Failure to scale-up innovation is causing UK economy to ‘bleed to death,’ Lords warn

The UK’s failure to scale-up its science and technology companies is causing its economy to “bleed to death,” according to a scathing report published on November 5 by the House of Lords science and technology committee.

This long-standing issue “has reached crisis point,” said the committee’s chair, Robert Mair, who warned that the country’s inability to retain the economic benefits of its R&D efforts is holding back growth.

“We have witnessed a procession of promising science and technology companies choosing to scale overseas rather than in the UK,” Mair said. “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 House of Lords is the unelected second chamber of the UK parliament. Its committees are independent and have a role scrutinising government policy.

In common with countries across Europe, the UK has a strong research base and a steady stream of start-ups and spin-outs, but these companies are often forced to seek funding overseas. “The result is a country with four of the top ten global universities, but only three of the top 100 industrial R&D spenders globally and none in the top ten,” the report notes.

Institutional investors such as pension funds are fragmented and risk averse, it says, pointing out that 72% of US venture capital funding comes from pension funds, compared to just 10% in the UK. The EU is currently struggling with the same issue and considering how to apply lessons from recent French and German initiatives, which mobilised investments from insurers and pension funds to support innovation.

Earlier this year, the UK government struck a deal with 17 of the largest workplace pension providers, which includes a voluntary commitment to ringfence 5% of their portfolios for UK assets that boost the economy, such as infrastructure, property and private equity. The Lords committee calls on the government to go further and reserve powers including withholding tax relief from funds that fail to meet the targets.

The government has also proposed a Pension Schemes Bill, which aims to double the number of “megafunds” managing £25 billion or more in assets by consolidating smaller funds. It is hoped the larger funds will have the scale and expertise needed to invest in private capital.

Procurement and visas

The report also points to “risk-averse and inflexible government procurement” and a lack of large technology companies, which make it difficult for start-ups to secure public and private contracts, forcing them to seek equity funding from overseas. It calls for a mandatory target for government departments to spend with innovative UK-based SMEs.

Meanwhile, costly visas, which are a barrier to attracting global talent, particular from the US, are “an absurd act of national self-harm,” the committee warns. Current rules “can result in young researchers being faced with upfront costs of £20,000 to bring a family of four over for five years on a Global Talent Visa before relocation costs are even considered.”

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Career structures, pay and incentives should also support easier movement between academia, business and government, the report says.

"It is vital that the UK remains an attractive destination for global talent, and that we continue to strengthen our research base,” said Vivienne Stern, chief executive of Universities UK, commenting on the report. “The UK’s economic growth and delivering the industrial strategy will depend on more high-level skills in the years ahead, alongside world-class R&D.”

The Lords call for strong political leadership through the creation of a National Council for Science, Technology and Growth, modelled on the National Security Council, which is chaired by the prime minister. This new body should drive a coordinated approach to technology and the scale-up of companies across government departments.