As the UK and EU resume their stop and start Brexit negotiations this week, serious worries remain over the prospect of a ‘No Deal’ departure.

Although we may have seen a few hopeful signs in recent weeks, many innovation-focused manufacturers are feeling a growing sense of anxiety about how the outcome of these talks could impact the sector.

UK manufacturing is already reeling from the impact of Covid-19. A new survey by South West Manufacturing Advisory Service and the Manufacturing Growth Programme reported that 62% of respondents are trading below pre-pandemic levels. More than a quarter expect it will take between one and five years to get back to normal.

One of the key tools that would support this return to normal is grant funding and its future is also directly affected by the outcome of the Brexit negotiations.

At present there are a range of available grants to help manufacturers accelerate the ambition and vision of their product portfolio including the EU’s Horizon programme.

Horizon 2020 (H2020), the current EU Framework Programme for Research and Innovation, is the largest to date and has been supported by nearly €80 billion of funding since its launch in 2014. It focuses on science, industrial leadership and societal challenges, with specific allocations of funding in each area. At the end of the year Horizon Europe, a successor programme supported by a further €80 billion, will go into effect until 2027.

H2020 has been a key mechanisms in providing funding for innovative UK manufacturers, but failure to secure to Brexit deal will mean British business will very likely need to look elsewhere for support.  While the UK Government may hope for the best in these negotiations, it must also prepare for the worst and consider an effective replacement to the current EU grant funding stream.

H2020 was primarily focused on SMEs employing under 250 people. To achieve impact and support the growth of these businesses, a new UK grant scheme would need to continue to focus on the novelty and/or uniqueness of any new technological developments; the wider impact of an innovation project in terms of jobs creation, its potential to generate growth, and its potential benefits to the environment and society.

Existing UK grant funding schemes, including Innovate UK, may be called upon to pick up any slack should a No Deal force our withdrawal from the Horizon programme. A further option is for regional bodies, which include Local Enterprise Partnerships (LEPs) in England, Scottish Enterprise, the Welsh Development Agency, and Invest Northern Ireland to be given funds and autonomy to provide grants to support innovative companies within their local areas. This could be an effective means of stimulating inward investment in less advantaged areas helping address the wealth gap in many regions across the UK.

Another new grant funding option could come via the UK Government’s ‘blue skies’ science and research agency, part of a series of pro-business measures designed to boost Britain’s competitive edge. Earlier this year an additional £800m of public funds was been pledged for this initiative, modelled on the USA’s Advanced Research Projects Agency (ARPA), to fund ‘high-risk, high reward science.’ The agency is part of plans to nearly double public investment in research and development to £22 billion per year by 2025 to help Britain become a world leading science and research centre.

To fulfil this vision, the UK Government will need to ensure it is imaginative in how it supports and incentivises manufacturing innovation.

This will include embracing elements of other effective grant funding programmes from elsewhere, such as Canada’s CanExport initiative. This programme provides grants to support Canadian companies with export marketing projects including participation in trade shows and government-led trade missions. By providing this additional funding for marketing-related activities – something neither UK or EU grants cover – innovative small and mid-sized Canadian businesses employing up to 500 people are able to de-risk export market evaluation and development costs and pursue international growth opportunities.

While currently on hold due to the pandemic, the programme has helped up to 1,000 businesses every year by supporting new export marketing strategies and could offer similar value here if rolled out in the UK.

It’s worth remembering it was the Canadian Government which pioneered R&D tax relief, an initiative which was successfully replicated in the UK. Since it was launched here in 2000, British manufacturers along with other businesses have been strongly incentivised to invest in research and development projects aimed at enhancing competitiveness and making them world class.

Securing an EU trade deal with the UK remaining within the Horizon programme would likely be the preferred outcome for the manufacturing sector. If that proves unachievable, we should look to Canada’s model in devising alternative grant funding arrangements to ensure British manufacturing can recover and ultimately thrive post-Brexit.

Joe Matusiak, Grants Manager at innovation funding specialists ABGI UK