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UK research and innovation funding is entering a period of significant change. UK Research and Innovation, which invests around £8 billion a year, has confirmed it will pause and reshape parts of its funding while moving to a more focused investment model. For UK SMEs interested in R&D funding, this shift brings both challenges and opportunities.
In an open letter, UKRI Chief Executive Ian Chapman acknowledged that the organisation has been instructed by government to do fewer things better. This means tougher choices about which projects and businesses receive support. Some programmes have already been paused, including parts of Innovate UK’s SME advisory and grant activity. New arrangements are expected to be fully in place by the 2027 to 2028 financial year.
At first glance, this sounds like bad news for smaller businesses. Innovate UK has historically supported thousands of start-ups with relatively small grants. That wide access helped early-stage companies test ideas and reach first markets. Under the new approach, UKRI plans to back fewer companies but with more intensive support. Selection criteria have not yet been published, which adds uncertainty for SMEs planning near-term funding applications.
However, the broader picture is more nuanced. UKRI’s overall budget is set to rise to almost £10 billion a year by the end of the current spending review period. Government has also been clear that future funding should place greater emphasis on commercialisation, scale-up and economic impact. For SMEs with credible growth plans, strong leadership teams and a clear route to market, this could improve the size and strategic value of awards.
UKRI will organise its funding into three main areas. These are curiosity-driven research, strategic government and societal priorities, and support for innovative companies to start and scale. Around half of total funding will continue to support curiosity-driven research, with the rest split across applied research and business innovation. While curiosity-driven funding will be flat in real terms, applied and commercially focused programmes are expected to align more closely with national priorities and Industrial Strategy sector plans.
For SMEs, this alignment matters. Future competitions are more likely to target defined challenge areas such as clean energy, advanced manufacturing, life sciences, digital and AI. General innovation funding with broad eligibility may become less common. Businesses that can clearly show how their R&D supports national priorities, productivity growth or export potential will be better positioned.
There is also a timing issue. UKRI has confirmed that some new applied programmes will begin launching from spring this year, while others will follow as existing commitments wind down. SMEs should expect a stop-start funding environment in the short term, with fewer open calls but potentially larger awards when they do appear.
The key takeaway for SMEs is preparation. Funding will be more competitive. Business cases will need to be sharper. Evidence of commercial traction, co-investment and realistic scale-up plans will matter more than ever. While access may narrow, the upside for successful applicants could be greater levels of funding and support.
In short, UK R&D funding is not disappearing. It is becoming more targeted. SMEs that adapt early to this new reality will be best placed to benefit.