Source · Select Committees · Public Accounts Committee
Recommendation 18
18
There are several reasons why the proportion of smaller businesses receiving funding could have fallen...
Conclusion
There are several reasons why the proportion of smaller businesses receiving funding could have fallen including the increase in UKRI’s requirements for coinvestment from participants for wave 3 funding. UKRI increased the co-investment requirement from industry in wave 3, responding to a requirement from the Secretary of State for Business, Energy & Industrial Strategy. The ratio of public investment to private investment increased from 1:0.45 in Wave 1 to 1:1.5 in Wave 3.48 The Department told us that it could not prove that the drop in the proportion of small businesses between waves 2 and 3 was solely due to the increase in coinvestment. But it conceded that it was reasonable to believe that it was a “really big factor” because it was harder for small businesses to meet the coinvestment targets. The Department emphasised that co-investment targets were nonetheless important in generating private investment which helped to boost the overall spend on R&D. It explained that it was working with small businesses to help them address this challenge.49 UKRI suggested a more tailored approach to co-investment for different sized companies might help.50
Government Response
Not Addressed
HM Government
Not Addressed
4.1 The government agrees with the Committee’s recommendation. Target implementation date: October 2021 4.2 UKRI is committed to increasing engagement with small and medium sized enterprises (SMEs) within the research and innovation system. The NAO report notes the Fund has had success in attracting small business involvement (small and micro companies accounted for over 40% of project awards in Waves 1 and 2). Challenges have worked hard to build networks and reach out beyond the ‘usual suspects’. For example, 73% of non-academic organisations funded by the Next Generation Services Challenge have not previously participated in a UKRI-funded project. 4.3 High levels of co-investment, with public and private sector funders working in partnership, have helped increase the overall investment, allowing projects to be funded that would otherwise have not happened. However, such a strong emphasis on co-investment targets may have led to a portfolio with a lower risk appetite than first envisaged, and a larger role for established industries which are more able to evidence match funding as part of the challenge commitments. It should though be recognised that large companies are also important for generating critical mass in resilient national supply chains. 4.4 This may help explain why the Fund had a slightly lower level of SME involvement in Wave 3, when the emphasis was on increased match funding. Although as the NAO report made clear, it has not been possible to establish whether there is a causal link between the two. 4.5 Lessons from the approach to SME engagement across the current Challenges are informing the design of future Challenge-led delivery. This will consider the appropriate balance between risk and scale, including a more flexible approach to co-investment requirements for SMEs and emerging industries. 4.6 The department will write to the Committee by October 2021 outlining these learnings and how these will be embedded into future Challenge-based funding.