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Brexit and Business Innovation Funding

Clearview Intelligence is well established as a market innovator and we recognise the commercial importance of continuous investment in research and development (R&D). For a business to innovate in products, services and processes, it has to continuously reinvest in R&D. Sometimes, the associated risks are too great for an SME to pursue new ideas without external investment, or the project needs expert knowledge or other resources to which the SME does not readily have access.

This is where EU funding schemes can add value by providing grants for businesses and facilitating cross-boundary collaboration between industry and academia, leading to shared knowledge, resources, and infrastructure, and improving overall economic prosperity.

So what is currently available?

According to the European Commission, organisations in the UK received close to €7 billion through the main EU FP7 funding programme between 2007-2013. This equates to approximately £730 million per year (allowing for the exchange rate), which represents a 15.5% boost to the UK funding pot for R&D (based on the UK science budget for 2015/16 of almost £4.7 billion).

In terms of SME participation, UK businesses received some €400m in EU funding throughout FP71 representing a share of total SME contribution of 13% (second only to Germany with 19%). The successor to FP7 is the Horizon 2020 (H2020) framework. Although it was only introduced in 2014, Horizon 2020 has already benefited close to 1,000 businesses and research institutions across the EU, with more than 100 of them in the UK.

H2020 launched a dedicated SME instrument with a budget of approximately €3 billion. It helps high-potential SMEs to develop groundbreaking innovative ideas for products, services or processes. Any SME can apply provided their project offers sustainable, added-value, transnational projects.

Post-referendum, what are the potential implications on EU grant funding for UK SMEs?

The question is two-fold: whether UK businesses will still qualify as partners in EU funding programmes in the future; and, if not, whether the UK Government will bridge any funding gap directly in order to allow R&D in the UK to continue to evolve at the same pace.

The first question has already been answered in the short-term as it was announced this week that all existing H2020 grant agreements, and any new grant agreements entered into whilst the UK remains a Member State, will be honoured in full.

However, beyond this, the situation is difficult to predict.

Even if the UK Government commits to increase domestic contributions towards R&D, it cannot easily replicate the important international collaborations, and the pooling of resources and infrastructure, that the UK needs in order to remain at the forefront of research on a global scale.

Funding R&D directly through a national budget will likely mean a restriction in the size of investment and cross-border collaboration. In larger, multi-national projects, bureaucracy would increase as applicants would need to apply separately to their respective Member States, rather than as a single consortium.

So what options might be considered in the longer term?

Whilst non-EU (Associate) Member States can participate in H2020, they have to meet strict criteria on crucial issues such as free movement of people. Additionally, whilst Associate Members do not have any role in developing EU rules for funding programmes, they are still expected to contribute to the funding pot based on their GDP and population.

Indeed, the UK may have to pay more than its current contribution to the programme and/or accept limited involvement, due to its size, as it will no longer be a net contributor investing into less competitive regions

Switzerland is often cited as an example of how the UK may interact with EU funding programmes in the future. Although not a member of the European Economic Area (EEA), it has access to EU funding schemes as a member of the European Free Trade Association (EFTA) with more than 120 sectoral bilateral treaties with the EU. These incorporate largely the same provisions as those adopted by EEA countries and cover free movement of people, goods, services and capital.

Crucially, following the 2014 Swiss referendum, which voted in favour of limiting mass-immigration, the EU suspended Switzerland’s Associate Country status and downgraded it to that of Partial Associate for review by the end of 2016. This reinforces the fact that the EU is unlikely to grant the UK access to the single market without it being in tandem with accepting free movement of people.

Examples have been cited of Turkey and Israel being able to access H2020 funding without free movement of people, but their existing relations with the EU are markedly different to where the UK now finds itself and they cannot be readily used as case studies on which to base a prediction for the UK.

Whatever option is eventually negotiated with the EU, we hope that the importance of R&D support for UK based SMEs is prioritised and that opportunities for international collaboration continue to be encouraged and facilitated in order to maintain the UK’s reputation as a leading science, innovation and R&D nation.

Finally, it is worth noting that the pain is not going to be completely one-sided. Ultimately, the EU risks losing one of its top ranking R&D powers at the same time as the single market shrinks. That means the focus of R&D policy must shift from internal development to broadening cross-boundary opportunities which may provide exciting new opportunities for networking programmes. So there is impetus on both sides to find a mutually agreeable solution.

1Source: Table 3 of the monitoring report, SME Participation in FP7, June 2013, EC DG RTD.

Author: Shona W |Date Published: July 2016

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