Viewpoint: Expanding the UK tech sector is a geopolitical necessity.

      In the aftermath of the 2008 financial crisis in the UK, characterized by unprecedented unemployment, sluggish growth, and strict fiscal measures, a transformative policy initiative began to emerge. This change, spearheaded by the then Conservative coalition government, aimed to establish the UK as “Incubator Britain,” enticing software and tech entrepreneurs with substantial tax incentives, government-backed funding for early stages, and a vibrant ecosystem, ultimately laying the groundwork for the startup hub we recognize today.

      While these initiatives effectively stimulated startup growth, they offered little assistance in scaling those businesses. British software companies currently take nearly twice as long to grow from £10 million to £100 million in revenue compared to their US counterparts, hindered by enduring barriers that severely limit their growth potential.

      Given the current climate of weak growth, shouldn't we apply a similar strategic emphasis on supporting scaleups as we did for startups in the 2010s? With increasing geopolitical tensions, strengthening our homegrown technology sector is not only sound business policy but also enhances our future security.

      The scaleup sector makes a substantial economic contribution, representing just 1% of UK SMEs while generating 22% of SME turnover. Therefore, fostering conditions conducive to the success of high-growth businesses is crucial not only for the prosperity of new enterprises but also central to the government’s key objective: reviving economic growth.

      Identifying the growth barriers for scaleups is essential. Without significant action to tackle these obstacles, the UK risks losing promising tech firms to international markets, taking high-value jobs, innovation, and intellectual property along with them—resulting in substantial financial losses for the UK. The nation has a prime opportunity to break this cycle, especially in AI, where we have the potential to establish globally significant companies instead of allowing them to develop abroad or be acquired by US corporations. The AI sector has already seen significant growth, with its Gross Value Added rising from £1 billion in 2022 to £1.2 billion in 2023, and estimates indicating that UK AI firms generated over £14 billion in revenue. Keeping these companies domestic could be transformative.

      At a recent industry roundtable hosted by the Future Governance Forum, discussions focused on the obstacles faced by scaleups. Participants included Labour MP Josh Simons, the BVCA—the representative body for the UK’s private equity and venture capital sectors—and my firm, Boardwave, which consists of over 2,000 European software leaders and CEOs. The conversation mirrored findings from the Future Governance Forum’s report, “A Mountain to Scale,” highlighting three key areas where policy changes are needed to facilitate this critical growth: finance, talent, and place.

      In terms of finance, while there is ample capital for Series A funding, scaleups frequently struggle to obtain the later-stage financing necessary for ongoing growth. This "valley of death" in funding is a well-recognized issue, with an estimated £15 billion shortfall in domestic scaleup investment each year. The government cannot bridge this gap by itself; tapping into larger private capital sources is vital. Sweden’s approach to fostering pension fund investment in growth-stage companies presents one potential model. The UK's own pension reform agenda could similarly encourage greater private sector investment.

      Regarding talent, labor market conditions have made it increasingly challenging for scaleups to succeed. The recent roundtable highlighted hiring difficulties in the UK, particularly due to the effects of recent policy changes, such as increases in employers’ National Insurance contributions, which have dampened business confidence. Coupled with this is the availability of tech talent. The UK’s visa system must better support the development of in-demand skills, especially in AI, to ensure the country remains globally competitive. The government should consider targeted visa options, similar to Estonia’s e-Residency framework, to attract the necessary talent for the next wave of high-growth firms.

      On the topic of place, there exists a significant opportunity to establish the UK as the prime location for scaling businesses eager to enter the European market, particularly attractive to investors and firms from high-growth economies like Brazil. Many foreign investors view the UK favorably due to its strategic location, the English language, its receptiveness to foreign direct investment (FDI), robust infrastructure, and stable governance.

      Nevertheless, the prevailing sentiment—especially within the software and technology sectors—is that the UK is often perceived as a less appealing environment for scaling businesses compared to other markets. Despite this perception, technology is becoming increasingly vital for driving growth and innovation in essential sectors such as defense, energy, and security, thereby reinforcing the UK’s geopolitical position. The government’s recent announcement of increased defense expenditure highlights the necessity for ongoing investment in advanced technology to maintain strategic advantages. To truly capitalize on the potential of tech scaleups—both as economic engines and as cornerstones of national resilience—policies like the Seed Enterprise Investment Scheme (SEIS) and the Enterprise Investment Scheme (EIS) must be expanded to support more mature, scaling companies in critical sectors. By doing so, the UK can fortify its leadership in