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30 May 2024

How could Britain build the next tech giants?

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

Both the Conservative and Labour party have set their sights on backing high-growth firms to deliver growth for the UK economy.

The Chancellor, Jeremy Hunt has said he wants to see the UK build the next $1 trillion tech company. 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.

While Shadow Chancellor Rachel Reeves has set out Labour’s stall to make Britain the best place to start and grow a business through the Labour Party’s ‘Start-up, Scale-up review’.

This ambition is no surprise, given the US’ largest seven tech companies (or the so-called ‘Magnificent 7’) have more financial power than almost every G20 country and create sprawling supply chains that have benefits across the US economy.

However, while both Jeremy Hunt and Rachel Reeves have the ambition to see the UK build new tech giants the UK market is currently not providing a strong enough environment for these companies to appear.

An obvious weakness has been in our capital markets where several high growth companies and potential tech giants have decided to quit the FTSE 100 to either go private or seek listings elsewhere. 

Building the next global tech giant will be a long-term ambition, and likely will take many years however 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 (privately owned companies valued at over $1 billion). 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 ask 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. We see three steps to providing scale-up support.

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, and take key lessons from, the Regulatory Initiatives Grid provided to the financial services industry - ensuring consistent and regular scheduling to enable compliance forecasting.

techUK’s Seven Tech Priorities called for the National Audit Office to deliver a ‘State of the Regulators’ report, examining the UK regulatory system and setting out publicly and clearly each regulator’s responsibilities, duties, and sectoral coverage. This should include a specific focus on scale-ups.

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 in a Series C funding round. techUK were pleased to see the successs and backing of 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 outlined plans for a proposed Scale-Up Group (nee Forum) to help co-design new business policies. 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 the economic value of scale-ups. techUK will continue working closely with the next government to ensure delivery of support for scale-ups.

Our Seven Tech Priorities calls for the government to continue at pace on the policy sprint. More needs to be done to create the funding opportunities, for example, through procurement, opening new markets to tech solutions and removing regulatory barriers that can artificially hold companies back.

Although government initiatives to create new investment opportunities for pension funds and institutional investors are well-founded, they take time to take effect.

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 digital infrastructure, access to talent and attractive 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.

The growth potential to become giant tech players is clear. techUK’s own analysis of over 100 scale-ups shows a potential growth rate of 36.5%. Our own group of scale-ups have also doubled the number of people they employ in the past five years and could employ as many as 20,000 people in the near future.

Thanks for reading our blog. We’d love to hear your thoughts and feedback. Please do reach out directly or follow us on LinkedIn @techUK.

 
Mia Haffety

Mia Haffety

Policy Manager - Digital Economy, techUK

 

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