The leader of Innovate UK has thrown his weight behind proposals to move the Government’s main innovation funding agency into the Department for Business, arguing that the change would strengthen support for companies and help accelerate economic growth.

Indro Mukerjee, chief executive of Innovate UK, said aligning the agency with the business department “very much makes sense” at a time when innovation policy and industrial strategy are increasingly intertwined. His comments come amid a wider Whitehall reorganisation aimed at joining up business support and simplifying the landscape for firms seeking public funding.

What is Innovate UK?

Innovate UK is the national innovation agency of the United Kingdom. It is a non-departmental public body that operates as part of UK Research and Innovation (UKRI), the umbrella body that distributes roughly £8 billion in public funding each year across research, innovation and knowledge exchange. Innovate UK specifically focuses on helping businesses translate ideas into commercially viable products and services.

Since its establishment in 2007 as the Technology Strategy Board — later rebranded as Innovate UK in 2014 — the agency has supported tens of thousands of companies, from early-stage startups to established manufacturers. It provides grants, loans and innovation competitions, as well as advisory support such as the Knowledge Transfer Network. Its portfolio spans sectors including clean energy, advanced manufacturing, health life sciences, artificial intelligence, and digital security.

The agency is currently overseen by the Department for Science, Innovation and Technology (DSIT), but its work is closely aligned with the Department for Business and Trade (DBT), which leads on industrial strategy, enterprise and trade policy. The current proposal, according to sources familiar with internal discussions, would integrate Innovate UK more formally into the business department’s responsibilities, though it would remain a distinct funding agency with its own leadership and governance.

The case for alignment

Speaking at a recent innovation conference, Mr Mukerjee reportedly told delegates that the shift “very much makes sense” given how many of Innovate UK’s customers are businesses that already interact with the business department. He argued that closer alignment would create a more coherent offer for UK firms, reducing the complexity of navigating multiple government bodies and ensuring that innovation funding is directed towards the sectors where the country has the greatest comparative advantage.

“Our mission is to make the UK the most innovative nation in the world,” Mr Mukerjee was quoted as saying. “That means working hand-in-glove with the very department that sets the rules of enterprise and supports companies to scale and export. The more we can operate as one team, the better for the businesses we serve.”

The endorsement comes as the Government sharpens its focus on economic growth. With productivity gains increasingly driven by innovation, ministers believe that breaking down barriers between research funding and business support is essential. Innovate UK has often been praised for its agility and close ties to industry, but critics have pointed to overlaps and gaps between its programmes and those run directly by other departments, such as the UK Export Finance, the British Business Bank, and sector-focused bodies like the Manufacturing and Materials Programme.

By moving Innovate UK into the business department, the Government could more easily align innovation grants with export support, inward investment offers, and skills programmes. That could make it simpler for a company to access a package of support rather than applying to several different agencies with different criteria and timelines.

Historical context and previous restructurings

Innovate UK has changed hands several times since its creation. It began as part of the Department for Innovation, Universities and Skills in 2007, then moved to the Department for Business, Innovation and Skills (BIS) in 2009, and later became part of UK Research and Innovation in 2018 under the then-Department for Business, Energy and Industrial Strategy (BEIS). After BEIS was abolished in 2023, UKRI found its sponsorship split: while the research councils were placed under DSIT, Innovate UK remained for a short period under BEIS’s successor, the Department for Science, Innovation and Technology, where it now resides.

Restructuring has been a recurring theme in innovation policy. Supporters of the latest proposal argue that the current arrangement creates too much distance between the agency and the levers of business policy. The business department is responsible for the Government’s industrial strategy, which places innovation at its core. In the 2024 Spring Budget, the Chancellor announced a £360 million package for new innovation and digital technologies, singling out Innovate UK as a key delivery partner. Integrating the agency more closely with the business department could help ensure that such funding flows are coordinated with broader economic priorities.

However, some researchers and academics have voiced caution. They worry that aligning Innovate UK too closely with short-term business needs could undermine its long-standing mission to fund high-risk, world-leading research that may not have immediate commercial payoffs. Innovate UK’s original ethos as a technology strategy body was to support “horizon” research with potentially transformative benefits, not just incremental product development. Maintaining a degree of independence, they argue, is vital to preserve the agency’s credibility and impartiality in deciding which projects to fund.

Industry reaction

Business groups have largely welcomed the idea, viewing it as a natural evolution. The Confederation of British Industry (CBI) said in a statement that “joining the dots between innovation and trade is exactly the kind of joined-up thinking the UK economy needs.” The Federation of Small Businesses also expressed support, noting that smaller businesses often find it confusing to know where to go for help. “We regularly hear from members that they are unaware of the support available to them. Any move that makes access to innovation funding simpler is a step in the right direction,” a spokesperson said.

Several tech entrepreneurs have also commented publicly, pointing to successful countries like Israel and Singapore, where innovation agencies sit closely with economic development ministries. They note that such an arrangement can speed up decision-making and make it easier for innovation policy to be shaped by the needs of industry rather than the concerns of the science establishment.

