A new report launched today by The Future Governance Forum (FGF) has highlighted the barriers that prevent promising UK tech firms from scaling up and contributing to a thriving national economy. With the new government having made raising the country’s anaemic growth rate its number one mission, and with international competition for leadership in technological advancements heating up, the paper makes a number of urgent recommendations to UK policymakers.
The latest research from the independent think tank has been conducted in partnership with industry bodies BVCA, which represents the private equity and venture capital sector, and Boardwave, a community of almost 2,000 software CEOs and investors. The report addresses the key contributing factors that mean, while the UK has a thriving start-up culture, British firms take almost twice as long to scale from £10 million to £100 million in revenue as their US counterparts.
Although scale-ups make up just 1% of UK SMEs, the sector generates 22% of SME turnover (£497 billion). Given this outsized contribution, the government’s growth agenda risks being derailed unless the “stubborn obstacles” hindering UK scale-ups are addressed, according to the findings of Charlotte Holloway, FGF Policy Associate and the author of the new report: Rebuilding the Nation 04: A Mountain to Scale. These obstacles include a funding gap estimated to be as much as £15bn a year, significant regional imbalances (with more people employed by scale-ups in the South East than the rest of England combined), and a shortage of skills, especially in emerging technologies (with only one in five UK businesses saying they have a strong understanding of how AI could benefit their operations).
Failing to address these barriers could see high-potential firms relocate overseas, draining the economy of jobs, innovation, and intellectual property, and costing the UK billions. The UK is already a net exporter of entrepreneurs, and stemming that flow will be critical to the success of both individual firms and the economy as a whole.
Drawing on a series of expert interviews from experts and industry insiders, the report calls on the government to:
- Channel more institutional investment into scale-ups in all corners of the UK, via the pension ‘megafunds’ announced by the Chancellor last month and the new British Growth Partnership
- Extend existing enterprise investment schemes with a new Scale-Up Investment Scheme to support larger, faster-growing firms
- Introduce a public procurement target for scale-ups to secure government contracts, starting at 5% and rising to 10% over time
- Build a ‘Scale-up Duty’ into regional Local Growth Plans, so Mayors and local leaders develop industrial policy in their areas with scale-up success in mind
- Prioritise AI and digital upskilling within the new Growth and Skills Levy, and expand the Flexible AI Upskilling Fund
- Establish a National Scale-Up Leadership Network to provide mentoring, professional development and peer-to-peer learning initiatives for scale-up leaders.
If policymakers act on these recommendations, they can convert the UK’s start-up credentials into lasting scale-up success, boosting productivity and with it the sustainable economic growth that the new government has made its defining mission.
Michael Moore, Chief Executive, BVCA, said: “The UK’s scale-ups already make an outsized contribution to the wider economy. However, firms continue to find fundraising challenging, especially from domestic sources. The creation of pension ‘mega-funds’ creates the opportunity to significantly increase domestic investment into some of the UKs most ambitious firms, which will be good news for growing businesses and pension savers who will benefit from improved returns.”
Phill Robinson, CEO and Co-Founder, Boardwave, said: “Fixing the foundations of our economy for the future must include supporting our most ambitious and exciting tech businesses to flourish. We need to see policies that both deliver long term stability and certainty, and enable fast moving software businesses to invest and grow in the UK. The Government has an opportunity to foster a thriving ecosystem of high growth UK-based businesses that will create new jobs, drive innovation and boost productivity throughout the country. If we can get this right, the UK can be the leading place in Europe and the world to incubate the next generation of global software leaders.”
Charlotte Holloway, Policy Associate at The Future Governance Forum and author of Rebuilding the Nation 04: A mountain to scale, said: “By removing barriers and giving scale-up firms the conditions to soar, we have the chance to turbocharge our economy, create jobs, and put the UK at the heart of the global tech revolution. In doing so, the Government can reap huge benefits which can power real progress across its missions and milestones. This is a critical moment, and we can’t afford to miss it. FGF’s report outlines an ambitious yet achievable blueprint for the government to unleash a tidal wave of scale-up potential, drive prosperity and ensure that the UK remains at the forefront of global innovation.”
