The Contribution of Innovate UK to UK Firm Performance: The Effects of Innovate UK Funding on Firm-Level Total Factor Productivity

Innovate UK (IUK) is the UK’s innovation agency and aims to promote higher levels of innovation in the economy which in turn should lead to higher growth, competitiveness and productivity. One of its major contributions is to lower the user cost of innovation capital through the provision of grants to firms to develop innovative products and services.

A major 2024 evaluation (Cowling, Wilson, Kacer, and Zouari, 2025) showed that Innovate UK funded firms recorded 21% more patents than comparable peers, 16% more innovations, and 50% higher patent-portfolio value . They also grew faster in assets, employment and turnover, and were modestly more successful in attracting equity finance. The effects accumulated over time and continued to build across the four-year post-funding window used in the main analysis.

This left a final key question unresolved: Does Innovate UK grant funding also increase firm level productivity? There is also an important second question of when the productivity gains occur, if they occur at all?

Using a sample of more than 14,000 Innovate UK funded companies matched to non-recipient controls drawn from the population of UK limited companies, we extend the observation window to twelve years after funding which is way beyond traditional evaluations. Second, we refine our TFP measurement by estimating separate production functions for each industry sector, rather than imposing a single economy-wide production function. This allows the elasticities of capital and labour to differ across distinct production technologies.

The central result of this follow-up study is that Innovate UK funding is associated with higher firm-level TFP, but only after a substantial lag. Extending the observation window to twelve years, and measuring TFP from industry-specific production functions, reveals a productivity effect that is absent in the short run, emerges from around the sixth year after funding, and is then sustained at economically meaningful magnitudes of roughly 5% to 9% for several years.

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