Britain has brilliant start ups, but they rarely make it to the big leagues
The UK has a thriving array of start ups, but they don’t have tools to turn that into scaled, successful businesses, writes John Asthana Gibson
There is a worrying feature at the heart of Britain’s economy that helps explain its recent poor economic performance: whilst the UK is a welcoming place to start a business, it offers a difficult environment in which to grow one. That failing represents a critical threat to our future prosperity, and government policy must be laser-focused on overcoming it.
Let’s start with the good news. Britain remains a magnet for ambitious start-up companies, and London in particular regularly rates as one of the best places to set up a new firm. Global tech entrepreneurs cross continents to exploit Britain’s favourable environment for start-ups.
However, those entrepreneurs often struggle to scale their businesses to become highly productive and sizeable firms. This should give policymakers cause for concern: a vibrant start-up culture is of little benefit to the wider economy if start-ups fail to grow, or if successful ones go elsewhere to expand.
There have been no shortage of reviews and reforms over the past decade seeking to help businesses to grow. Yet all too often, their focus has been too narrow, prioritising access to capital above all else.
Without a broader approach, throwing money at firms will not do the job. They need support across a range of areas to ensure they can use that finance effectively. Though access to finance is certainly important, it is not the most pressing issue. In fact, a lack of suitable premises and bad taxes and regulation rank higher for many businesses.
Human capital, not the financial sort, is the greatest problem for growing firms. British scale-ups have to compete with international rivals in an increasingly competitive race for global talent. Issues with the domestic pipeline of skilled workers (a consequence of a lack of investment in skills and training), made worse by a housing crisis that prevents skilled people moving to be near good jobs, compounds the problem of getting the talented specialists high growth firms need.
So what can the government do? Jeremy Hunt has made clear he is reticent to use levers like tax cuts while inflation is still high, so we need to look at more regulation-driven solutions which can be implemented easily.
Interventions in education, housing, infrastructure and immigration will be key to resolving this ‘skills problem’. But we shouldn’t risk repeating the same mistake of the
past decade with an equally narrow focus on skills alone. The government needs a holistic and coordinated approach across the different arms of the state.
To make this a reality, a “scale-ups unit” should be established and placed at the heart of government, charged with identifying the areas where British firms have the potential to be genuinely world-leading. It should coordinate government interventions, from planning reform to training improvements, that will enable scale-ups in these industries to truly reach their potential. Such interventions should be carried out with a place-based focus, developing clusters of world-class industries in cities up and down the country.
The size of the prize is huge. Despite making up just one per cent of SME firms, their combined turnover is already equivalent to two annual NHS budgets (nearly £500bn). All of government, in fact all politicians, both left and right, should get behind efforts to help these companies succeed.
This issue of business growth is too important, too intertwined with the future of the country, to be ignored. Innovative scale-ups already do so much for the UK. Let’s help them do a little more.