Wales is facing a deepening innovation crisis, with the number of businesses actively innovating falling sharply and now ranking last among all UK nations and regions, according to the latest UK Innovation Survey.
Sharp decline in innovation-active businesses
In 2018-20, 43.5% of Welsh businesses were classified as innovation-active, close to the UK average of 44.9%. By 2022-24, that proportion had crashed to just 27.7%, while the UK average fell to 34%. Wales now lags behind every English region, Scotland (29.4%), and Northern Ireland (30.3%).
This decline is particularly worrying for an economy that has long struggled with productivity. Innovation is a key driver of productivity, encompassing not just patents and research labs but also new ways of working, better technology, improved management systems, and more efficient processes.
Core innovation activities weakening
The survey reveals that investment in core innovation activities such as computer software, hardware, and internal R&D has fallen across the UK between 2018-20 and 2022-24. These are foundational elements of modern productivity, and their decline hits Welsh firms especially hard as they are already less likely to be innovation-active.
Larger firms are more likely to innovate: 47% of large UK businesses were innovation-active in 2022-24, compared with 34% of SMEs. Wales has a business base dominated by small and medium-sized enterprises and fewer large private-sector headquarters, making the innovation challenge even steeper.
Barriers to innovation
Among broader innovators, 21.6% identified the cost of finance as a barrier, 20.3% cited availability of finance, and 19.6% said the direct cost of innovation was too high. This raises questions about the role of the Development Bank of Wales in addressing these funding gaps.
Technology adoption is another critical area. Broader innovators are far more likely to use artificial intelligence, CRM systems, ERP software, and project management tools. For many Welsh firms, the biggest productivity gains may come from better use of everyday technology rather than breakthrough inventions.
Export performance linked to innovation
The survey also shows a strong link between innovation and exporting. In 2024, 28.3% of broader innovators exported, compared with only 9.2% of non-broader innovators. Among SMEs, the figures were 27.6% versus 8.9%. Innovation and exporting reinforce each other, and Wales needs more firms competing in wider markets to build prosperity.
Dylan Jones-Evans, the author of the report, warns that the findings should be a wake-up call. Six years ago, Wales was close to the UK average; now it is clearly behind and falling faster. Innovation must become central to economic policy, not just a slogan.
There is no easy route from a low-innovation economy to a high-productivity one, but if Wales wants higher wages, stronger firms, and a more resilient economy, these findings cannot be ignored.
