24 November 2022

Starmer is wrong about startups – the key to growth is scaling up


At the Confederation of British Industry (CBI) conference this week, Labour leader Sir Keir Starmer said he wants Britain to be the best place to start a business. 

But he is focused on the wrong issue. If he wants to boost prosperity throughout the UK and fund our public services, he should instead concentrate on policies that help innovative firms to scale up. 

And the Conservative Party is no better. By halving the capital gains tax threshold and cutting the dividend allowance in the Budget, Chancellor Jeremy Hunt has penalised entrepreneurs and will stifle their growth. 

By most international standards, the UK is already one of the best places to start a business. It is ranked eighth in the world for starting a business, according to the 2020 World Bank Doing Business report. 

Indeed, between 2000 and 2020, some two million new businesses were founded in the UK. 

However, just 0.6% of Britain’s 5.5 million SMEs are scale-ups – firms growing at between 15% and 20% a year, according to the think tank the Scaleup Institute. And there are fewer high-growth firms today than in 2017.

This matters when these businesses employ more than three million people and contribute £1.2 trillion to the UK economy. 

But Scaleup Institute research shows six in ten scale-up CEOs say it is now harder to grow a business in the UK than in the past. 

Rather than a plan for starting up, we need a plan for scaling up. Three crucial areas can help innovative firms grow. 

First, politicians should reform planning to encourage development in our most productive cities like London, Oxford and Cambridge and remove barriers to entrepreneurship and innovation.

For instance, data from the Greater London Authority shows that while the number of jobs in London has increased by 40% over the last 20 years, the number of homes has grown by just 15%. Such limited supply pushes up the cost of housing, making it harder to attract and retain skilled workers. 

In addition, research shows that inventors are more productive when they live and work closer to other innovative people. But the current planning regime restricts such clustering and means fewer ideas for entrepreneurs to bring to market, as Sam Dumitriu argues. 

Alongside this, research from the Entrepreneurs Network shows the UK lacks laboratory space, which increases costs and hampers innovation – especially in high-tech and high-growth sectors like biotech. According to real estate business Savills, London has just 90,000 sq ft of available lab space, while New York has 1.36 million sq ft available.  

Second, people. Innovative firms need access to the best scientific and technical talent globally. 

The current High Potential Individual visa is a good start. But it excludes graduates from the top-performing global universities by average earnings, often a reliable indicator for the rate at which graduates innovate. 

Instead, Starmer – and the current government – should expand the visa to make it easier for scaling firms to access the people they need to grow. 

Third, regulation and government intervention. As part of Keir Starmer’s recommendations for a ‘new business model’, he proposed an Industrial Strategy Council. But history shows that government intervention does not lead to an efficient allocation of people, capital or resources. 

Even the Conservatives are keen on state intervention. Just look at the plans to introduce a new Digital Markets Unit, which research from the Institute of Economic Affairs says will stifle innovation and curb entrepreneurialism.  

Instead, we should focus on pro-innovative regulation. The Taskforce on Innovation, Growth and Regulatory Reform set out specific proposals that may benefit the UK’s high-growth sectors. Yet neither Labour nor the Tories have adopted many of its suggestions.

With public finances in a dire state and expectations for one of the longest recessions in recent memory, politicians need to do all they can to support our high-growth firms to scale. Sadly, this does not seem to be a priority. 

Click here to subscribe to our daily briefing – the best pieces from CapX and across the web.

CapX depends on the generosity of its readers. If you value what we do, please consider making a donation.

James Boyd-Wallis is a communications and public affairs consultant.

Columns are the author's own opinion and do not necessarily reflect the views of CapX.