Banks failing to support innovation

Posted on 5 Oct 2009 by The Manufacturer

The UK’s financial system is failing to support the most innovative manufacturing companies according to a survey published today by EEF, the manufacturers’ organisation.

The second annual Innovation Monitor, Creating the Playing Field, shows that manufacturers have continued to increase their investment in innovation despite the recession.

However, the survey also suggests that a lack of understanding in the financial sector of how and why manufacturers invest in innovation leaves better performing companies still struggling to access the bank finance they need.

EEF Director of Policy, Steve Radley, says that “although cash was the first casualty of the recession, most manufacturers actually increased their investment in innovation during the downturn. Over the past 12 months, manufacturers have focussed on improving their operations by investing in process, marketing and organisational changes. They have also worked more closely with their customers, suppliers and universities to make the most of scarce funds.

“Looking forward, these internal improvements have set up an increased focus on developing innovative products and services, leaving manufacturers well placed to capitalise on the expected recovery in global markets.”

Less encouragingly, EEF’s survey showed that two fifths of companies had found it more difficult to access bank finance in the last twelve months and none had found it easier. Successful innovators, however, were 40% more likely to have more difficulty accessing bank finance than companies that struggled to generate a return from their investments in innovation.

EEF’s report recommends that the various government mechanisms for supporting innovation be concentrated into a single financial vehicle with the express intention of supporting innovation. This would bring together the various schemes – the new regional venture capital funding, the Enterprise Capital Funds, the Innovation Investment Fund, the Grant for Research and Development and the regionally delivered proof of concept funding.

This vehicle could be under the auspices of a new Bank for Industry which the EEF has proposed. This would seek to make the most of taxpayers’ funds by drawing on experienced investors and industry professionals to provide a network of non-executive directors capable of supporting businesses on a formal or an informal basis.

Tim Brown