Yet the proposal is not without opponents. The Campaign for Science and Engineering (CaSE) has warned that any reorganisation must not lead to a reduction in funding or a loss of expertise. “We need to ensure that the civil servants who work with Innovate UK have deep knowledge of science and engineering, regardless of which department they sit under,” said a CaSE official. “The focus should be on the quality of the research, not just on how neat the organisational chart is.”

What might the move mean in practice?

If the proposal goes ahead, Innovate UK would likely continue to operate as a non-departmental public body, but its sponsoring department would change from DSIT to DBT. That would mean its chief executive reports to the Secretary of State for Business and Trade, and its funding allocations would be agreed through that department’s spending settlement. The day-to-day operations would remain the same, but there could be a significant cultural shift towards more business-facing metrics, such as job creation, exports generated, and private investment leveraged.

It is also possible that other innovation-related bodies, such as part of UKRI’s wider activities, could be affected. UKRI itself has recently undergone internal reorganisations to improve efficiency, including the creation of a single research council for the physical sciences and engineering. Innovation experts suggest that moving Innovate UK out of UKRI entirely would be a more radical step, potentially leading to clearer boundaries between academic research and business innovation. However, most indications point to Innovate UK remaining within the UKRI family, with its sponsorship transferred to the business department.

The timing of any change remains unclear. Given the scale of Whitehall restructuring and the need to secure parliamentary approval for certain changes, a formal announcement may be some months away. In the meantime, Mukerjee’s public endorsement is significant because it signals that the agency itself sees the benefits of a closer tie to the business department, rather than resisting the move as an unwelcome takeover.

The development also comes amid broader conversations about the future of industrial policy in the UK. With the Conservative Government’s “Plan for Britain” and the Labour Party’s proposed industrial strategy in the run-up to the next general election, both main political parties have emphasised the need for a sharper focus on economic growth. Innovation and technology are seen as key drivers, and whatever the outcome of the next election, it is likely that Innovate UK’s role will be scrutinised and potentially reshaped.

For businesses currently receiving Innovate UK support, the message is that there should be no immediate disruption. Existing grants and loans will be honoured, and the agency’s competitions will continue to run as scheduled. Yet the prospect of institutional change is already prompting conversations about how companies can position themselves to benefit from a future, more business-integrated innovation agency. In the mid-term, a successful move could lead to more tailored support for companies at different stages of their development, from initial proof of concept to scale-up and export.

Innovate UK’s budget, which is roughly £1 billion a year, is modest compared with the size of the UK economy, but it acts as a catalyst. For every pound of public money invested, the agency claims to generate around £5 of additional private investment. Closer alignment with the business department could enhance that multiplier effect by ensuring that innovation funding is directed to companies that are ready to grow and create high-value jobs. It could also improve coordination with other schemes, such as the R&D tax credit and the Enterprise Investment Scheme, making the overall incentive structure more cohesive.

There is also a political argument. The business department holds responsibility for negotiating free trade agreements and promoting outward investment. If innovating companies can be introduced to trade support earlier, they might be quicker to take advantage of new export opportunities. Similarly, the department’s work on deregulation could help remove barriers to the adoption of new technologies in sectors like construction, financial services, and transport. These are areas where Innovate UK projects have repeatedly identified constraints that limit the commercial rollout of credible innovations.

The exact wording of the proposed change has not been officially confirmed, and the Government has not yet issued a formal consultation. Rather, Mukerjee’s remarks are seen as an attempt to frame the debate in advance, highlighting the rational case for integration while attempting to pre-empt concerns from the research community. By coming out in favour early, he may be looking to shape the eventual design so that Innovate UK retains its distinctive identity while gaining new influence.

Another area to watch is how other parts of UKRI respond. UKRI’s nine research councils, which fund university-based research, have traditionally been aligned with the science department, and there is little appetite for moving them into the business department as well. A partial separation could therefore have implications for how basic research is linked to applied innovation. Some existing collaborative programmes, such as the Industrial Strategy Challenge Fund, were designed to bridge this divide. If Innovate UK is no longer under the same umbrella as the research councils, these bridges might need to be rebuilt in a different form.

Nevertheless, Mukerjee’s statement underlines the growing consensus that innovation cannot be viewed in isolation. It is intrinsically linked to the health of the business base, the functioning of capital markets, and the regulatory environment. The Business Department, with its wide-ranging responsibilities for companies, markets and economic growth, arguably provides a more natural home for an agency whose users are overwhelmingly businesses rather than university scientists. As he reportedly told his audience, the move would help “make sure that we are not an island but part of a broader mission to make Britain the birthplace of the next wave of high-growth industries.”

Whether the rest of the Government agrees, and whether the politics of Whitehall allow a smooth transfer, are questions that will be answered in the coming months. For now, the debate has moved from whether Innovate UK should remain under the science department to how best to manage the transition and what safeguards are needed to maintain the agency’s ability to take risks on novel ideas. The implicit support of Innovate UK’s own boss is a powerful signal that change is not only likely but perhaps desired from within.

Source: UKTN News