Cambridge Industrial Innovation Policy
UK Innovation Report 2026
What makes this report different?
The aim of the UK Innovation Report is to facilitate policy discussions on innovation and industrial performance – and the interplay between them. While numerous sources of data on the topic of innovation exist, the UK Innovation Report makes a contribution by bringing together, in a single place, innovation and value-added indicators in a concise and accessible format.
Instead of structuring the report according to traditional input and output indicators, the intention with the report is to include data that provides rich quantitative representations of the vitality of both the UK’s innovation activity and its industrial performance in an international context.
An important theme throughout the report is the analysis of sectoral data to better understand the drivers of national performance and provide more granular policy insights. While the report does not make specific policy recommendations, it does highlight areas where additional evidence and policy action may be required.
Motivation
- To review the UK’s innovation and industrial performance and compare it with that of other selected countries;
- To facilitate discussions on the relation between innovation and sectoral competitiveness; and
- To contribute to the evidence base that is available to inform industrial and innovation policy.
The UK Innovation Report 2026 is published at a moment of institutional transition and heightened pressure on the UK innovation system. Leadership changes at key organisations such as UK Research and Innovation (UKRI) and Innovate UK have coincided with renewed debate about how public funding for research and innovation is structured and deployed. The government has begun to articulate a clearer – albeit evolving – framing of public research and development (R&D) investment around four broad “buckets”. The announced distribution of the £9.2 billion UKRI budget for 2026/27 is as follows: the first bucket supports curiosity-driven, investigator-led research that underpins the UK’s scientific base (£3.65 billion); the second bucket focuses on targeted R&D aligned with national priorities such as clean energy, health resilience, and national security (£1.92 billion); the third bucket supports innovative company growth, helping firms scale and commercialise new technologies (£1.64 billion); and the fourth bucket supports cross-cutting foundations of the innovation system, including skills, infrastructure, and research facilities (£2 billion).
While this framing clarifies policy intent, it also raises questions about balance, coordination, and delivery. Long-standing concerns about fragmented “buckets of funding” remain, particularly as policy attention shifts from allocation towards implementation within the Industrial Strategy’s eight priority sectors (IS-8). Recent evidence presented in this report suggests that while tax credits may increase overall R&D spending, they don’t necessarily translate into higher economic growth if funding is misallocated. From this perspective, effectiveness depends on not only the scale of public support but also how well it is targeted and aligned with expected economic returns. Together, these issues highlight whether funding streams operate as a coherent innovation pathway, shaping the extent to which public R&D investment translates into industrial capability, productivity growth, and economic impact.
The UK Innovation Report 2026 arrives at a more demanding phase of industrial strategy implementation. The publication of sector plans marks a shift from high-level ambition to delivery, sharpening questions about institutional readiness, coordination across policy domains, and the capacity to support sector-level transformation. This report contributes evidence to that debate, highlighting areas of progress alongside persistent gaps, bottlenecks, and uneven outcomes across sectors.
The report also reflects insights from recent policy reviews, including the Technology Adoption Review. Despite leading internationally in research, startup formation, and spinout activity, the UK continues to fall short on domestic production, export capability, and economic diversification. This points to a structural weakness in translating technological capability and early-stage innovation into widespread adoption, scaling, and sustained industrial impact. The challenge is not the supply of innovation but how research and innovation more effectively support the competitiveness of existing sectors and the rebuilding of industrial capability in line with the UK’s Industrial Strategy.
At a time of economic uncertainty, rapid technological change, and increasing geopolitical pressure, the demand for robust, policy-relevant evidence continues to grow. The UK Innovation Report 2026 responds by providing new data, analysis, and perspectives to support more informed decision-making across the UK innovation system – and to inform a more effective approach to industrial strategy and long-term economic transformation.
What’s new in the 2026 edition of the UK Innovation Report?
This year’s UK Innovation Report builds on recent policy developments and introduces new indicators and analysis to assess how effectively the UK innovation system supports industrial competitiveness and economic transformation. It is published at a time of institutional change and renewed focus on how public R&D funding is structured and deployed, alongside the implementation of the Industrial Strategy and its priority sectors. The report provides a deeper focus on the relationship between innovation investment, industrial performance, skills, and the scaleup of new technologies. The report is organised as follows:
- Section 1 examines changes in the UK’s economic structure, with a focus on the contribution of the manufacturing sector.
- Section 2 provides an overview of the UK’s research and development (R&D) funding and expenditure landscape, and how the UK performs globally in innovation outputs and outcomes.
- Section 3 analyses the industrial performance of the UK’s electronics and electrical equipment sectors.
- Section 4 explores qualification and skills mismatches in the UK, along with wage dynamics across educational disciplines.
- Section 5 reviews technology scaleup activity across sectors in the UK.
Contributors
The contributors to this report are Jennifer Castañeda-Navarrete, Zongshuai Fan, Mateus Labrunie, David Leal-Ayala, Carlos López-Gómez, and Michele Palladino.
Acknowledgements
The authors would like to thank all organisations that provided valuable insights during consultations conducted to inform the report.
Disclaimer
Names of countries and territories follow widely accepted conventions and do not imply the expression of any opinion whatsoever on the part of the authors or their affiliated institutions concerning the legal status of any country, territory, city or area, or of its authorities. Any mention of firm names or commercial products does not constitute an endorsement by the authors or their affiliated institutions.
