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Fifth UK Innovation Report unveiled at pivotal moment for industrial strategy

Published on March 19th 2025

As the UK government advances its industrial strategy, the newly released UK Innovation Report 2025 provides a critical analysis of the nation’s innovation landscape, benchmarking the UK’s industrial sectors against global competitors.

Published by Cambridge Industrial Innovation Policy, the report presents crucial evidence regarding the country’s industrial strengths, challenges, and opportunities within a changing economic landscape. It offers an overview of the competitive position of major UK manufacturing sectors over the past decade, comparing their economic and innovation performance against those of other leading economies.

This year’s report arrives at a particularly significant moment, as the UK government has placed industrial strategy at the core of its growth agenda, emphasising investment, technology adoption, and high-growth sectors. The past year has also underscored the growing need for evidence-based industrial and innovation policymaking. Recent public consultations on industrial strategy, scale-up financing, and technology adoption highlighted the renewed need to enhance the evidence base available to policymakers.

As the demand for stronger evidence in industrial and innovation policymaking increases, the UK Innovation Report 2025 makes a timely contribution by offering new data, analyses, and perspectives to support evidence-based policy development.

“What the UK Innovation Report offers is a clear, accessible resource that helps cut through some of the noise and connect the dots between the vast amount of data found in multiple national and international databases. Ultimately, we want this report to be more than just a set of statistics – we want it to be a tool for national dialogue that helps inform industrial and innovation strategies.”

Dr. Carlos López-Gómez, Cambridge Industrial Innovation Policy..

Top 5 messages from the 2025 UK Innovation Report

1. A defining moment for the UK’s industrial competitiveness

The report highlights the significant shift in the world’s industrial centre of gravity since 2000. The G7 countries, including the UK, have seen their combined share of global manufacturing value added decline from 56% in 2000 to 33% in 2022. In contrast, China has emerged as the world’s leading industrial player, with its share rising dramatically from 6.4% in 2000 to 31% in 2022.
Worryingly, the UK’s share of global manufacturing value added fell from 3.1% in 2000 to 1.9% in 2022, while its share of global manufacturing exports more than halved, dropping from 3.7% to 1.5%.
More concerning is the UK’s loss of competitiveness in high-value-added industries. Over the past decade, the most significant declines in global export shares have occurred in historically strong sectors, including pharmaceuticals and other transport equipment, which covers aerospace, shipbuilding, and railway equipment. Additionally, the UK’s global market share in advanced industries fell from 4.4% in 2000 to 2.6% in 2020.

“Reversing the decline in the competitive position of UK industries must be at the heart of the Industrial Strategy. Growing competitive pressures should reinforce the sense of urgency while highlighting that the Industrial Strategy presents a historic opportunity to rebuild the strength of UK industries,” said report co-author Dr. Carlos López-Gómez, Cambridge Industrial Innovation Policy.

2. Manufacturing: receding but still vital

The report confirms that the share of manufacturing jobs in the UK has almost halved going from 13.4% to 7.2% in the last 20 years. Meanwhile, less well-paid sectors are employing a greater share of workers. In 2023, human health, wholesale and retail trade, and administrative and support services collectively employed more than a third of UK workers, yet their salaries were below the national median.
Despite this, the report evidences the critical role of manufacturing in raising the UK’s economic productivity. Manufacturing stands out as one of the sectors with the fastest productivity growth, with notable productivity gains in transport equipment, machinery, metal products, and automotive between 2010 and 2022.
The report also estimates the wider impact of manufacturing on the UK economy. Official statistics show that manufacturing accounted for 9.1% of the value added and 7.2% of the employment in 2023. However, the report estimates that manufacturing generates significant indirect economic and employment effects, accounting for around 15% of UK value added and employment.

“That’s why other economies are prioritising manufacturing. Let’s not forget that countries like Japan, Singapore, Korea and China, are all setting up targets of how much their manufacturing industries need to grow in order for them to be successful, wealthy and secure. We fail to grasp the vital but evolving role that manufacturing plays as part of any well-balanced economy at our own peril”, said report co-author Dr Jennifer Castañeda-Navarrete.

3. The UK: a leader in government support for business R&D

In 2021, the UK provided the highest level of government financial support for business R&D as a share of GDP among OECD countries, reaching 0.48% of GDP, more than double the OECD average. The majority of this support came in the form of R&D tax relief, which accounted for 0.33% of GDP, while only 0.15% of GDP was allocated through direct funding.
This trend reflects a broader shift seen across OECD countries, where there has been a significant change in the business R&D support policy mix over the past two decades. Most countries have moved away from direct funding instruments and have moved towards a greater reliance on R&D tax incentives. In 2021, R&D tax incentives accounted for approximately 58% of total government support for business R&D across OECD countries, compared to just 35% in 2006.

