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Industrial Strategy, innovation and productivity

The Issue

We believe that the rate of diffusion of innovation is not high enough in the UK economy and is one of the causes of low productivity. To boost productivity the Government launched the Industrial Strategy in October 2017, and followed this up by publishing a call for evidence for the Business Productivity Review. Small businesses have a critical role to play in increasing the rate of diffusion of innovation by adopting new to firm innovation. Small businesses innovate on a regular basis, but to become more productive we need to see more support for small firms to help them introduce significant new to firm innovations, including improving leadership and management capabilities and adopting digital technologies. We also need to see more support for small firms looking to introduce new to market innovations through improving small businesses’ awareness to the R&D tax credits and improving clarity and understanding of the scope of what is covered through R&D tax credits. We called for various policy recommendations including easing the administrative burden, reducing complexity of the system, and ensuring the tax credit is clearly enough signposted for SMEs. Furthermore, UK Research and Innovation should be the go-to-agency for smaller firms in all sectors looking to undertake new to market innovation.

Action FSB has taken

  • We published our recent research Spotlight on Innovation that shows that 76 per cent of smaller businesses have introduced some sort of new innovation in the past three years. 95 per cent of them introduced a ‘new to firm’ innovation. Based on one of the broadest definitions of innovation utilised in current policy making, drawn from the OECD definition of innovation, new to firm innovation is defined as “an existing product, service, process, organisation or method whose performance has been significantly enhanced or upgraded.”
  • FSB welcomed the industrial Strategy as a really important step to increase public and private spending on R&D with the goal to reach 2.4 per cent of GDP investment in R&D by 2027 and to reach 3 per cent of GDP in the longer term. However, we raised our concerns in our recent innovation report that 40 per cent of our members who are incorporated and introduced a new to market product innovation reported they are unaware to the R&D tax credit.
  • We responded to the Business Productivity Review that was announced in the Industrial Strategy and we are lobbying the Department for Business, Energy and Industrial Strategy to discuss potential solutions that Government should test in order to boost small business productivity.
  • In our report Chain Reaction we show that just under a third (30%) of smaller suppliers receive help to innovate from their customers and we believe that larger businesses in supply chains have a critical role to play in supporting smaller businesses to improve their productivity. FSB research suggests that the level of innovation support from customers increases with size of geographic market. A quarter (25%) of those supplying at a regional (within a 100 mile radius) level receive this support, rising to over a third (36%) for those supplying at a global level.

Our Asks

  • We are calling for various policy recommendations to improve small businesses’ awareness to the R&D scheme while also improving clarity, reducing complexity of the system, and improving signposting for SMEs.
  • We are campaigning Government to put equal, if not stronger, emphasis on new to firm business improvements in its innovation policy to encourage an increase in the rate of diffusion of innovation.
  • We also do want to see direct or indirect funding for stimulating new to firm innovation such as leadership and management and adoption of digital technologies beyond the Business Basics Fund. This includes a leadership and management training tax credit and a grant to adopting digital technologies. We believe that Government should explore whether a tax credit relief could be put in place to alleviate the opportunity costs attached to small business owners taking time out of their businesses to undertake leadership and management training.

Achievements in...



  • We are liaising with BEIS colleagues on the grand challenges and the underpinning missions and were very pleased with the launch of the Business Basics Fund to promote policy interventions that address the productivity puzzle by improving leadership and management practices and adopting digital technologies.

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