Almost eight in ten (78%) FTSE firms have moved innovation investment or activity overseas in the past three years, according to new research from innovation incentives consultancy ForrestBrown.
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The findings show that the UK’s appeal as an R&D hub could be starting to fade, placing further pressure on the Government to shore up business confidence at the Autumn Budget.
A further 19% are actively considering moving innovation investment or activity out of the UK, bringing the total FTSE firms deterred from investing domestically to 97%, the overwhelming majority.
FTSE firms invested £1.23m on average in innovation over the last financial year, while 71% have increased their innovation investment, reinforcing that the financial stakes are significant.
Autumn Budget – an opportunity to reaffirm support for innovation
Recent policy changes could be prompting businesses to consider other more attractive destinations to locate major R&D projects. The loss of the Department for Science, Innovation and Technology (DSIT), for example, is cited by over a third (39%) of FTSE businesses as a factor in the decision to move innovation overseas, while 37% said it would make recruiting or retaining specialist UK talent even harder.
As the global demand for STEM skills intensifies, access to talent is a key priority FTSE firms would like to see addressed at the Autumn Budget. When asked which measures they would most like to see announced, 17% of innovation leaders selected reforms to make recruiting specialist international workers easier, topping the list. More than one in ten (12%) also named more generous or simplified R&D tax relief as a top Budget priority, putting it close behind improved access to growth capital and innovation finance (14%).
Recent stability in the R&D tax relief scheme is welcome following a period of reform, but greater policy certainty, continued capital investment incentives and targeted support for SMEs could further encourage businesses to keep valuable R&D activity in the UK.
Specialist sectors face growing pressure
The research found that engineering and building (100%) and defence (75%) were among the sectors most likely to have moved innovation investment or activity overseas over the past three years.
Of those sectors more likely to have moved their innovation activity or investment overseas, nearly a third (30%) of architecture, engineering and building businesses reported moving a significant amount, compared with 25% in arts and culture and 13% in defence.
These sectors often rely on specialist skills and external funding, potentially making overseas markets more attractive. Domestic pressures may also be contributing, with council spending on the arts falling 55% since 2010 and construction output forecast to decline 2.5% in 2026.
Tom McDanell, Managing Director, ForrestBrown said: “FTSE businesses are committing considerable capital to innovation, yet an overwhelming majority are directing projects elsewhere, leaving the UK at real risk of missing out on the returns from companies it has helped nurture and grow. Ahead of the Budget, the Government must recognise that businesses have the appetite to innovate but need the right conditions to invest here. Without them, we risk losing the skilled jobs, expertise and wider economic benefits that R&D brings to communities across the country.
“Stability in the R&D tax relief scheme has been welcomed by the science and tech community, but businesses also need long-term policy certainty, access to specialist talent and competitive investment incentives. Getting this right will be crucial to retaining R&D investment in the UK, supporting growth at both a regional and national level.”