Spending Review 2025: Long-term uplift for UK innovation and R&D

For ambitious SMEs, this marks a renewed focus on long-term growth – through research, technology, and the development of high-value sectors. Public investment is being positioned not just as a stimulus, but as a catalyst for unlocking private capital, creating skilled jobs, and solving big societal challenges.

Here’s what’s on the table:

• £22bn a year for R&D – the highest level ever committed, offering long-term certainty for innovators
• £2bn for AI – supporting the modernisation of public services and commercial application of cutting-edge technology
• £25.6bn in scale-up finance – addressing the growth capital gap through an expanded British Business Bank
• £30bn for nuclear and £2.5bn for carbon capture – underlining long-term commitment to energy security and green technology
• £1.2bn for apprenticeships – investing in the future skills that will power innovation

It’s a clear signal that the UK is backing tech, talent and transformative ideas – and innovative businesses of all sizes have a key role to play in turning this investment into lasting economic impact.

Here’s what SMEs need to know:

Key sectors and priorities

The Spending Review placed innovation at the heart of future growth, identifying eight core sectors for support in the forthcoming modern Industrial Strategy, due later this month:

• Advanced manufacturing
• Clean energy industries
• Creative industries
• Defence
• Digital and emerging technologies
• Financial services
• Life sciences
• Professional and business services

Across these sectors, government R&D investment will be used to unlock commercial opportunities, attract private capital, and deliver long-term economic benefits, estimated at £7 for every £1 spent.

This strategic focus aligns with some of the most globally competitive industries, but it’s also a clear signpost for where R&D grant competitions and support are likely to be targeted in the coming years.

Defence and dual-use innovation

The defence sector was one of the major winners. From 2027, defence spending will rise to 2.6% of GDP, with a longer-term goal of reaching 3%. Crucially, this investment will be innovation-led:

• 10% of the Ministry of Defence’s equipment budget will be protected for the development and pull-through of new technologies
• A new UK Defence Innovation unit will be established with £400 million annually from 2025–26 to fast-track innovation to frontline use, offering opportunities for SMEs in deep tech, materials, AI, and cyber

Public sector innovation and health

Public services will see sustained investment, with real-terms growth averaging 3.0% per year. This includes funding to improve health outcomes and infrastructure, with innovation playing a central role in diagnostics, digital health, and preventative care.

Major investment in AI, science and innovation

Several major announcements signal the UK’s intent to lead in science and emerging technologies:

• £2 billion for artificial intelligence from 2026–27 to 2029–30
• £500 million for a new R&D Missions Accelerator Programme, expected to crowd in an additional £1.5 billion of private investment
• £22.6 billion per year committed to R&D by 2029–30, including continued support for UK Research and Innovation aligned with the forthcoming modern Industrial Strategy plus ongoing association with Horizon Europe, ensuring UK researchers stay globally connected.

Boosting access to capital and finance

To support the innovation ecosystem, the British Business Bank’s capacity has been increased by two-thirds to £25.6 billion, providing greater access to growth finance for scaling businesses and spinouts.

Regional growth and levelling-up

Regional funding will also play a major role:

• £240 million through the Growth Mission Fund will target economic growth in the North and the Midlands
• Place-based R&D initiatives and local innovation partnerships are expected to be key to levelling up regional economies
• SMEs can also access bilateral R&D grant opportunities with global trade partners such as Canada, the US, India and the EU

Funding mechanisms to watch

To deliver these ambitions, several familiar funding routes are expected to feature prominently:

Contracts for Innovation

Previously known as SBRI, this route enables innovative SMEs to work directly with the public sector. Current competitions focus on net zero, air quality, and active lifestyles. Find open competitions for Contracts for Innovation on our Grant Finder.

Thematic competitions

Expect continued sector-based funding aligned with the industrial strategy. Defra-backed agritech grants, via the Farming Innovation Programme, remain a key opportunity for food, sustainability and land-use innovations.

Place-based support

Grants tied to regional priorities will increase, particularly in the North and Midlands. There’s also a strong international focus, with funding now open for collaborative UK–Canada semiconductor R&D projects.

Beyond the headlines: additional insights you should know

While the R&D investment uplift takes the spotlight, there are several other developments relevant to innovative SMEs:

• Procurement reform: Government departments will be encouraged to favour SME-led contracts, with simplified application processes and new innovation hubs to speed up project delivery.
• Skills and talent investment: £1.2 billion annually will be invested in apprenticeships and training, particularly in digital, health and green sectors.
• Defence innovation: MoD procurement cycles will be shortened, and a new defence marketplace launched — opening the door for SMEs to fast-track new technologies into frontline service.
• Energy cost relief still unclear: No new announcements were made, but support may come via the Industrial Strategy.
• Digital adoption support: Expect further expansion of schemes like Made Smarter, particularly for SMEs improving manufacturing efficiency or adopting AI tools.

Advice for SMEs: where to focus now

To help businesses make the most of this policy momentum, here’s where we recommend turning attention in the months ahead:

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The message is clear – now it’s time to act

The Spending Review sends a strong message: the UK is backing innovation as a central driver of growth. For ambitious businesses, the opportunity is clear. But making the most of it will require more than intent. It’s about access, readiness and strategic alignment.

At Kene, we see this as a pivotal moment – not just for funding, but for confidence. Long-term thinking, collaboration, and bold ideas are essential if we want to convert this investment into real-world outcomes.

Explore live opportunities using our Grant Finder tool, or follow us on LinkedIn for the latest insights.