UK risks becoming incubator economy where tech start ups develop then leave

The UK risks becoming an “incubator economy”, where technology start-ups develop before selling or moving abroad, a House of Lords committee has warned.

Urgent action is needed by the Government to foster innovative UK companies, including AI and creative technology start-ups, and support them in scaling up, a new report from the Lords Communications and Digital Committee has said.

The Prime Minister has previously said he wanted the UK and London to be the “best place in the world to start and scale an AI business”, but the Lords committee warned that companies are facing significant barriers preventing them from scaling up.

These include limited access to capital compared to other countries, challenges in recruiting tech talent that is in high demand and business and investment culture that can be too risk averse, according to the report.

The report, published on Monday, reads: “The consequences of failure are significant.

“The UK risks being an ‘incubator economy’ for other nations, as innovative British technology firms pursue greater growth potential in other markets or seek acquisition by foreign companies.

“A continuation of this trend could lead to decreased global competitiveness, weaker economic prospects and a ‘brain drain’ of talented individuals, at a time when technology is rapidly advancing.”

The committee has called on the Government to “do better by doing less”, including consolidating and streamlining existing schemes to support businesses, rather than launching new schemes.

Currently, the report says, there is an “overly complex spaghetti of schemes that may be hindering rather than helping innovation in some areas”.

Baroness Stowell, chair of the House of Lords Communications and Digital Committee, said: “Too often it’s a case of UK begins, other countries cash in. That has to change.

“The UK has some great advantages when it comes to AI and creative tech; a strong university sector undertaking ground-breaking research and generating commercial spin-outs, and a proud tradition of world-leading creative industries.

“These sectors have the potential to deliver the fast-paced economic growth the Government wants to achieve.

“But we have a real problem turning start-ups into scale-ups.

“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.”

The report sets out key recommendations for the Government for bolstering scale-ups, including ensuring that industrial strategy provides “coherent, cross-sector vision” for supporting technology scale-ups in driving economic growth, unlocking domestic growth capital and fostering a culture where company founders are incentivised to stay in the UK to grow their businesses.

Other recommendations include sustaining investment in the creative industries and tackling barriers for growth for UK AI companies.

Published: 03/02/2025 by Radio NewsHub