WIREDGOV

techUK’s Digital Economy blog series where we deep dive into defining trends across the tech sector.

Both the Conservative and Labour party have bet on backing high-growth firms to deliver growth for the UK economy. The Chancellor, Jeremy Hunt has bet on creating the next $1 trillion ‘British Microsoft’, a homegrown tech giant to rival Microsoft. Shadow Chancellor Rachel Reeves has set the stall to make Britain the best place to start and grow a business through Labour’s ‘Start-up, Scale-up review’. No surprise, given the US’ largest seven tech companies (or the so-called ‘Magnificent 7’) have more financial power than almost every G20 country.

In a recent interview with the FT, the Chancellor recalled “What’s my yardstick of success? I’d like to see a British Alphabet, I’d like to see a British Microsoft,”. Further insisting it’s not too late for the UK to build tech groups as big as US giants.

Ultimately, the UK’s public markets are not delivering growth, and a sweep of high growth companies have decided to quit the FTSE 100 in favour of listings elsewhere. This is a risk to the UK’s competitiveness and reputation as an attractive place to invest.

While building the next global tech giant will be a long-term ambition the UK has an immediate opportunity if it can support our scale-ups. The UK has become the scale-up capital of Europe with over 150 tech unicorns created. However, while we can achieve scale there are barriers to these companies going on to become global champions.

Fixing these barriers could allow us to create large tech companies with economy wide benefits, creating supply chains that could support sustained increases in economic growth and living standards. So how might we achieve this?

The key question to asks is how scale-ups are unique to firms at other stages of growth, and the tailored support they need to scale, and then, stay in the UK.

First, scale-ups are fast growing businesses. Following the OECD, scale-ups are companies who have grown their revenue more than 20% per year for at least three years. Just a few stats highlight this. A key barrier therefore largely revolves around the speed of decisions from the Government.

When making decisions around investments and innovation, scale-ups must be able to easily, and quickly, navigate increasingly complex policy and regulatory environment. When researching our UK Tech Plan members highlighted unclear regulation as one of the main hesitations for building an investment case for the UK. One way of supporting this, a periodic bulleting setting out key regulatory changes planned for the next two years. This would be similar to the Regulatory Initiatives Grid provided to the financial services industry

Second, these firms are proven ‘innovators’ that develop solutions to tackle societal and economic challenges – whether that’s driving efficiencies for the NHS, helping to tackle crime or supporting the net zero transition. But to continue supporting the UK economy and society, need a continued proactive offer from the government.

A cross section of techUK scale-up members demonstrates their innovation and impact. Pragmatic Semiconductors are revolutionising the semiconductor fabrication with ultra-low-cost and flexible integrated circuit technology making it quick and easy to embed intelligence anywhere. Enbiosis Biotechnology are using AI to provide gut health solutions and support the health of the nation.

Making headline news a few weeks ago, techUK member Wayve AI received $1.05 billion investment from the Government. techUK were pleased to see commitment from the government to back WayveAI’s high-growth potential. Especially given their leading role in the autonomous vehicle market, providing autonomous driving technology based on end-to-end AI.

Recently, the government has taken on board our recommendations for a better support package. In January, the Secretary of State Michelle Donelan launched initiatives ranging from a support service, policy sprint and scale-up forum.

Pressing ahead, the government have launched a Scale-Up Policy Group (nee Forum) to help co-design new business policies. techUK’s CEO Julian David is a part of this Group. Hopes are also on the pilot tech and science scale-up support service involving 20 promising scale-ups to deliver a step change is support. This aims to provide genuine feedback loops between firms and the heart of government, along with advocacy demonstrating value of scale-ups. techUK will continue working closely with the government to ensure delivery of support.

Third, scale-ups are operating in a tough economic environment. The resilience of the UK’s scale-up ecosystem has been tested by geopolitical dynamics and continued inflationary pressures and a wider environment of ongoing stagnation in productivity. So, structural barriers to growth in the UK economy must be addressed in the hopes of leveraging the scale-up opportunity.

Key to this, unlock capital and finance.

Announced in the Autumn Statement 2023, the ongoing implementation of the Mansion House Reforms includes a series of changes to private pensions aimed at maximising their effectiveness in unlocking institutional investment. The LIFTs Programme and the Growth Fund, both designed to catalyse investment in UK science and technology and stimulate the UK's venture capital ecosystem., should be deployed at pace.

Leveraging the role the British Business Bank is vital. Following the recommendations of Lord Harrington’s Review of FDI, the Office for Investment should build on its current successes and collaborate with the British Business Bank and UK Infrastructure Bank. This could help investors navigate the financing options available through UK policy banks. Alongside this, create a more targeted and proactive approach for investors by providing a clearly communicated toolkit.

To drive more institutional investment into UK start-ups and scale-ups, the Venture Capital Trust (VCT) scheme should be permanent, and Seed Enterprise Investment (SEIS) should be reformed. By raising the cap for both investors and start-ups. The period under which businesses can claim SEIS should be extended from two to three years, enabling more scale ups to take advantage of the scheme.

Ultimately, the right foundations need to be in place, across the whole of the UK, for scale-ups (let’s not forget, scale-ups tend to be concentrated in London, with nearly a quarter based in the capital). This includes the infrastructure, access to talent and attract UK listing rules (whilst not harming the UK’s reputation as a financial centre). Only then can Britain have hopes of creating the next trillion-dollar tech firm.

To leave you with one stat, techUK analysis on Data City estimates an average headcount growth rate of 36.6% for our identified scale-up members and the potential to reach over £2bn in turnover in the near future. The growth potential to become giant tech players is clear.

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