Brexit means the end of UK SME innovation funds

EU funds which have been channeled into UK SME innovation will come to a grinding halt in 2021.
18 January 2019 | 17 Shares

Brexit means a few things, the end of SME innovation funds is one. Source: Shutterstock

The UK government’s Brexit plan was roundly voted off the table on Tuesday; Prime Minister Theresa May survived a vote of no confidence in parliament on Wednesday, and the nature of Britain’s exit from the European Union remains no more clear today.

For all the ambiguity surrounding the country’s self-extraction from the politics of its neighbors, there remain unmoving truths that we can be certain of when Brexit comes to pass.

One of those is the cessation of European Structural and Investment Funds (ESIF) by 2021; in particular, European Regional Development Funds (ERDF) and the initiatives— some 863 between 2014-2020— that these investments have borne.

ERDFs are funds allocated by the European Union. The goal is to transfer money from richer regions (not countries) and reinvest it into the infrastructure and services of less well-developed regions.

ERDF Growth Hubs

These funds— of which there are currently 38 in the UK— are frequently entrusted into the capable hands of Universities, whose various ‘growth hubs’ channel the funds into the development of local businesses. Effectively serving as incubators, these organizations will often match investments, provide access to facilities & equipment, as well as academic support & research.

Support for small and medium-sized enterprises (SMEs) sits high on the priority list across these initiatives, and the impact on local business as a result, particularly in tech, can be immeasurable, providing opportunities to fledgling startups across every industry that would otherwise be unfeasible.

“Our project exists to meet a market failure that exists at the local to regional level,” says Jonathon Clark, Business & Technology Manager at LCR Activate, a support and funding programme led by Liverpool John Moores University (LJMU) focused on driving growth among digital and creative businesses in the Liverpool City region.

“[…] that [failure] is those smaller businesses— SMEs— typically can’t access advanced technologies such as AI, VR, AR, because it’s cost-prohibitive […] whether that’s human resources, to research and developers to the physical equipment itself.”

LCR Activate, as one of many such growth hubs across the UK, boasts a vibrant and diverse portfolio of tech-based enterprises that have flourished as a combination of ERDF funding, and the monetary and technical support LJMU can offer alongside.

Just a handful of those businesses include marketing intelligence software company IQBlade; augmented reality (AR) app Aug-it!; a GPS-based event app called Hallhang; and digital consultancy Bluebird Support Services, among numerous others.

The rapidly-growing artificial intelligence (AI) sector and machine learning-led businesses, in particular, leverage both investment and access to university equipment. The latter is a massive advantage for these companies; crunching the vast amounts of data required for such programs requires dizzyingly-expensive, high-performance computing systems otherwise affordable only via the backing of venture capital investments.

The end of ERDF funding

For Clark, when funding comes to a halt in 2021, the effect of SME innovation slowdown may well be more pronounced in the North— including areas which are less economically-developed and SMEs are less competitive— given the nature of fund distribution in favor of less well-off regions.     

“You’ve only got to look at the number of high-tech start-ups in the North compared to London and the Southeast to see that there’s not as many up here,” Clark told TechHQ. “[…] on the whole, projects like LCR exist to try and address that balance through funding, through facilities and expertise.”

For this level of SME development to continue nationwide, there will need to be an alternative to replace the lost funding post-Brexit, warns Clark; Universities cannot offer the academic support, research costs, facilities and equipment “pro-bono”.

“SMEs locally can’t afford it, and if there isn’t going to be a government replacement fund for us then we’re going to have to look at how we can make it work in the future.”

In the affluent UK capital itself, however— regarded as the current European capital of tech— concerns are expressed in equal measure, if not more so, by Richard Howarth, senior marketing manager of London-based A2i.

A2i is an ERDF-backed growth hub focused on supporting the city’s aspiring low-carbon community, led by London South Bank University (LSBU). The hub represents the city’s largest higher education recipient of ERDF funding.

“Without the ERDF there would be no A2i at all,” Howarth told TechHQ.

“The combined commitment from LSBU and ERDF has allowed us to deliver workshops, consultancy,  and access to facilities that would normally cost thousands per day, all for free to eligible SMEs.”

While the level of support would still be available without this funding, says Howarth, it would be charged at “consultancy prices”: “The ERDF has democratized the access, allowing us to judge potential collaborators on their potential rather than their bank accounts.”

When this funding ceases, so will initiatives like A2i, and according to Howarth, all of its related projects would come casualty, including staff employed on them, who would likely be forced to seek alternative employment.

For the 77 ERDF-backed tenant businesses at LSBU alone, that could amount to hundreds of job losses and the winding down of businesses responsible for a combined £317 million (US$410 million) in revenue over the last five years.  

“It’s difficult to fully estimate the impact of the Brexit to projects and support of this nature, but there’s no doubt that the impact will be negative to both Universities, SMEs and our already worrying skills gap,” says Howarth. 

UK’s post-Brexit tech status

Aside from impacting SMEs and putting a damper on progressive business growth within some of the nation’s most economically-deprived regions, the combined result of all 38 such growth initiatives ending could have a profound effect on the country’s international status as a tech leader.

“If you look at the economic impact of somewhere like Silicon Valley in America, those companies generate such an economic impact which cascades and raises living standards,” says Clark. Indeed, losing footing in emerging technologies, such as AI, is a worry that markets outside the UK are frantically trying to address.

The German government, for example, just recently approved the spending of more than EUR3 billion (US$3.39 billion) to be invested in AI capabilities until 2025, as well as 100 professors to lecture on the subject in order to keep up with global superpowers. 

“Technology startups pride themselves on lean and agile management”, adds Howarth, “the UK is already short on skills in a number of areas and if the skills aren’t here, the support isn’t here, and the EU market isn’t frictionless, then they’ll simply move to where it is.”