The UK is at risk of becoming an “incubator economy” with tech firms moving abroad, if action is not taken to support companies to scale up, a group of Lords has warned.
Britain must do a better job supporting UK-based artificial intelligence (AI) and creative technology start-ups to grow into global competitors, the House of Lords Communications and Digital Committee has stressed.
A decline in global competitiveness, weaker economic growth and a brain drain of talented people abroad are all risks if the UK does not reverse a trend of innovative British technology companies moving to other markets or selling to foreign companies, their report cautioned.
It comes after UK fintech unicorns Revolut and Monzo announced in recent months that they may list in the US rather than the UK stock market.
Baroness Stowell, committee chairwoman, said: “The UK has the potential to be a powerhouse of growth for AI and creative tech companies.
“However, we are at real risk of becoming an incubator economy instead, where UK start-ups develop innovative products and services before selling out or moving abroad, so other countries derive the economic benefit.
“Too often it’s a case of the UK begins, other countries cash-in. That has to change.”
The committee is urging the government to foster homegrown scale-ups in a bid to meet its ambitions for growth, with urgent, targeted action to stop us from falling behind.
Firms in the UK face barriers including limited access to capital compared to other countries, challenges recruiting in-demand talent and a risk-averse business and investment culture.
A significant mindset shift and concerted effort will be required across the public sector if ministers are to achieve the goal of making the UK “the best place to scale an AI business”, the peers found, after the recent AI Opportunities Action Plan was published.
While there is a so-called “spaghetti” of complexity facing firms, from financial reforms, tax credits, investment incentives, and innovation initiatives, to further barriers and bureaucracy.
This leaves scale-ups lacking a coherent pathway of financial support as they grow, they found, as peers urged ministers to do better by doing less, and resisting the urge to launch new schemes and instead focus on consolidating and streamlining existing programmes.
Key recommendations include: ensuring a joined-up, cross-sector vision for supporting tech scale-ups; speeding up financial reforms and unlocking domestic growth capital; culturally championing entrepreneurship and success; streamlining support for innovation; committing to the delivering of AI with laser-sharp focus; and sustaining long-term tech investments.
“The UK has some great advantages when it comes to AI and creative tech,” Baroness Stowell added. “But we have a real problem turning startups into scaleups.
“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.
“Action must be taken to unravel the complex spaghetti of support schemes available for scaleups. 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.”
The Department for Science, Innovation and Technology (DSIT) has been contacted for comment.