Why and how we must support our companies if we are to address the UK’s growth crisis
It is as simple as it is difficult. The precondition for any economy to sustain sound economic growth is a critical mass of consequential companies that constantly adjust their business models to remain both consequential and competitive. Some will succeed; some will fail; but with a sufficiently strong pipeline of scaleups replenishing their ranks, all will be well. Obviously, fiscal, monetary, skills, R &D, infrastructure, and regional policies, even devolution, discussed in this document, all matter – but the principal growth driver in a capitalist economy is the quality of its companies and their capacity for renewal and reinvention. Policy ultimately must support these.
Yet, if stated simply and plainly, the policy and practical implications are much tougher. Such companies do not emerge out of thin air any more than the ecosystem that generates them. One of Britain’s giant missteps was to allow all of its top 20 manufacturing exporters just 40 years ago to be eviscerated – a by-product of the Darwinian view of the then-prevalent free market consensus that if companies can’t survive and reinvent themselves, they must go to the wall. The market has spoken and can’t be countered.
Plainly, no company has a divine right to be impervious to competitive challenges; companies are in a constant process of renewal. The UK’s problem is that the forces fostering successful reinvention and replenishment are desperately weak. Takeover, merger, or wind-up are more likely in the pitiless British system than restructuring and reinvestment. Nor do such constructive forces emerge spontaneously from market operations: unless public agency enters the lists and takes on the task of designing a better ecosystem, nothing will change. The intellectual and policy debate continually skirts these truths.
Intellectually, Britain suffers from a deep-seated aversion to proactive public agency. Over the decades, it has failed to build the institutional architecture through which such agency might be successfully exercised. Instead, it has veered between unsuccessful statism, iconically represented by the Attlee government, and unsuccessful neo-liberalism, iconically represented by Thatcherism. Nor has the business and financial establishment held itself to account to do better; concerted private initiative is always open as an avenue for improvement, but it is a road not taken. Thus, policymakers and the wider political and business classes have stood by, observing key companies disappearing to a degree unparalleled in the industrialised west, as others are locked in a defensive stasis. In economic terms, it has been criminal. As Andy Haldane recently observed, the fact that the UK’s current 10 largest companies are 100 years older than the US’s 10 largest companies speaks for itself.
In 2025, Professor Philippe Aghion won the Nobel Prize for his work on creative destruction. The Austrian economist Joseph Schumpeter coined the phrase in the 1940s, trying to capture the way capitalism simultaneously destroys redundant businesses while creating new ones that incorporate frontier technologies and productive capacities. Aghion’s genius (set out in his We Society podcast episode, Harnessing Creative Destruction) is to breathe new life into the concept as the indispensable ingredient of twenty-first-century growth, given the pace and extent of the transformative fourth Industrial Revolution that is breaking over all economies. Old business models will be destroyed, but given a fit-for-purpose ecosystem that fosters both the discovery of breakthrough scientific knowledge and the financing of the startup and scaleup companies that deploy it, new dynamic businesses will emerge.
Two key twenty-first-century institutions are research-based universities that create frontier science and knowledge, and a financial system equipped to invest in risky early-stage companies, particularly venture capitalists who specialise in spotting innovative young tech companies and growing them to maturity. This must be coupled with a third process – a competition policy that ensures that the challenge of innovative young corporate ‘Davids’ is not snuffed out by behemoth corporate ‘Goliaths’ taking them over. Moreover, economy and society are umbilically connected. Aghion believes society has to be organised to embrace this new era of economic change; in particular, working-age adults must not only be sufficiently well-educated and trained to fill the jobs emerging from this tumult, but they must also have access to agile learning institutions that allow them to refresh and acquire new skills over their working lives constantly. Equally, as they move from dying to growing firms, they must receive income support to manage these transitions. Aghion advocates the flexi-security work and welfare system, pioneered in Denmark and, to an extent, in other Nordic economies.
In this context, Britain has been gifted an opportunity. Providence, history, and culture have given the country the chance to lead in the contemporary era of creative destruction. The entrepreneurial and openness-to-ideas cultures that spawned the Industrial Revolution are not dead; they have not had a chance to re-express themselves until today’s conditions. Part of this rejuvenation is that Britain has at least 11 universities in the global top 100 – as many as 17 on one ranking; more per capita than any other country. They have become great generators of valuable intellectual property on which to cornerstone a business. London remains, despite the damage of Brexit, a world financial centre and has providentially become the European base for the US’s dynamic venture capital industry – attracted by the ease of raising money, the language, and the investment opportunities. As a result, Britain enjoys the status of being home to Europe’s most important university and venture capital industries, aided and abetted by some very useful tax incentives for angel investment.
