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The Labour Party has outlined tentative plans to “make Britain the high-growth, startup hub of the world”, with a focus on widening access to capital and revamping the existing tax relief system for both entrepreneurs and investors.
Published on 8 December, the Start-up, scale-up report – based on extensive written evidence from industry figures and conversations with more than 120 roundtable participants – has produced a number of policy recommendations for how Labour can meet its ambition of making Britain the best place to start and grow a business.
“We are at a post-Brexit crossroads,” said shadow chancellor Rachel Reeves in the foreword, who commissioned the report in June. “We can continue down the road of managed decline, falling behind our competitors, or we can draw on bold thinking to propel us forward.
“We can cling to the old ways, or we can apply ourselves with creativity, determination and common sense to shaping our future outside the European Union, while improving our trading relationships, including with our nearest neighbours. That calls for fresh thinking about regulation and planning, access to finance and strategic partnership with industry, so that we lead the way.”
Key recommendations include: unlocking institutional investment and patient capital by, for example, using pension funds to invest in high-growth firms; transforming the British Business Bank (BBB) through greater operational independence; and further reviewing how to make public procurement easier for startups.
Regarding the tax system and the accessibility of public equity markets, the report further recommends that Labour commit to maintaining the incentives provided by the Seed Enterprise Investment Scheme (SEIS), the Enterprise Investment Scheme (EIS) and venture capital trusts (VCTs), while also reviewing whether the scope and scale of SEIS and EIS are sufficient.
The report suggests the UK should look at France’s Tibi investment scheme for inspiration, which uses the convening power of government to bring together private sector investors to support high-growth firms.
It adds that Labour should also maintain and build on the research and development (R&D) tax credit system and modernise the business rates system so that small, pre-profit companies are not unduly burdened.
However, the exact details of how many of these policy recommendations would work are not clear, with the report saying that Labour should conduct further reviews into a number of areas, such as the performance of equity markets, alternative tax schemes and opportunities for investors, before forming concrete policies.
The report also notes that UK startups are disproportionately concentrated in London, which can be remedied in part by fostering clusters of startup activity to help boost innovation and growth in other regions.
In June 2022, figures published by Dealroom showed that UK tech startups and scaleups secured £12.4bn in venture capital (VC) funding in the first six months of the year, but £8.6bn went to London-based startups.
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By comparison, the next two largest tech investment hubs in the UK were Bristol and Oxford, which raised £220m and £248m, respectively.
“One key way of anchoring the development of such clusters is around universities,” said the startup review, pointing out that this is starting to happen with the Northern Gritstone alliance of Leeds, Manchester and Sheffield universities.
“Respondents noted that universities can play an important role as a finance hub for innovative firms and investors, even beyond their direct role in spawning startups,” it said. “It was also noted that this role could be amplified where universities nearby to each other work together, sharing their networks and expertise.”
But it said clusters of innovative firms rely on a partnership between business and government to be successful, adding: “Several respondents noted the lack of regional government in the UK relative to comparable nations.
“Respondents suggested this can make it harder for policy-makers to tap into the unique strengths of different communities, or identify and overcome local barriers to growth.”
Speaking to Computer Weekly in October 2022, two VC fund managers said the future success of the UK’s tech sector depends on its ability to form stronger regional ecosystems.
The report was authored by tech entrepreneur Tom Adeyoola, co-founder of Extend Ventures; Julie Devonshire, director of the Entrepreneurship Institute at King’s College London; Lord Jim O’Neill, cross-bench peer and non-executive chairman of Northern Gritstone; and Alex Depledge, CEO and co-founder of Resi, the UK’s largest home improvement platform.
They wrote in the report’s conclusion: “We need to do more to ensure that this potential is fully realised. It is no secret that the UK can do better at unlocking institutional capital for investment in high-growth firms, and this review contains a set of recommendations aimed at doing so.
“Similarly, there can be no doubt that we are not currently making the most of the talents of founders and innovators outside of London, nor of women founders or those from ethnic minorities. Addressing these shortcomings is another focus of the recommendations set out in this review. Closely linked to this are the recommendations that aim at making more of our university research, because doing so can drive forward self-sustaining economic development across the whole of the UK.”
They added: “We hope that the Labour Party takes forward these recommendations in full, and believe that doing so will help ensure that a future Labour government can achieve its stated mission to improve economic growth, increase productivity and, ultimately, raise living standards in every part of the UK.”