D frameworks.

Actionable Next Steps

For UK businesses concerned about declining R&D budgets, immediate steps include:

1. Review project portfolios to identify eligible activities for R&D tax relief.
2. Benchmark against competitors to understand where international incentives may provide an edge.
3. Engage early with grant competitions, ensuring applications align with funder expectations.
4. Seek expert advice to maximise claims and reduce compliance risk.

Companies looking to safeguard their innovation strategies can explore FI Group’s dedicated services on R&D tax credits and UK grant competitions.