Jhow bad is the economy The chancellor, Rachel Reeves, warns that tough choices on tax, spending and borrowing must be made on October 30 when she delivers the first Labor Budget since 2010, so poor is the economic legacy. Phooey, replied those still standing in the fragmented Tory party. the economy, snap together at a growth rate north of 2% this year, is in good shape; it is her giving in to her union “paymasters” that is the problem. She replied that the crisis in public sector pay had to be confronted.
However, remove the economic lens to the state of corporate Britain and the extent of its presence in new technologies and the Tory bequest is unequivocally bad. Britain simply does not have a critical mass of ambitious, high-growth companies on the frontiers of technology capable of leading any private sector investment or growth spurt.
We may have an outstanding science research base, multiple entrepreneurial ventures and the largest venture capital industry in Europebut the conversion of those assets into a “global science and technology superpower” eludes us. In tech sector after tech sector, UK representation is painfully thin or just non-existent, even if there was the opportunity to be very different.
David Connell and Prof Bobby Reddy, from the Judge Business School at the University of Cambridge, address the issue in an important paper, Sell less of the family silver. The UK, box one shows, has only one software company and one electronics company in the respective global top 100s; one medical device manufacturer in the top 50.; no companies in the top 25 listed global biotech firms; only one company in the top 24 scientific and instrument list. If you count chip designer Arm, which is now quoted in New York, as British (a piece), it is our only representative in the semiconductor top 100. We do have two pharmaceutical companies, AstraZeneca and GSK, in the top 50 and five firms in the top 100 chemical companies. But any relief must be qualified: Britain has just eight pure technology companies listed on the London Stock Exchange worth more than £1 billion. For a supposedly advanced economy, this is unfortunate – the measure of the Tory legacy.
Tributes to tech entrepreneur Mike Lynch, who died when his luxury yacht sank in a freak storm last week, have described him as “Britain’s Bill Gates”. He was anything but. Gates remains in charge of Microsoft; Lynch had to sell so many shares in his company Autonomy – a potential Microsoft – to attract investment that it had insufficient votes to withstand Hewlett-Packard’s knockout $11.7 billion offer. It became the subject of a 12-year lawsuit alleging fraud, which Lynch eventually won; but the sale predicted thousands of others. The AI company DeepMind to Google, Arm to Japan’s SoftBank and Darktrace to the US private equity firm Thomas Bravo – in each case shareholders were offered such a rich premium and the founders had so little control that the result was a foregone conclusion. A total of 2,300 growth companies were sold abroad between 2013 and 2023. On one estimate50 of them could now be members of the FTSE 100. Foreign investment should be welcomed: but not when it turns into looting.
Any growth economy must have a critical mass of excellent, nationally domiciled companies. It’s not just that they invest on their own behalf: they are a crucial market for the innovative goods and services provided by start-ups and scale-ups, so they don’t have to rely on successive rounds of venture capital for essential cash. Such “primes” are not only a rich source of talent that can be poached to join an attractive start-up, but also investors in start-ups of their own – corporate venture. By all these measures, Britain is weak.
A parallel problem is that UK stock market values have fallen for almost 20 years as pension funds and insurance companies have withdrawn from the market. If publicly listed shares are poorly valued, so inevitably are shares in private companies – more must be sold to raise investment, founders lose control and they become vulnerable to foreign takeovers.
All this and more must be unraveled if Labor is to achieve its ambitious growth targets. The good news is that there is increasing recognition in business, finance and even in government that there needs to be change. If there aren’t enough tech companies to provide a ready market for innovative goods and services from inventive start-ups, government procurement must step in – like a letter to the prime minister from the Science and Technology Council argued two years ago support by the then Chief Scientific Adviser, now Minister for Science, Patrick Vallance. Some suggest that the government could even act as a surrogate venture capitalist by taking equity stakes in the young innovative companies it buys from.
The UK should also boost the pool of venture capital investing in UK public and private companies. The first step is to consolidate more than 30,000 tiny pension funds into super funds that can take risks. Furthermore, pension contributions must rise: and the government will have to find ways to ensure that British investors are encouraged – or even mandated – to invest in British companies.
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It is a mindset revolution: to become a developmental state to remain in the forefront of economic nations. Lord Vallance, many other ministers and, I think, Rachel Reeves herself are prepared to take the plunge – a review of pensions is already in the works and Vallance’s views are on the record. The problem is the Treasury, which is reluctant to relinquish its traditional role as bean counterpoise. Reeves has already persuaded to cancel the £800 million exascale quantum computer project at the University of Edinburgh and is ready to AstraZeneca loses vaccine production to the US as it squabbles over investment support. I would be amazed if more than 10% of his officials are aware of the desperate data produced by Connell and Reddy. The Treasury must be careful. If the economy fails to perform in the next five years because of its obvious impediment, breaking it up will become a national imperative. It is not just Britain’s technology sectors that are in the last chance salon.
