The latest UK Innovation Report 2026, published by Cambridge Industrial Innovation Policy at the Institute for Manufacturing, University of Cambridge, argues that this gap is becoming harder to ignore. Without stronger connections between research, manufacturing and scale-up, the UK risks producing world-class knowledge that creates jobs and growth elsewhere.
“The UK cannot simply become the ‘lab of the world’, with new products and services based on knowledge created here but produced abroad,” warns Carlos López-Gómez, co-author of the report.
The publication calls for a shift in how industrial policy is evaluated. The current focus on innovation inputs – R&D intensity, start-up numbers, patent counts – is inadequate as a guide to whether the UK is actually becoming more competitive. As the government moves from designing its industrial strategy to delivery, the authors say now is the time to make sector-level outcomes – value added, employment, export performance, global market share – part of the benchmark for success.
During the report’s launch briefing, Dave Smith, UK national technology adviser, described the UK as a world leader in basic research and early-stage company creation. About 14% of UK business and 39% of UK government R&D spend goes into basic research – well above OECD averages and almost double in some comparisons – and the UK ranks fourth globally for ‘unicorns’ (companies valued at over $1bn).
The UK routinely fails to convert research into industrial scale, however. This matters, Smith said, because products support companies, and companies create jobs and tax revenues.
On a more optimistic note, Smith pointed to government procurement as a near-term lever with genuine potential. New legislation and Treasury principles – such as the shift from Most Economically Advantageous Tender (Meat) to Most Advantageous Tender (Mat) – create an opening to use procurement more deliberately to drive innovation in UK companies. That shift, he suggested, could be transformational if the private sector responds.
The report’s analysis of the electronics and electrical equipment industry illustrates the broader structural shift the UK faces. In 2000, the UK held about 5% of the global electronics market. Today, that has fallen to 1.1%. Over the same period, value added in the sector increased by 400%, while employment roughly halved. While this could be seen as a productivity success story, in reality it reflects a sector that has become more efficient while shrinking its workforce and losing global share. For context, Taiwan – a high-cost manufacturing location – added about 130,000 jobs in electronics over the same period, while the UK lost a similar number.
The retreat from volume has not been replaced by scale elsewhere. What remains is a cluster of highly specialised, knowledge-intensive niches such as metrology, photonics and medical technologies rather than high-volume, low-cost products.
Lord David Sainsbury, former minister for science and innovation, said this is a strategic direction the UK should pursue more widely in response to a broader global realignment.
In 2000, G7 economies accounted for more than 40% of global GDP. By 2022, that had fallen to 27%. Over the same period, China and India doubled their share from around 14% to 27%. This dramatic shift has been driven by sector-level competitive advantage rooted in innovation, Lord Sainsbury said. The UK’s challenge is to ensure that its areas of specialisation are strong enough – and broad enough – to remain competitive in that environment.
Sharon Todd, chief executive of SCI – a scientific innovation accelerator – cautioned against over-reliance on niche specialisation. China and India, she observed, are now moving into specialty materials at scale, replicating the competitive dynamic they previously deployed in volume manufacturing. The UK’s niches, she argued, must be viewed in the context of supply chain resilience and national capability, not just productivity metrics.
One of the more underplayed findings from the briefing was the relationship – and gap – between innovation incentives and manufacturing. Todd noted that the most effective firms link incentives such as R&D tax credits and the Patent Box together, and have manufacturing as an integrated stage in the process. In the UK, manufacturing is often treated as an afterthought in both strategy and policy design, bolted on to the innovation chain rather than embedded within it.
Stewart Lane of Renishaw – one of the UK’s most R&D-intensive engineering firms, investing 12% of revenues annually – offered a practical perspective. Renishaw keeps all manufacturing in-house for supply chain control, quality and responsiveness. “There have been times when, if we didn’t have in-house manufacturing capability, we could not have responded to the market. We would not be the company we are today if we’d subcontracted,” he said.
The point is not that every company should manufacture in-house, but that manufacturing capability is a strategic asset – one that shapes a firm’s ability to respond, adapt and capture value. The current policy environment does not adequately reflect this. Todd argued that extending or strengthening incentives for the manufacturing aspect of innovation could influence investment decisions, particularly for companies weighing up where to locate production.
Running throughout all of these challenges is a structural skills problem. The eight priority sectors identified in the UK’s Modern Industrial Strategy are already heavily graduate-intensive, with 64% of the workforce holding graduate-level qualifications, compared with 51% across the wider economy. Skills England estimates that these sectors will require an additional 623,000 workers by 2030. Yet more than a quarter of all current UK vacancies are reportedly hard to fill due to skills gaps, and half of manufacturers cite skills gaps as their biggest barrier to growth.
Engineering is a particularly acute bottleneck. Without the engineers, scientists and technicians needed to deploy new technologies at scale, innovation cannot translate into growth. Innovation, industry and skills are inseparable, and the UK’s strategies for each must be aligned, López-Gómez concluded. Without that alignment, the gap between discovery and deployment will persist – and with it, the failure to convert research strength into durable global advantage.
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