Summary of conclusions and recommendations
Chapter 2: The technology scaleup problem
1.While the UK’s vibrant startup environment is lauded, the country has a technology scaleup problem. We risk becoming an ‘incubator economy’ for other nations, which has serious implications for our economic growth and global competitiveness. (Paragraph 21)
2.The Government should not be complacent about the health of the UK’s scaleup scene. Creating the conditions that will enable our brightest homegrown businesses to grow in the UK, rather than scaling overseas, should form a key objective in the Government’s ambitions for growth. (Paragraph 22)
3.We welcome the Competition and Markets Authority’s decision to review its approach to mergers and acquisitions and to engage with a wider range of stakeholders. Effective implementation of the Digital Markets, Competition and Consumers Act 2024 regime will play a vital role in ensuring innovative technology scaleups can compete with, and provide challenge to, incumbents. (Paragraph 41)
4.We endorse the recommendations of the Council for Science and Technology’s November 2024 letter to the Chancellor calling for an acceleration of efforts to unlock institutional capital; the development of the specialist skills required for investing and supporting innovative technology companies; and the financing and delivery of the critical infrastructure they need. (Paragraph 54)
5.We also support its recommendation that the Government work to “renew a shared pride in the UK’s culture of innovation”. The Government has a leadership responsibility to promote and celebrate British entrepreneurial success in order to shift cultural attitudes towards risk and innovation. (Paragraph 55)
6.There has been a proliferation of individual grants and programmes targeted towards scaleups, which are difficult for SMEs to navigate and apply for. This includes programmes run by UKRI, the British Business Bank and government departments. Witnesses made a strong case for consolidating existing initiatives to maximise their impact, rather than adding further to an already complex suite of programmes and funding pots. (Paragraph 71)
7.The Government must ensure that its initiatives aimed at enabling technology companies to grow make a material improvement to the UK’s innovation ecosystem, as well as providing value for money for the taxpayer. Schemes that are duplicative, or fail to achieve desired outcomes, should be wound down. We caution strongly against the introduction of further schemes or interventions, which have the potential to slow companies’ growth by making the system of scaleup support even harder to navigate. (Paragraph 72)
8.Government programmes should also provide scaleups with a clear, comprehensible pathway of support along their growth journey. Consideration should be given to how to minimise administrative hurdles, for example by streamlining application processes for subsequent funding for companies that have already passed rigorous checks as part of earlier successful public funding bids. (Paragraph 73)
9.The Government should set out the steps it is taking to evaluate the impact and join-up of existing initiatives, including those administered by the British Business Bank, to ensure they offer a clear route for companies to progress through, address genuine gaps in the private markets and represent a sound use of government funds. (Paragraph 74)
10.We have the right ingredients to build world-leading tech companies, including in the high-growth potential areas of AI and creative technology. However, fundamental barriers to scaling in the UK’s technology sector, such as poor infrastructure, a culture of risk aversion, and comparatively limited domestic growth capital, are well documented and longstanding. (Paragraph 84)
11.Some of these barriers do not have straightforward policy solutions, for example the relative size of the UK market, or cultural attitudes towards entrepreneurship. It is positive that solutions initiated by the previous Government to address challenges are being built upon by the current Government. However, these initiatives will not succeed without a consistent and determined focus on enabling British startups to scale. (Paragraph 85)
12.The Government’s industrial strategy must provide a coherent, cross-government vision for the role of innovative technology scaleups in delivering the Government’s growth ambitions across its eight key sectors. It should serve as an opportunity to critically review the existing landscape of support for scaleups, and be underpinned by a resolute focus on removing barriers to growth. In its response to this report, the Government should outline how it will reconcile this with competing policy priorities, for example its commitments on net zero and employment rights. (Paragraph 86)
Chapter 3: Scaling up: AI
13.AI is not a sector but a technology, with the potential to drive innovation across all eight of the Government’s key growth sectors. Yet the window of opportunity for capitalising on the UK’s strengths is limited and diminishing. (Paragraph 96)
14.The AI Opportunities Action Plan is a positive step towards seizing opportunities in this transformational technology, and the Government’s response to it is encouraging. However, achieving these goals will demand a mindset shift across the public sector, accompanied by bold policy reforms and robust political commitment. The Government should not underestimate the scale of the challenge. (Paragraph 97)
15.The Government must take immediate action to deliver the AI Opportunities Action Plan. Delivery of the plan must be supported by sustained political commitment and a laser focus on delivering growth. Implementation must be joined-up and pragmatic, and focus on solving immediate challenges. (Paragraph 98)
16.The Government’s long-term compute strategy should set out as soon as possible, and certainly by the proposed “spring 2025” deadline, how it will deliver the broad range of computing resources required by AI scaleups, including high-end computing facilities. AI scaleups should be granted access to these facilities to catalyse commercial opportunities for UK companies. Startups and universities should also be provided access to ensure a healthy pipeline of innovation. (Paragraph 108)
17.The Government should quickly make available high-quality, curated data sources linked to specific objectives. A mission-led, incremental approach that builds public confidence should be adopted in work to deliver the complete national data library. (Paragraph 117)
