Innovation is key to the UK’s, and Europe’s future prosperity, and SMEs have a vital role to play in this.

That is why in July 2004 the government launched the ‘Ten Year Science and Innovation Investment Framework’. The development of a National Technology Strategy and its supporting funding programme was a key component of the framework document.

The £370m technology programme has now been in operation for 18 months and has already allocated £245m across 25 technology areas for collaborative R&D projects and knowledge transfer networks. In the autumn we announced funding of over £60m for a further eight new areas.

Our aim is to encourage business R&D. We have introduced a number of initiatives, including R&D tax credits for small and large companies, the DTI Grant for Research & Development, and the Small Business Research Initiative — which requires government departments with extramural R&D budgets to procure at least 2.5 per cent of their extramural R&D from SMEs each year.

We have already invested over £30m across England through the UK High Technology Fund, Regional Venture Capital Funds and Early Growth Funding. There has been a high level of interest from bidders for these funds, and they should be ready to start investing in high growth small businesses early next year.

The government has also taken steps to increase the contribution that universities make to the innovation process. The project, University Challenge, provides universities with seed corn funds; Science Enterprise Centres have provided access to entrepreneurial skills for science and engineering undergraduates and graduates; today 24,000 science and engineering students are receiving enterprise training.

And the Higher Education Innovation Fund provides incentives for universities to transfer knowledge to the economy.

But more action is still required to create the right climate for innovation in Europe and to make the EU an attractive place for business to invest in research.

We aim to ensure that the Seventh Framework Programme (FP7) — which will start at the beginning of 2007 and run for seven years — will stimulate such investment.

In the past, SMEs have found it difficult to participate in some aspects of the programme due to the level of bureaucracy associated with bidding into it. This has been a clear disincentive to participation. The incentives for SMEs to participate in the Framework programme have never been stronger. The programme offers an unrivalled opportunity for SMEs to gain stronger links with the European research community and to access finance.

Large firms have the resources to build networks of innovation partners, which SMEs lack, so it is essential that SMEs form partnerships with other companies and service providers to help them grow. Now is the time to start making contact with potential partners and formulating research ideas to be able to make the most of the opportunities on offer. This will ensure that UK SMEs achieve a level of participation in the Framework Programme that we can all be proud of.

Opportunities are there for SMEs to take advantage of. If you have ideas for turning products and services into world beating offerings there are programmes and services to help you.

Edited extracts of a speech given by Barry Gardiner, UK parliamentary under-secretary of state for competitiveness, at a briefing on European R&D opportunities for high technology SMEs.