Innovate UK Smart Funding Review

At TBAT we welcome the news that the Chancellor, Rachel Reeves, is committing to completing Spending Reviews every two years.  

What is a Spending Review? 

A Spending Review is a process where HM Treasury sets out detailed plans for public spending for the next few years. It determines how much money each government department will receive and outlines priorities for public services and infrastructure projects. This review is crucial because it ensures that public funds are allocated efficiently, supports long-term planning, and addresses economic challenges. By setting spending limits and priorities, the government can better manage the economy, promote growth, and ensure that essential services like healthcare, education, and transportation are adequately funded.  

Unlike a budget, Spending Reviews are non-legislative, and act as a statement of intent for multi-year commitment. This forms the basis of the annual legislative budget.  

Why does it matter? 

UK Research and Innovation (UKRI), is the UK’s innovation agency. UKRI is a non-departmental public body sponsored by the Department for Science, Innovation and Technology (DSIT). UKRI funding is assigned in the budget informed by Spending Reviews. As part of UKRI, Innovate UK funding is also determined this way. 

At the previous Spending Review (2021), UKRI was allocated £25.1bn spending for the period April 2022 – March 2025, with £2.6bn of this allocated to Innovate UK. This was the first three year commitment following a period of single year Spending Review’s by the previous government. This multi-year funding commitment was welcomed as providing stability and security to plan strategically as deliver on the five-year 2022-2027 UKRI Strategy. 

How has this affected funding? 

UKRI reports indicate that Innovate UK spend is well aligned with allocation. Over the current spending review period in 2022-23 spend was within -0.6% of budget, in 2023-24 it was +2.5%. In the previous single year review period (2021-22) spend was within 1% of budget. This is entirely as you’d expect from a government agency requiring transparency and accountability. 

Sources: BEIS, Allocation of Funding for R&I, July 2018 | 2022-23 – 2024-25 budget allocations for UKRI | UKRI Annual reports  

However, if we dig into the statistics more thoroughly we see significant discrepancies across competitions.  

The Innovate UK Smart Programme 

The Innovate UK Smart programme is a flagship initiative aimed at supporting the most innovative and disruptive ideas that have the potential to significantly impact the UK economy. The programme is open to businesses from any sector, providing funding for projects at various stages, from feasibility studies to developing and testing prototypes.  

It is the most competitive scheme Innovate UK operate and it runs several times a year. The application process is rigorous, requiring detailed business plans, market validation, and clear exploitation plans that demonstrate the potential for significant economic return. Applications must be extremely high-quality to be successful with pass-marks routinely sitting above 80% – in fact the last time the mark required for success was less than 80% was February 2019! 

Innovate UK Smart spending 

Due to the competitions process there is a time difference between funding announcement, competition deadline and decision. We have taken the decision point as the time point where allocation/spend falls when the overall competition sits across the fiscal year end. For example, IUK Smart January 2024 closed in April 2024 with decision in June 2024 so funding allocation/spend is placed in 2024/25. 

Sources: Innovate UK published competitions | Information from UKRI IUK FOI requests | * In 2021/22 Covid-related overspending in the first released Smart round required schedule changes, and significant overspending was seen across UKRI 

Every Innovate UK Smart round is published with an advertised budget of £25m. What we can see is a significant discrepancy between this allocation and committed funding emerging from 2022 onwards. It should be stated at this point that Innovate UK are quite within their rights to underspend against plan and there are a number of valid reasons they may be doing this. We can be sure that quality is not one of these – the pass mark for the previous six rounds has exceeded 84%, with the number of applications scoring >85% doubling since 2021. At TBAT we find that the consistent and continuing underspend by up to £10m a round is disingenuous. With it not being apparent  where this unspent budget is headed or how long this underspending may continue it presents an uncertain picture to potential applicants.  

With a one-year Spending Review imminent and the one following confirmed to cover two years it is hoped that Innovate UK’s commitment to it’s most disruptive innovators can be brought back on track.