Appendix 3: Call for Evidence
The UK has a vibrant startup scene with a strong reputation for innovation. But major challenges persist around converting startups into the stable, scaleup businesses the UK needs to secure long-term prosperity.420
The reward for improving the UK’s scaleup potential is high. Scaleups421 have a disproportionately large economic impact, create highly skilled jobs, drive productivity and boost UK competitiveness.422 In 2023, scaleups represented just 1 per cent of UK small and medium-sized enterprises, but accounted for 22 per cent of all SME turnover, which amounts to £497 billion.423
The consequences of failing to capitalise on these opportunities are also considerable. International competition is growing. Business strategies focusing on foreign buyouts or overseas scaling remain a feature, rather than a bug, of the UK’s ecosystem. Without concerted action, the UK risks losing its competitive edge in strategic economic sectors.
A number of initiatives have sought to boost the UK’s scaleup potential in recent years.424 But barriers to progress abound: funding, skills, data, networks, risk appetite and investment culture are just a few of the challenges holding UK innovators back from fulfilling their potential, and from benefiting the UK’s economy and society.
Our inquiry focuses on two high-potential areas where the UK has existing advantages: technology in the creative industries,425 and (more widely) artificial intelligence. As a 2023 report by the Social Market Foundation argued, these are among the key sectors “where the potential of scaleup firms is greatest and growth is most achievable”.426 Businesses in these areas also face a range of challenges that need to be addressed.427
Our inquiry objectives
We are seeking to understand the specific barriers to SMEs scaling in AI and creative technology, and to propose changes to Government and industry practices that can be delivered over the next five years. This will include evaluating the adequacy of existing schemes to support scaling; assessing the new Government’s plans; and learning lessons from past successes and failures.
Questions
1.What is the economic potential for improving the UK’s scaleup landscape, and what are the consequences of failing to capitalise on this?
2.What specific barriers do SMEs face when seeking to scale in AI, and in creative technology?
(a)To what extent are these challenges unique to their respective sectors?
3.How effectively are existing organisations (such as UKRI), catalyst programmes and other Government initiatives addressing these issues?
(a)What outcomes are being achieved?
(b)Are any changes necessary, and how would they work in practice?
4.What further measures are needed to address barriers to scale in AI, and creative technology?
5.What role do academic institutions play here, and what can be done to boost commercial links with AI and creative technology?
6.What can the UK learn from overseas?
The Committee invites written contributions by 23:59 on Wednesday 16 October 2024.
420 See for example Venture Path, ‘Open letter’: https://www.joinventurepath.com/open-letter [accessed 28 January 2025]
421 We use the term scaleups to mean small and medium sized enterprises growing at 20 per cent on average each year for the past three years.
422 Innovate UK, ‘The scaleup programme’: https://iuk.ktn- uk.org/programme/scaleup/ [accessed 28 January 2025]
423 Social Market Foundation, The scale of opportunity (November 2023): https://www.smf.co.uk/wp- content/uploads/2023/11/Scale-of-the-opportunity-Nov-2023.pdf [accessed 28 January 2025]
424 Measures include the Long-term Investment for Technology and Science (LIFTS) initiative; venture capital fellowship schemes; Mansion House reforms; evaluations of regulation; tax reliefs; changing university spinout structures; investment research reviews; engagement forums; and various industry groups. In January 2024 UK Research and Innovation set out a “commitment to improve the research and innovation environment for businesses seeking to scale up”. See UKRI, ‘Position statement’ (16 January 2024): https://www.ukri.org/publications/ukri-declaration-supporting-businesses-to-grow-and-scale/supporting- businesses-to-grow-and-scale/ [accessed 28 January 2025]
425 Often described as ‘createch’, we are focusing on: creative businesses where the development of new technologies or the adaptation of existing technologies in a novel way is a significant part of their business activities. See Creative Industries Policy & Evidence Centre, Understanding createch R&D (December 2022): https://pec.ac.uk/wp-content/uploads/2023/12/PEC-Understanding-Createch-RD-December-2022.pdf [accessed 28 January 2025]
426 Other areas included fintech, life sciences, data science and therapeutic care. See Social Market Social Market Foundation, The scale of opportunity (November 2023): https://www.smf.co.uk/wp- content/uploads/2023/11/Scale-of-the-opportunity-Nov-2023.pdf [accessed 28 January 2025]
427 AI firms often require access to high quality compute, for example, and face an evolving regulatory landscape. Creative sector businesses often have difficulty with finance due to their intangible assets, and investors reportedly view the sector as a lower priority for R&D investment. See for example: Council for Science and Technology, Harnessing Research and Development in the UK Creative Industries (5 October 2023): https://assets.publishing.service.gov.uk/media/652fc7ac92895c0010dcb980/Harnessing_Research_and_Development_in_the_UK_Creative_Industries.pdf [accessed 15 January 2025]