The little-remarked results are already spectacular, to which the Purposeful Company’s Growth Trilogy published in 2025 drew attention – exploring this phenomenon and examining ways in which it might become the platform for sustained economic growth (full declaration: I am the co-chair and lead the project). The data shows that the scale of this British innovation economy is now only exceeded by the US and China. Britain has some 1800 young growth companies all founded since 1990, all with science, tech or high innovation business models, generating $25m-$100m in revenue (so-called ‘colts’) and $100m plus in revenue (so-called thoroughbreds). Both the evidence and the case are well-explained by Britain’s most successful venture capitalist, Saul Klein of Phoenix Court, in his We Society podcast episode, Why Britain should back more innovators.
Moreover these companies are spread across the UK with, for example, Manchester and Leeds rivalling Oxford and Cambridge. The UK has two fifths of all such companies in Europe.
However, almost all are private. All but 6 per cent over the last decade have been absorbed or taken over by large companies based in Britain or overseas, largely the US. As their demand for investment gets larger as they grow, their capacity to raise money from UK sources shrinks dramatically. Some 85 per cent of deals involving investment of $250 million or more come from the US, which means most of their voting rights fall into US hands – and immense pressure to focus and relocate to the US. A rough estimate is that 1,700 of such companies have been taken over and exported to the US over the last 15 years, representing at least $1 trillion of lost economic value to the UK. It is important that the few that remain float on the London Stock Exchange and become self-standing British public companies using Britain as the base for their European and global operations – and more of the pipeline behind them do the same.
Welcome, if tentative, steps have been made to redress this crisis. British pension funds invest proportionately less in their own backyard than any other national pension system, insisting that despite generous tax incentives for pension saving, they should invest only where returns are potentially highest worldwide. This freedom generates only modest returns compared, for example, to Canadian or Australian funds that invest more in their own economies and in startups and scaleups. At the same time, the neglect of the UK economy has had a baleful impact on growth, productivity, and living standards.
Part of the explanation is that UK pension funds are astonishingly small, which accentuates their conservatism and risk aversion. The recent Pensions Act will go a long way toward accelerating the emergence of British ‘superfunds’. At the same time, many leading investment houses have come together in the Sterling 20, the Mansion House Agreement, and the Accords, committing to invest more in private UK scaleups and startups. The Labour government has also boosted the British Business Bank’s capacity to invest in UK scaleups.
The story is not just about venture investment. Scaleups need orders, and a revolution in attitudes towards both private and public procurement is an imperative. As is access to crucial European markets, which Brexit has limited. Equally, the financial crisis in Britain’s universities cannot be allowed to deepen; they are too frequently taken for granted. Given the importance of education and training in the 21st-century economy, it is a national disgrace that the country spends 4.1 per cent of GDP on education – less than 40 years ago, despite all the huffing and puffing about the importance of education.
Yet for all that Britain’s innovation economy and the companies that populate it have momentum. This opportunity to become Europe’s – and even in relative terms the world’s – leading tech economy must be seized, with the new powers for cities and city-regions allowing the prosperity to be shared nationally – genuine levelling-up. Britain’s pension funds need to be incentivised to invest as much in British public companies and private scaleups as their counterparts do in their countries; £59 billion of tax relief on pension fund contributions should be contingent on investing, say, 15 per cent of their total equity portfolio in the UK. Support for the British Business Bank needs to turbo-charged and it should be mandated to build a venture capital industry powered by UK funds. The founders and business builders in the innovation economy should be ringfenced from potential increases in capital gains tax and/or wealth taxes; indeed, there is a case for tax privileging them, and as a quid quo pro in strategic sectors – defence, energy, health – the British Business Bank should take special shares in them to block unwanted foreign takeover. Britain should take a lead in creating a single European Innovation market. We should move towards creating our own flexi-security system, along with training for 21st century jobs.
In all this British social science has a vital role, turning its attention to the drivers of creative destruction and analysing how it can best be made to work for society as a whole. These are exciting times.
About the author
Will Hutton FAcSS is President of the Academy of Social Sciences. He is a political economist, author and columnist. He is co-chair of the Purposeful Company, an associate with the London School of Economics Centre for Economic Performance, a non-executive director of the Satellite Applications Catapult and writes a regular column for The Observer which he formerly edited. He was Principal of Hertford College, University of Oxford, from 2011 to 2020. He has authored many bestselling books including the acclaimed The State We’re In (1995).
Photo Credit: Marvin Meyer on Unsplash