The UK is failing to support homegrown AI and creative tech startups as they scale, putting the country at risk of becoming an ‘incubator economy’ where companies develop locally but move abroad to grow, according to a report from the House of Lords Communications and Digital Committee.
The report highlights key barriers to scaling, including limited access to capital, a shortage of skilled talent and a risk-averse investment culture.
While the UK has strengths in AI, fintech and creative technology, the Committee warns that fragmented government support and regulatory complexity are preventing startups from becoming global competitors.
Recent moves by fintech unicorns Revolut and Monzo to consider US stock market listings illustrate the trend, raising concerns that Britain is struggling to retain high-growth companies. The Committee warns that if this continues, the UK risks weaker economic growth, declining global competitiveness and a brain drain of top talent.
Call for simpler government support
The Government’s AI Opportunities Action Plan is welcomed, but the Committee stresses that its success will depend on strong execution. It criticises the ‘spaghetti’ of support schemes – including tax credits, financial incentives and investment programmes – which it says create unnecessary complexity for startups.
Instead of launching new initiatives, the Committee urges the Government to streamline existing schemes to offer a clearer and more effective path for scaleups.
Baroness Stowell, chair of the Committee, touched on the importance of creating an environment where successful startups can scale without needing to move abroad. She urged the UK to shift its approach to recognising and supporting entrepreneurs, stressing that wealth creation drives economic growth.
“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,” said Stowell. “These sectors have the potential to deliver the fast-paced economic growth the Government wants to achieve.
“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.”
Key recommendations for change
- Ensure join-up – The Government must create a coherent, cross-sector vision to support technology scaleups and drive economic growth.
- Accelerate financial reforms – Unlocking domestic growth capital is key to boosting institutional investment in UK innovation. This needs to happen quickly to keep up with technological change.
- Champion entrepreneurial success – The UK must better celebrate successful wealth creators and build a culture that incentivises founders to stay, grow their businesses, or try again after failure.
- Streamline public support for innovation – The current regime is too complex and should be consolidated to provide innovative companies with a clear pathway along their growth journey.
- Commit to AI delivery – The AI Opportunities Action Plan is welcome, but a plan on its own is not enough. Delivering the plan will require a laser sharp focus on removing obstacles to growth for homegrown AI companies and robust political commitment.
- Sustain investment in the creative industries – The sector needs long-term commitments and a stronger commercial focus to fully realise its growth potential, particularly in creative technology businesses.
“The Government must be ambitious in its approach for our brightest AI and creative tech scaleups, ensuring that the UK’s most innovative companies receive the recognition and support they need and deserve,” Stowell also added.
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