SMEs – making up 99% of the UK’s businesses – are a crucial part of the UK economy and a critical driver of regional prosperity, being more likely to recruit local candidates and maintain local supply chains.

Small business owners, however, are rarely catalysts for innovation and new processes to drive productivity. Although the private sector funded 59% (£38.7 billion) of all UK R&D in 2021, this was entirely driven by large firms, with AstraZeneca spending more (£6.1 billion) than all higher education institutions combined (£5.6 billion).

One reason for this is that SMEs typically don’t have the money to invest in their own R&D facilities and it can prove challenging for them to access the facilities and expertise within universities. As a result, publicly-funded innovation programmes, which support HEIs to seek our collaborations with local SMEs, can make valuable contributions to local economic growth.

As NCUB has pointed out, the proportion of businesses engaged in ‘growth-related behaviours’ including innovation actually declined between 2019 and 2022. The Covid-19 pandemic is one obvious contributor, though another factor is likely the ending of business innovation programmes funded through the European Regional Development Fund (ERDF).

Between 2014 and 2022, my institution, London South Bank University (LSBU) was the largest ERDF funded HE provider of business innovation support programmes in London. Across seven programmes, valued at over £15 million, the university supported 740 SMEs – in a range of sectors including health tech, low carbon and creative tech.

Under the replacement UK Shared Prosperity Fund (Pillar 2 of which is Supporting Local Business), LSBU submitted two successful bids with other delivery partners, to provide innovation and inclusive supply chain support to 226 SMEs with £1.75 million funding. The reduced scale of this work is a reflection of the much smaller size of funding available through UKSPF compared to European Structural Funds. London’s UKSPF allocation between 2022 and 2024 is £144 million, around 40% less than would have been received over a comparable period under ERDF.

European Union structural funds were worth a total of €11bn to the UK over the 2014–20 EU budget cycle (£1.5 billion a year). While the Government has committed to matching this (though allocation for the first two years equals £1.3 billion a year), the shared prosperity fund supports a far greater number of objectives than ERDF – with up to a third of the funds going to Communities and Place (Pillar 1) projects such as improving local green spaces, which will inevitably reduce the funding available for supporting businesses. Given the funding pressures local authorities are facing – there is also a high risk they will deprioritise innovation support in order to use UKSPF to help prop up their core services.

ERDF provided a route for smaller businesses to work with their local universities on taking an idea for a new product and process through development and testing to the point where it could be rolled out and/or commercialised. Over the course of our ERDF funding, LSBU supported over 250 new products being brought to market, which in turn created over 140 new jobs.

The policies around supporting regional economic growth have gone through considerable flux over the over the last decade but the fact remains that the UK has some of the deepest productivity and spatial inequalities among OECD countries. ‘Economic Growth’ is one of the Labour Party’s five missions for Government and while this includes a commitment to help small business it has no mention of innovation. If Labour wants to avoid another lost decade of languishing productivity, then it must invest in enabling SMEs to innovate and grow. One of the best ways they could do this is by ringfencing spending for Pillar 2 within UKSPF and ensuring that the funding is increased to bring it to comparable levels to ERDF.