The Autumn Budget signals a shift in the government’s approach to innovation. Rather than changing incentives, it is becoming more selective about where public money goes. The UK has a strong research base, but ranks just 15th for knowledge diffusion. In response, the government is concentrating funding where it believes it can have the greatest impact. 

UK Research and Innovation (UKRI) will invest £1 billion over four years in priority innovation clusters around the country, with further investment in regional infrastructure and three public-private life sciences projects worth over £1 billion. This supports the government’s ambition to deliver “good growth in every postcode.”  

Artificial intelligence (AI) is the largest new area of investment, with over £700 million for security, adoption, sovereign capability and infrastructure. Government procurement is also being used to create early customers for innovative firms, including an extra £80 million for Sovereign AI’s R&D procurement scheme and a £138 million quantum sensing procurement catalyst. 

The government has also recognised that the R&D tax credits scheme has become overly burdensome on claimants and has set out plans to improve how it operates. Below, we explore the key takeaways from Budget.

R&D Tax Credits 

The government has confirmed that it views the current operation of the R&D tax credit scheme as overly complicated. The Budget confirmed that the R&D Claim Notification Form (CNF) will be removed for claims made on or after 1 April 2027. This means that businesses will no longer need to tell HMRC within six months of the year end that they intend to make a claim.  

This is a welcome simplification, as many businesses were missing the notification requirement because it did not align with other tax deadlines. However, until the change takes effect, the requirement remains in place, so claimants and agents must continue to pre-notify.  

HMRC has also confirmed it will look at rationalising the Additional Information Form (AIF) from autumn 2027. It plans to reduce duplication and improve the information requested about contracting and externally provided workers. A wider review of the claims process is anticipated, along with a call for views on simplifying the legislation. Areas likely to feature include the R&D intensity ratio, the PAYE cap, and the going concern test.  

If you claim R&D tax relief, now is a good time to plan for the new process and consider sharing your experience with HMRC.  

 Funding is heading to clusters and regions 

The government wants the UK’s research strengths to translate into economic growth across the country, rather than remain concentrated in the London, Oxford and Cambridge triangle. The Budget acknowledges that the UK is strong at generating ideas, but less effective at spreading and scaling them.  

UKRI will invest £1 billion over four years in priority innovation clusters, while greater control over funding will  move to local leaders from 2028. This is supported by major infrastructure commitments, including £424 million for the John Innes Centre and Sainsbury Laboratory and more than £85 million for the Offshore Renewable Energy Catapult.  

Commercialisation received a smaller £16 million allocation for proof-of-concept funding. Meanwhile, three public-private life sciences investments total more than £1 billion, backed by almost £70 million in grant funding. These include a Convatec R&D hub in Manchester, worth over £500 million and a Vertex facility in Oxford, worth over £300 million. 

AI takes the largest share of new spending 

The government estimates that artificial intelligence (AI) could add between 0.4% and 1.3% to annual UK productivity growth over the next decade, but reaching the higher end will depend on how quickly businesses adopt it.  

The Budget puts significant funding behind this ambition, with more than £700 million committed to AI, making it the largest new area of innovation spending. Around £500 million is focused on security and sovereign capability, including an additional £120 million for the AI Security Institute and a new £40 million National Agentic Security Unit.  

Further investment supports AI adoption, hardware and strategic data centres, alongside an additional £60 million for the Sovereign AI Fund and a greater focus on physical and industrial AI. For AI-led businesses, these are the areas where the strongest new funding opportunities are emerging.  

Government is becoming a customer for innovation 

We have seen previous initiatives designed to encourage public procurement from SMEs and innovative businesses, but government procurement has often remained cautious about working with newer, less established suppliers.  

The Budget sets out another attempt to overcome this reluctance, using procurement to help innovative firms secure their first major contracts. This includes an extra £80 million for Sovereign AI’s R&D procurement scheme and a £138 million quantum sensing procurement catalyst, building on an earlier £1 billion commitment to quantum computing. 

Overall, the Government is signalling a clear commitment to backing UK innovation. While many SMEs may have hoped for greater direct support, the Budget recognises some of the pain points faced by innovative businesses and sets out measures to address them.  

It also takes a longer-term view, aiming to spread innovation-led growth more widely across the UK while backing AI as a driver of productivity. Much will depend on how these measures are implemented, but they provide a clearer indication of where government support and investment will be focused.

How we can help 

If you are unsure what the Budget changes mean for your R&D tax relief claim or your wider innovation plans, our R&D experts can help. Fill out the form below to speak to a member of our team.