The UK has Schrödinger’s science and technology sector. On the one hand, we are a ‘science and technology superpower’. The strength of our R&D base is our national differentiator. Ministers celebrate the depth of the UK’s private markets.
At the same time, universities demand more money to help commercialise innovation. Investors call on the government to plug ‘funding gaps’ for growth-stage companies. Last week, the Chancellor used her Mansion House address to outline yet another government-backed vehicle for investing in innovative British businesses.
UK science and tech manages to be both the best in the world but unable to stay afloat without ever growing sums of taxpayers’ money.
So what’s going on?
In short, the UK doesn’t have a technology policy. While there is an army of officials working on technology-related issues, they are focused on either regulation or operating a sprawling funding bureaucracy. Vanishingly few people are focused on making the UK the best place in the world to scale impactful research or build a category-defining technology company.
Structural barriers to scale – like the high cost of energy, limited lab space, broken procurement, regulatory sluggishness, and predatory behaviour from universities towards entrepreneurs – all go ignored.
Instead, the government has channelled billions of pounds into subsidising the UK technology sector over the past two decades. It is the single biggest investor in UK venture capital funds and ‘growth-stage’ technology companies. On top of this, hundreds of millions of pounds is distributed to fund ineffective NGOs, support low value innovation programmes or prop up zombie companies.
This is expensive displacement activity. Micro tech interventions are usually politically uncontroversial and provide regional photo-ops. While the cumulative cost to the taxpayer is high, individual initiatives are cheap, making them ‘easy’ to fund.
If this is so ineffective, why do governments do it?
Firstly, there is an ideological bias. To go Thatcherite, there is no such thing as UK tech. There are only individual companies. Only a handful of these can win. This jars with both Westminster and Whitehall. The former believes that any British business is axiomatically ‘world-leading’, while the latter is fixated on ensuring growth is distributed as broadly as possible.
Rather than allowing bad businesses or incompetent investors to fail, so talent and capital can be recycled, they’re kept alive to counter imaginary ‘market failures’.
The second malaise is ‘stakeholderism’. Lack of in-house expertise results in policymaking by a committee of vested interests. Policy around technology finance is determined by polling the current or potential recipients of public money – and they always want more. For example, the driving force behind the creation of a multi-billion pound British Patient Capital fund was a review that heavily consulted venture capitalists and asset managers who stood to benefit.
Finally, it’s easier to focus on funding than it is on structures. Given the choice between the pain of building out the UK’s nuclear infrastructure to power data centres or the ease of launching a new regional growth fund – the median politician will pick the latter.
The UK has made some strides in technology policy over the past few years, but they’ve been driven by outsiders who don’t share the house view. At every turn, they’ve had to fight the system’s antibodies.
The Advanced Research and Innovation Agency (ARIA) was largely the work of outsiders, like scientist James Phillips. The purpose of the agency is to fund cutting-edge research outside the world of standard Whitehall business cases and procurement cycles. The agency immediately came under political fire for its independence and its creators had to fight off a ‘levelling up’ attempt to locate it in Wrexham.
The UK AI Safety Institute, another rare example of a government unit capable of hiring top talent, was driven by a taskforce of outsiders. Leading AI labs, including Google DeepMind and Anthropic, voluntarily submit their models to the AISI for pre-deployment testing. It’s now under budgetary pressure and its international expansion plans are in jeopardy.
Meanwhile, a combination of an independent review and talented external advisers led to a planned investment to correct the UK’s woeful lack of high performance computing infrastructure. After the general election, the incoming Labour government quickly dispensed with the advisers and froze the investment. By this point, the University of Edinburgh had already spent £31 million building the facility.
In short, the UK has spent billions to build a machine for distributing regional subsidies, with two innovative institutes randomly bolted to each side.
The good news is that this is fixable. The bad news is it will require a degree of political courage and a willingness to say ‘no’ to people. A government with a majority of over 150 is uniquely well-placed to accomplish this. Sadly, it doesn’t seem interested.
Alex Chalmers posts on Substack at Chalmermagne. Read more here.
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