18.We heard strong support for the UK’s sector-led, outcomes-based approach to AI regulation. However, this relies heavily on existing regulators’ ability to navigate complex and evolving technologies. The Government has frequently referenced the potential benefits of the Regulatory Innovation Office (RIO), but its remit remains unclear. (Paragraph 127)
19.The Government must continue to ensure that regulators are properly resourced to deliver a sector-led approach to AI. In its response to this report, the Government should clarify the RIO’s priorities and set out in detail how it will engage with existing regulators to harmonise approaches, share best practice and drive behavioural change. Future AI legislation must not create further regulatory uncertainty or barriers to entry. (Paragraph 128)
20.The Government should also consider setting up dedicated teams specialising in key markets to help fast-growing UK AI companies expand internationally by facilitating connections overseas, including with foreign regulators. (Paragraph 129)
21.The UK has comparatively low levels of AI adoption and public trust in AI technologies. Supporting innovation in AI will not lead to economic growth unless adoption is promoted in parallel. (Paragraph 134)
22.The Government is right to identify adoption as a key factor in enabling its AI growth ambitions, but should not play down the level of change this represents for both the public and private sectors. In its industrial strategy, the Government should outline the specific steps it will take to drive AI adoption across its key high-growth sectors, including how it will overcome barriers such as low trust, outdatedi nfrastructure, and lagging digital skills. (Paragraph 135)
23.Witnesses were clear that the UK’s universities are one of its strengths, and that universities will continue to play an important role in UK AI development and leadership. Steps taken to implement the recommendations of the 2023 Independent Review of University Spin-out Companies should help innovative AI spinout companies be better positioned for future growth. However, more can be done to improve links between academia and industry and to ensure we remain competitive in the provision of supercomputing capacity. (Paragraph 140)
24.We recognise the progress made in the adoption of TenU’s University Spin-out Investment Terms best practice guidance. The Government should continue to implement the recommendations of the independent spinout review, including options to improve collaboration between academia and industry. (Paragraph 141)
Chapter 4: Scaling up: creative technology
25.Createch is an important growth driver in the creative industries, which in turn is one of the key sectors identified in the Government’s industrial strategy Green Paper. The innovative products and services it generates also provide spillover benefits in other areas of the economy. (Paragraph 151)
26.It is vital that the Government’s industrial strategy, its creative industries sector vision, and its innovation investment priorities reflect the economic value and true growth potential of createch, and the creative industries more broadly. We welcome the Government’s recognition at the Creative Industries Growth Summit that the creative industries will play an important role in meeting its ambitions for growth. (Paragraph 152)
27.We urge the Government to remain steadfast in championing the creative industries sector and supporting its innovative businesses to scale. It should not underestimate the role of creative technology scaleups in helping the creative industries realise their full growth potential, and should remain alert to the needs of these businesses in its wider efforts to “turbocharge growth” in the sector. (Paragraph 153)
28.The creative industries are fragmented and have a high proportion of micro- and small businesses. Some creative technology SMEs are not looking to scale in the traditional venture capital model. But it is important that those with ambitions for high growth are supported to pursue this goal. High-growth tech scaleups in the creative industries should be afforded the same opportunities as those operating in any other key growth sector. (Paragraph 157)
29.The Government is right to explore options for improving access to finance for creative businesses. This could involve a specialised financial vehicle aimed at catalysing investment into innovative creative technology businesses. Any interventions should be co-designed with industry and accompanied by work to track the performance of creative investments to improve investor understanding of and confidence in the sector. (Paragraph 165)
30.We reiterate our previous recommendation that the Government should change the definition of R&D for the purpose of tax relief to include more of the creative sector. (Paragraph 168)
31.AI is one of many technologies driving innovation in the creative sector. However, the use of copyrighted content to train AI models without permission or compensation has raised alarm. Creative rightsholders must be able to exercise control over their intellectual property. Clarity around copyright is also important for creative technology companies to feel confident in their own use of AI tools for innovation. The Government is right to try to make progress on this issue through its consultation on AI and copyright. Resolution of this issue is urgent. (Paragraph 178)
32.If, following its consultation, the Government decides to progress its proposals for a broad text and data mining exemption with a mechanism to allow rightsholders to reserve their rights, this must be underpinned by strong transparency measures, technical enforceability, and meaningful sanctions. (Paragraph 179)
33.Initiatives focused on clustering have proved successful for facilitating growth in the creative industries. However, the current landscape of initiatives aimed at supporting innovation in the sector lacks cohesion. A more streamlined approach is needed to avoid duplication and inefficiency, alongside longer-term funding commitments that offer greater stability to business owners and investors. The tendency of Ministers and government bodies to constantly reinvent or introduce new initiatives is having a detrimental effect on the very businesses they are hoping to support. (Paragraph 191)
34.DSIT, as the department responsible for UKRI, and DCMS should undertake a critical review of the cumulative impact of the various initiatives aimed at supporting innovation in the creative industries, with a view to reducing their complexity and developing a coherent pathway for progression for businesses. Ministers must guard against the temptation to introduce additional initiatives in the Government’s forthcoming sector plan. AHRC should use its convening power to foster closer connections between cultural institutions and creative technology scaleups. (Paragraph 192)