Two major independent reports have been published in 2017 that show the beneficial impacts of government funding for innovation on the performance of UK businesses.

The first report, published in March 2017, was an independent study commissioned by the Department of Business, Energy & Industrial Strategy (BEIS).  The research conducted by Frontier Economics used a ‘propensity score matching’ approach and looked at the impacts on business survival, employment and turnover for up to 5 years after receiving government support for innovation projects (up to 2013).

The method involved matching companies that had received funding from Innovate UK to similar companies that had not (based on sector, size, company age etc.) to create a suitable control group. The study then compared the relative performance of these companies and found that the innovation funding had a statistically significant impact on the future outcomes of these companies. These companies were found to be more likely to grow quicker and much less likely to go bankrupt.

Table: Key headline results of the impact of innovation funding on business performance

Business Survival Effect Employment Effect Turnover Effect
+15% (from 75% to 90%) 30-40 extra people £5-10m extra revenue

Source: BEIS (March 2017), The impact of public support for innovation on firm outcomes

A second report was published in August 2017 by the Enterprise Research Centre (ERC) by researchers from Warwick and Aston Business Schools. That study took a similar approach, although it reviewed a broader range of innovation funding to include the UK Research Councils, as well as Innovate UK.

The results showed that companies who participated in research projects grew their turnover and employment 6% faster in the three years after the project and around 25% faster in the six years after, compared to similar companies, which did not receive innovation funding support.  The study also identified that the impacts were larger for companies in high-technology manufacturing sectors.

Peter Willis, Senior Economist at the Aerospace Technology Institute, said:

Both of these reports highlight the very positive impacts that public funding for innovation can have on the performance of UK businesses. Investing in technology is vital to ensure that UK businesses are able to grow and improve the productivity of the wider UK economy”.

Previous ATI publications have highlighted the benefits of government support to technology and innovation more broadly, in terms of the impacts on business performance, crowding in private investment and large spillovers that benefit the wider UK economy.

Peter said:

It’s not easy to use control groups in the aerospace industry to test the effectiveness of R&T funding, so we rely on a variety of different methods including modelling, project case studies and long-term monitoring and tracking of project outcomes. Plans are already in place with BEIS for future impact evaluations of the ATI programme”.

The ATI has developed extensive market and economic modelling capabilities to project the potential impact of industrial strategy and R&T funding on the aerospace sector.  In a recent ATI INSIGHT, Economic Impact of UK Aerospace Industrial Strategy, the ATI’s analysis suggests Government investments in aerospace could be benefiting the UK by more than £100 billion (both direct returns and spillovers) over the next 20 years, creating and safeguarding 95,000 UK jobs.

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