“In addition to increasing R&D expenditures, governments must carefully consider how their investments are allocated and which parts of the innovation chain they target. While governments remain the primary investors in fundamental discovery research, the key question for the UK is how to align its innovation support with the priority high-growth sectors identified in the Industrial Strategy,” said report co-author Dr. Michele Palladino, Cambridge Industrial Innovation Policy.

4. Industrial workforce: high tertiary educational attainment but persistent skills mismatches

In 2023, the UK workforce reported some of the highest levels of qualification and skills mismatches among OECD countries. A total of 37% of UK workers believed their qualifications exceeded the level required for their job, compared to the OECD average of 23%. Similarly, 34% of UK workers felt over-skilled for their current role, higher than the OECD average of 26%.
Despite having one of the highest tertiary education attainment rates, the UK has a lower share of workers with a vocational education and the technical skills needed in modern industries. In 2023, 60% of 25–34-year-olds in the UK held a university degree, compared to the OECD average of 48%. However, only 22% pursued vocational education, well below the OECD average of 31% and significantly lower than European peers such as France (41%), Germany (37%), and Italy (36%).
The share of UK graduates in engineering, manufacturing, and construction stood at just 9.3% in 2022, lagging behind the G7 average of 13.9%, with only the USA ranking lower at 6.9%.
The UK STEM workforce accounted for 28.7% of total employment in 2023. Over the past decade, the STEM workforce grew by 22%, outpacing the 11% growth across all occupations. Looking ahead, projections suggest that employment in STEM occupations could expand as much as 6% to 10% between 2023 and 2030, compared to 3% across all occupations.

“The UK’s high levels of educational attainment are not translating into an optimally skilled workforce. Addressing qualification mismatches and strengthening vocational and technical training will be critical to closing skills gaps in high-growth sectors and ensuring that the UK remains competitive in emerging technologies,” said report co-author Dr. David Leal-Ayala, Cambridge Industrial Innovation Policy.

5. The UK: a leading innovator in renewable energy technologies

Based on data from the International Energy Agency, the UK had the fourth-highest public research, development and demonstration (RD&D) expenditure on low-carbon renewable energy technologies between 2013 and 2023, below the USA, France and Japan.
At US$1.8 billion, the UK’s public RD&D budget in low-carbon and renewable energy technologies in 2023 was lower than Japan (US$2.9 billion), France (US$4 billion) and the USA (US$10.3 billion), but higher than Germany (US$1.5 billion) and Canada (US$1.4 billion).
Among low-carbon technologies, the highest public R&D expenditure in the UK in 2023 was on nuclear power technologies, followed by energy efficiency and renewables.

Key findings from the 2025 report:

The global share of manufacturing value added for G7 countries declined from 56% in 2000 to 33% in 2022. In contrast, China’s share surged from 6.4% to 31% over the same period.
In the last two decades, UK global manufacturing export shares decreased from 3.7% to 1.5%. In a selection of 10 advanced industries, the UK’s global market share decreased from 4.4% in 2000 to 2.6% in 2020 in value-added terms.
Manufacturing is the UK’s second-largest market sector by value added and the largest contributor to capital investment. Including its value chain, it represents around 15% of the UK economy.
At 2.77%, the UK’s research and development expenditure remains just above the OECD average but is still behind leading countries such as Korea, the USA and Germany.
Among OECD countries, the UK leads in total government financial support for business R&D as a share of GDP, relying heavily on R&D tax relief over direct funding.
In 2023 the UK remained a global leader per number of top R&D-investing companies, but its presence has nearly halved over the past decade.
The UK shows persistent skills and qualification mismatches: 37% of workers feel over-qualified while 34% believe they are over-skilled. Only 22% of young people in the UK have pursued vocational education, well below the OECD average (31%) and European peers like France (41%) and Germany (37%).
The UK has decoupled GDP growth from greenhouse-gas emissions, meeting its climate targets so far. However, future carbon budgets rely on deeper cuts in hard-to-decarbonise-sectors like transport, buildings, and agriculture.
The UK is a leading innovator in renewable energy technologies, ranking fourth in public R&D spending (2013–23) and seventh in environment-related patent applications (2010–21).