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The steady stream of UK companies seeking US listings — from CRH and Arm to, most recently, Wise — has triggered much hand-wringing among City grandees, politicians and investors alike.
Yet any scrutiny of the UK’s competitiveness problem needs to look at the issues companies face earlier in their life cycle. So many promising businesses run out of runway long before a public offering is even on the table. Successive governments have long focused on promoting start-ups and placating large corporations. But the overlooked engine of the UK economy lies in between.
As the Labour government gears up for its first spending review, its growth agenda should include support for medium-sized companies that wish to scale. Some of these are tech scale-ups, others are mid-sized businesses anchoring local economies. Regulatory and financial support remains targeted, however, at much larger and smaller peers.
“They are caught in the middle; nothing is designed for them,” says Anthony Charrie, a partner at Oliver Wyman, referring to mid-sized groups. Without intervention, this segment of business will fail to produce the corporate champions that ministers say they want.
So-called “scale-ups” and “mid-market corporates” are often lumped together. While there is some overlap, they are distinct. Scale-ups rapidly increase revenue or headcount annually. Often venture capital-backed, they are the ones pitching for “next big thing” status.
Mid-market companies are larger, steadier and typically have annual revenues of between £25mn and £500mn. The UK has more than 13,000 of them, according to NatWest and Oliver Wyman, making up just 0.5 per cent of all companies, yet employing almost a third of the UK’s workforce.
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Together, these two groups consistently outperform the broader economy in growth and productivity. But too many hit a ceiling. They struggle to professionalise governance, hire top talent, expand abroad, or adopt technology. Crucially, many of the fastest-growing groups lack access to more patient capital in the UK. Domestic investors prefer safer bets with quicker returns. US investors are more willing to back lossmaking businesses with no near-term dividends in the hope of a big upside. For scale-ups alone, the funding gap is estimated at £15bn a year, according to the CBI.
Lord Jim O’Neill, the former government minister and economist, said last year that the UK did well to foster start-ups, but where it had issues was the “valley of death” between initial funding and generating sustainable revenues and securing the finances to scale.
Many entrepreneurs are risk-averse, having been burned by high-street banks, which continue to dominate lending to small businesses. These banks require burdensome personal guarantees and reject about 50 per cent of loan applications. So a lot of businesses do not even bother trying. It is why UK small- and medium-sized enterprises apply for funding at far lower rates than their European peers. This hits innovation and their own ambitions.
Aside from cultural caution, there are broader barriers — from visa hurdles when hiring from abroad to a shortage of skilled domestic leaders. The Chartered Management Institute has warned of a “crisis of accidental managers”, with 82 per cent lacking formal training. Not enough knowhow to scale.
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It is little surprise that many UK founders sell early, seek private equity backing or fall into the arms of US investors. The acquisition of Oxford Ionics by US quantum computing group IonQ and Qualcomm’s $2.4bn deal for chip designer Alphawave are just this week’s examples of missed opportunities for the UK.
The Labour government is aware of the problems, but few have confidence that it will be able to adequately remedy them. Its “Invest 2035” industrial strategy suggests redirecting the British Business Bank towards high-growth sectors and alleviating infrastructure bottlenecks that can help some mid-sized businesses. But good intentions must be matched with better tax rules, operational funding schemes rather than one-off handouts, simplified hiring rules, and, above all, a cultural shift in how Britain thinks about risk.
For decades, governments have been reluctant to “pick winners” with policy interventions, lacking confidence in their ability to do so and fearing accusations of favouritism. Yet the result is fewer corporate champions. For a country in dire need of higher economic growth, the issue may not be how many businesses it starts. It is how many it can grow.
Data visualisation by Amy Borrett