The government has been warned that the UK’s failure to retain and scale science and technology companies is at “crisis point” and is causing the UK economy to “bleed out”.
In a scathing report, the House of Lords Science and Technology Committee said “urgent and radical reform” is needed from the government to “fix long-standing failures to scale, to retain the economic benefits of R&D in the UK, and to seize the enormous opportunities for technological and economic growth that are currently slipping through its fingers”.
The report the UK has several promising science and technology companies and there has been policies aimed at supporting them, but “start-up and spin-out companies have continued to move overseas”.
There was even an example during the inquiry when Tom Adeyoola, executive chair of Innovate UK, told the committee that Oxford Ionics was bought for $1 billion by an American company three weeks earlier. He said: “We need to make sure that that does not happen with the rest [of the UK’s promising start-ups], otherwise we are just subsidising R&D”.
The UK is in a “doom loop”, the report warned, because its “capital pools are shallow, its institutional investors risk-averse, and its technology companies undervalued”.
The Lord said policies to encourage start-ups and spin-outs have fostered more early-stage companies, but they then struggle to secure domestic scale-up finance.
The report said: “Without this finance, the UK’s strong R&D base risks supporting an ‘incubator economy’ of venture-backed start-ups that eventually move overseas in search of funding. The UK needs a clear plan to retain more companies.”
It added that “a culture of risk aversion” in the government’s procurement policy means UK innovation isn’t fully embraced, and the Home Office’s “historic unwillingness to review the barriers for high-potential talent” in the visa system is “an absurd act of national self-harm”.
The report made several recommendations including:
- A new National Council for Science, Technology and Growth to coordinate efforts across government and broker compromises between departments.
- Reforms to “counter-productive visa policies” for global talent.
- Unlocking institutional investment through reforms such as providing incentives for and track pension funds investing in UK science and technology companies.
- Reforms to public procurement, including a mandatory target for government departments to spend with innovative UK based SMEs, mirroring measures in the US.
- Consolidation and scaling of public investment bodies including Innovate UK, the British Business Bank (BBB), and the National Wealth Fund (NWF).
- Changes to career structure, pay and incentives to enable easier movement between academia, business and government.
- Incentivise and protect sensible risk-taking to support domestic innovation in government investment and procurement, adopting a risk-on mindset.
Lord Mair, chair of the House of Lords Science and Technology Committee, said:
“The UK’s failure to scale its science and technology companies has reached crisis point.
“The UK has experienced sluggish productivity growth and near-flat real wages since the global financial crisis. Its inability to retain more of the economic benefits of its science and technology R&D endeavor is a fatal flaw in any growth strategy.
“We have witnessed a procession of promising science and technology companies choosing to scale overseas rather than in the UK. Even during our inquiry, several significant companies including Oxford Ionics, Deliveroo and Wise have relocated or expanded abroad, and even life sciences stalwarts like AstraZeneca are eyeing the exit.
“The UK economy is simply not working, and the consequences are clear for all to see. If the UK is to arrest its decline, leadership and coordinated action is needed to rescue and strengthen its science and technology sector.
“While the issues facing the UK economy are grave, with decisive and speedy action from the prime minister and the chancellor, our committee believes challenges can be overcome. There is enormous potential to seize this moment of technological and geopolitical opportunity and catalyse the growth that the UK badly needs.
“The government will need to use every lever it has to support UK based science and technology companies and entrepreneurs, and to encourage private investors to do the same. By unlocking institutional investment, changing the culture around innovation, and organising its efforts in procurement, public investment bodies, and regulatory reform, the UK government can still stop the bleeding and reap enormous rewards for the nation.”