UK at risk of becoming incubator economy, Lords committee warns

More joined-up thinking and clearer support is needed to fix the scale-up crisis in the UK, a House of Lords Committee has said.

Peers have urged the UK Government to “unravel the complex spaghetti of support schemes” holding back UK scale-ups or risk losing the country's “potential to be a powerhouse of growth for AI and creative tech companies”.

The Lords’ communications and digital committee has warned the UK is at risk of becoming an “incubator economy”, with tech entrepreneurs moving elsewhere to grow their businesses.

“Too often it’s a case of UK begins, other countries cash-in. That has to change.”, Baroness Stowell, chair of the committee said.

The report pointed out that key blockers for start-ups to evolve include limited access to funding compared to other nations, inadequate infrastructure, a shortage of in-demand tech talent, and a business and investment culture that can be “too risk averse”.

The news comes as fintech unicorns Revolut and Monzo, both of which have UK headquarters, are considering doing their stock launch in the US instead of the British market.

North of the border, companies are also facing a so called “valley of death” when trying to scale-up, with many going abroad to secure funding.

The Lord’s report has called for “urgent and targeted action” to ensure the government can deliver on its promise to make the UK "the best place to scale an AI business".

The report set out five key recommendations for the UK to retain its competitive edge in the industry.

These include speedy and long-term financial support to match with the pace of technological change, “robust political commitment” in deliver the government’s AI Opportunities Action Plan, “do more” to recognise entrepreneur’s work, and for the nation’s industrial strategy to “provide a coherent, cross-sector vision” on how scale-ups will be supported.

Baroness Stowell said: “The UK has some great advantages when it comes to AI and creative tech; a strong university sector undertaking groundbreaking research and generating commercial spinouts; and a proud tradition of world-leading creative industries.

“These sectors have the potential to deliver the fast-paced economic growth the government wants to achieve. But we have a real problem turning start-ups into scale-ups. Every UK unicorn that gallops overseas to list, or sells out to foreign investors, is a blow to UK PLC and our aspirations for growth.”

She added: “Various tax credits, British business bank funds and investment incentives combine to be so hard to navigate that companies have to employ consultants to advise them. We urgently need to simplify the help available and ensure it is set up to support our most innovative scaleups to grow, while also offering value for money to the taxpayer.”