The UK leads in research and startup and spinout creation, yet falls short on domestic production, export capability, and economic diversification.

• Across leading innovation economies, there is growing concern that excellence in research and innovation doesn’t automatically translate into industrial competitiveness.
• Competitiveness should be the test of success. The central challenge is not the supply of innovation but how research and innovation can more effectively support the competitiveness of existing sectors, strengthen industrial capability, and deliver sustained economic growth in line with the UK’s Industrial Strategy.
• Success should be evaluated at the sector level, not through individual firm outcomes. Industrial strategy must focus less on the number or valuation of high-growth firms and more on whether innovation helps to regain competitiveness in priority sectors, including growth in value added, employment, and global market share, benchmarked against international leaders.
• Innovation policy instruments require rebalancing towards deployment. Greater emphasis is needed on later-stage, deployment-oriented support – particularly supporting national sector priorities.

UK technology scaleup is concentrated in a narrow set of sectors, notably health and financial services, while many research spinouts that reach maturity are acquired by foreign firms or relocate overseas. 

• Relocation decisions are shaped by structural factors beyond finance. Policy debate and evidence have focused heavily on investment levels and domestic capital markets. Far less is known about the role of other structural factors – such as proximity to key supply chains and innovation partners, access to technical skills, regulatory conditions, and market access – that may be equally important in shaping scaleup decisions, industrial location, and competitiveness.
• Sectoral concentration weakens system-wide impact. The concentration of UK scaleup activity in health and financial services helps to explain why strong innovation performance has translated unevenly into competitiveness across manufacturing-intensive and other strategic sectors.
• The UK is not alone. The acquisition or relocation of maturing spinouts is common across advanced economies, with a large share ultimately attracted to the United States. The UK’s highly open and internationalised economy further increases the attractiveness of its innovative firms to foreign investors, reinforcing these dynamics.

The electronics and electrical equipment sectors illustrate how UK manufacturing is changing: away from scale and volume, and towards highly productive, knowledge-intensive niches embedded in global value chains.

• Competitiveness depends on specialisation rather than cost. UK competitiveness increasingly rests on niche strengths – such as metrology, photonics, medical technologies, and specialised grid-related equipment – rather than high-volume, cost-competitive manufacturing, reinforcing the importance of targeted industrial strategy.
• Productivity gains no longer translate into employment growth. Despite strong productivity and value-added growth in electronics, both sectors have seen a long-term decline in employment, reflecting automation, offshoring, and skills constraints.
• Innovation strength does not automatically deliver domestic economic capture. Strong innovation capabilities and rising R&D investments could underpin future growth, but translating these into domestic scale, resilience, and reduced trade deficits will require more effective support for technology adoption and scaleup.

The UK has a strong pipeline of science, engineering, and technology skills, but alignment with labour-market demand remains uneven.

• Despite easing vacancy levels overall, persistent and structural skills shortages in priority occupations continue to constrain innovation, productivity, and growth.
• Skills shortages remain structural rather than cyclical. In 2024 skills-shortage vacancies accounted for over a quarter of all vacancies, indicating that recruitment difficulties reflect underlying mismatches in skills, experience, and qualifications rather than short-term labour-market tightness.
• Innovation-critical occupations face persistent capacity constraints. Shortages in scientific, engineering, medical, and education-related skills affect occupations central to innovation and long-term growth, including engineers, health professionals, and educators.
• Engineering and sustainability skills are emerging as strategic bottlenecks. By 2025, over three-quarters of engineering employers reported recruitment difficulties, with specialist sustainability skills emerging as a particular constraint as decarbonisation-related demand increases.

Data highlights

• The UK is a leading global research and R&D investor. It spends 2.68% of GDP on R&D (3.5% of global spending) and ranked fourth worldwide for scientific publications in 2022, behind China, the USA, and India.
• In 2022 basic research accounted for 14% of UK business R&D and 39% of government R&D, above OECD averages of 8% and 28%, respectively.
• Research output has risen, but high-tech export share has fallen. Publications per capita increased 40% between 2007 and 2022, while high-technology exports declined from 8.7% to 6.4% of total exports.
• Among the UK’s top R&D-investing firms, pharmaceuticals account for over half of R&D spending, while tech hardware and software represent just 1.1% and 4%, far below the EU and USA.
• UK electronics and electrical equipment account for 10% of manufacturing value added and 13% of exports, yet employment has halved since 2000, versus a 30% decline across manufacturing.
• Despite its historic earnings premium, manufacturing now records median earnings (£38,956) below the national median (£39,040).
• The STEM gender pay gap remains high in the UK. Women with STEM degrees earn around 21% less than men, compared with an OECD average gap of 18%.
• In 2024 skills-shortage vacancies (i.e. they are hard to fill because of a lack of relevant skills, experience, or qualifications among applicants) accounted for 27% of all vacancies.
• The UK ranks fourth globally by number of unicorns (57) and third by total value, with UK-based unicorns valued at US$223 billion in 2025, behind only the USA and China and close to the EU total of US$298 billion.
• Most UK high-value startups are in financial services (20), enterprise tech (13), and insurance (7), with far fewer in industrial sectors.
• Since 2012, 80% of UK university spinout IPOs have taken place overseas, mostly on the US NASDAQ, reversing the early 2000s when 80% listed in the UK.
• Around 60% of spinouts from the UK’s top 15 universities exiting through acquisition (2012–21) were bought by foreign firms. Meanwhile, foreign acquisitions of UK companies have increased 6.8x since 2014.