Amid the economic malaise that followed the 2008 financial crisis in the UK – record unemployment, sluggish growth, tight fiscal consolidation – a game-changing policy drive was beginning to take shape. 

This shift, driven by the Conservative-led coalition government at the time, was designed to transform the UK into “Incubator Britain” – attracting software and tech entrepreneurs with generous tax breaks, government-backed early-stage funding, and a thriving ecosystem, laying the foundations for the startup hub we recognise today.

But while these initiatives succeeded in spurring startup growth, they did little to help those businesses scale. Despite having near-zero costs of distribution, British software firms today take nearly twice as long to scale from £10mn to £100mn in revenue as their US counterparts, held back by a set of persistent barriers that significantly stunt their growth potential.

Against today’s backdrop of weak growth, isn’t it time we applied the same strategic focus to supporting scaleups as we did to startups in the 2010s? With geopolitical tensions rising, building up our homegrown technology sector represents good business sense and bolsters our future security.

The scaleup sector makes an outsized contribution to the economy, accounting for just 1% of UK SMEs, but generating 22% of SME turnover. Creating the right conditions for high-growth businesses to flourish is therefore crucial not only to the success of new businesses — it is also central to the government’s defining mission: reigniting economic growth.

Recognising the barriers to scaleup growth

Without meaningful action to address these barriers, the UK risks losing our most promising tech firms to foreign markets, taking high-value jobs, innovation, and intellectual property with them — a trend that has cost the UK billions already. The country has a golden opportunity to break this cycle, particularly in AI, where we have the potential to create globally significant companies rather than see these grow elsewhere or get snapped up by US giants. The AI sector alone has grown substantially, with its Gross Value Added increasing from £1bn in 2022 to £1.2bn in 2023, and estimates suggesting UK AI firms generated over £14bn in revenues. Keeping these companies local could be transformational.

At a recent industry roundtable held by the think tank, The Future Governance Forum, the barriers facing scaleups took centre stage. Among the attendees were Labour MP Josh Simons, the BVCA — the trade body for the UK’s private equity and venture capital industry — and my company, Boardwave — a community of more than 2,000 European software leaders and CEOs. The discussion echoed the findings of the Future Governance Forum’s recent report, “A Mountain to Scale,” identifying three critical areas where policy must change to enable this essential growth. These were: finance, talent, and place.

Finance: fixing the late-stage funding gap in UK tech

While there is plenty of capital available for Series A investments, scaleups often struggle to secure the later-stage funding they need to continue growing. This “valley of death” in funding is a well-documented issue, with an estimated £15bn shortfall in domestic scaleup investment annually. 

The government cannot close this gap alone; unlocking larger pools of private capital is essential. Sweden’s model of encouraging pension fund investment into growth-stage businesses offers one potential blueprint. The UK’s own pension reform agenda represents a similar opportunity to mobilise greater private sector investment.

Talent: addressing hiring challenges and skills gaps

Labour market dynamics are also making it harder for scaleups to thrive.

The recent roundtable emphasised the challenges around hiring in the UK, given the impact that recent policy changes — such as the increase in employers’ National Insurance contributions — have had on business confidence.

Alongside this is the availability of technology talent. The UK’s visa system needs to better support the development of skills in high demand, particularly in AI, if the country is to remain globally competitive. The government should look at targeted visa pathways such as Estonia’s e-Residency rules to attract the talent needed to drive the next generation of high-growth firms.

Place: creating scaleup hubs across the UK

There is a significant opportunity to position the UK as the best base for scaling businesses looking to enter the European market, particularly for investors and firms from high-growth economies like Brazil. Many foreign investors see the UK as attractive for reasons such as our strategic location, the English language, our openness to foreign direct investment (FDI), good infrastructure, and a stable government.

However, the current feeling — particularly in the software and technology sector — is that the UK is often a less attractive place to scale a business than other markets. Despite this reputation, technology is playing an increasingly critical role in driving growth, fostering innovation in key sectors such as defence, energy, and security, and strengthening the UK’s geopolitical position. 

The government’s recent announcement of increased defence spending underscores the need for sustained investment in cutting-edge technology to maintain strategic advantages. To fully harness the potential of tech scaleups — not just as economic drivers but as pillars of national resilience — policies like the Seed Enterprise Investment Scheme (SEIS) and the Enterprise Investment Scheme (EIS) should be expanded to support more mature, scaling companies in sectors aligned with these priorities. By doing so, the UK can solidify its leadership in the global tech landscape while reinforcing its economic and geopolitical standing.

Regional growth is also key to tackling the broader trust problem in UK entrepreneurship. More people are employed by scaleups in the South East than in the rest of England combined. And with the majority of foreign funding for tech going to firms based in London and the South East, this reinforces the need to deploy more UK capital into tech, and take a place-based approach to scaleup policy. 

Having stronger entrepreneurial communities is essential to propelling long-term growth. A more connected UK — and European — ecosystem, where founders have access to mentors, capital, AI expertise, and scaling best practices, will be critical in driving innovation and competitiveness. The UK already has a strong foundation of experienced leaders in tech and high-growth businesses, and their expertise should be harnessed and shared as part of the country’s broader growth strategy. By enabling collaboration and knowledge exchange across regions, we can create a more resilient, well-networked entrepreneurial landscape that fuels scaleup success nationwide.

Creating the right conditions for UK tech

One of the roundtable’s most striking conclusions came from Josh Simons MP: businesses and investors should seize the opportunity to act. While policy changes on investment, talent, and place can play a vital role in creating the right conditions, the private sector must also take the lead in addressing risk aversion and mobilising investment into the UK’s most promising growth-stage firms. 

Two years ago, while in opposition, then-shadow chancellor Rachel Reeves outlined her ambition to make Britain the “best place to grow a business,” vowing to break down the “stubborn obstacles” holding scaleups back. Now, as the government’s chancellor, she has a unique opportunity to realise that vision.

Fulfilling this ambition in power means recognising the crucial role scaleups play in the UK economy. Policy must tend the soil in which clusters of innovative firms can grow and sow the seeds that will transform “Incubator Britain” into “Scaleup Britain”. The government’s mission for growth depends on it.