Britain’s scientific leadership is under threat, according to a stark new report from the House of Lords Science and Technology Committee, which warns of a looming “growth emergency” in research and development. The inquiry, published today, reveals a critical shortfall in funding and support for scaling up innovative science and technology companies, potentially jeopardizing the UK’s economic future and global competitiveness. While the nation boasts world-class research, translating discoveries into successful businesses is increasingly difficult, hampered by risk-averse financial institutions and a lack of long-term investment—a situation the committee argues demands urgent attention from government and the private sector alike.
Science and Technology Committee Membership & Publications
The House of Lords Science and Technology Committee actively investigates science and technology policy, publishing reports like “Bleeding to Death: The Science and Technology Growth Emergency” (HL Paper 192, 2025). Composed of twelve members – including Lord Mair as Chair – the committee scrutinizes areas crucial for UK innovation. Their 2024-26 session focused on the “failure to scale” within the UK tech sector, identifying systemic issues hindering growth and competitiveness. All publications and live coverage of meetings are publicly accessible via Parliament’s website.
A key finding of the committee’s report centers on capital investment. The UK lags significantly behind the US, with only 10% of venture capital originating from pension funds compared to 72% in the US. Historical data reveals a dramatic shift; in 1997, UK pension funds allocated 50% of assets to UK equities, falling to below 5% currently. This fragmentation and risk aversion contribute to a “leaky pipeline” where promising companies seek funding and ultimately relocate overseas, impacting tax revenue and job creation.
The report highlights a concerning trend: in the first eight months of 2025, only 7 UK companies listed on the London Stock Exchange, compared to 129 in the US. This disparity, coupled with lower capital raised than even the Angolan stock exchange, demonstrates a systemic failure in attracting and retaining innovative businesses. The committee urges the establishment of a National Council for Science, Technology and Growth, modeled after the National Security Council, to drive urgent, coordinated action across government.
Report Summary: The UK Science & Technology Crisis
The recent report from the House of Lords Science and Technology Committee paints a stark picture of a “science and technology growth emergency” in the UK. The core issue isn’t a lack of initial innovation – the UK boasts world-leading universities and a vibrant startup scene. Instead, the crisis lies in “failure to scale”; promising companies are consistently forced overseas due to insufficient late-stage capital. This creates an “incubator economy” where benefits accrue elsewhere, evidenced by a mere 7 UK company IPOs versus 129 in the US during early 2025.
A critical driver of this “bleeding” is the structure of UK institutional investment. Unlike the US, where 72% of venture capital originates from pension funds, the UK sees only 10%. Fragmentation and risk aversion within UK pension funds, coupled with a dramatic decline in UK equity allocation (from 50% in 1997 to less than 5% currently), starve domestic science and technology companies of vital funding. This systemic issue necessitates urgent reform to unlock capital and retain economic benefits.
The report strongly advocates for decisive government action, including the establishment of a National Council for Science, Technology and Growth modeled after the National Security Council. Without coordinated leadership and rapid reforms to investment structures, the UK risks losing its potential to become a global leader in technology. The current trajectory suggests a slide away from ambitious goals, like securing a trillion-dollar technology company by 2035, unless immediate steps are taken.
Characterizing the UK Scale-Up Problem
The UK faces a critical “scale-up problem” in science and technology, risking its position as a global innovation hub. While boasting strong research foundations and early-stage start-up activity—including four of the world’s top ten universities—the nation consistently fails to nurture these companies into mature, globally competitive entities. This manifests in a lack of late-stage venture capital, forcing promising firms to seek funding – and ultimately, often relocation – to the US. The result is a potential “incubator economy” where innovation is exported rather than retained.
A key driver of this issue is the structure of UK institutional investment. Compared to the US, where 72% of venture capital originates from pension funds, the UK sees only 10%. Fragmentation of UK pension funds, coupled with a risk-averse investment culture, limits their capacity for high-risk, high-reward investments crucial for scaling tech companies. This trend is starkly illustrated by the decline in UK equity allocation by pension funds, falling from 50% in 1997 to less than 5% today – starving UK firms of vital capital.
The lack of domestic capital also impacts UK capital markets. Fewer companies choose to list on the London Stock Exchange, perceiving higher valuations and greater investment opportunities abroad. In the first eight months of 2025, only 7 UK companies listed, compared to 129 in the US. This creates a vicious cycle, reducing activity and capital within the UK, and accelerating the exodus of promising firms seeking growth and investment elsewhere – hindering the nation’s ability to capture the economic benefits of its R&D.
Private Sector Financing & Pension Fund Reforms
The UK faces a critical “failure to scale” for science and technology companies, stemming from a lack of late-stage capital. While initial funding is available, the report highlights a significant disparity in venture capital sources; 72% of US funding originates from pension funds, compared to a mere 10% in the UK. This scarcity forces promising companies to seek investment – and often relocation – overseas, primarily to the US, hindering domestic economic benefits and creating an “incubator economy.”
A key driver of this capital shortfall is the fragmented and risk-averse nature of UK pension funds. In 1997, they allocated 50% of assets to UK equities; today, that figure is less than 5%. This decline, coupled with fund consolidation, limits the capacity for substantial investment in high-risk, high-reward science & tech ventures. The Mansion House reforms aim to address this, but speed of implementation is crucial to prevent further leakage of innovation and capital.
Beyond pension fund allocations, UK capital markets are underperforming. In the first eight months of 2025, only 7 companies listed on the London Stock Exchange, compared to 129 in the US. This disparity, along with lower capital raised—even less than the Angolan stock exchange—creates a vicious cycle, pushing companies to list abroad and depriving the UK of vital investment and economic growth. Addressing this requires a multi-pronged approach alongside pension reform.
UK Capital Markets & Venture Capital Funding
The UK faces a critical “failure to scale” for science and technology companies, risking economic stagnation. Despite a strong research base – boasting four of the top ten global universities – the nation lags in translating innovation into industrial R&D spending, ranking only three in the top 100 globally. This results in promising start-ups frequently seeking funding – and ultimately relocating – overseas, particularly to the US, creating an ‘incubator economy’ that exports economic benefits instead of retaining them.
A key driver of this issue is limited access to late-stage capital. While 72% of US venture capital funding originates from pension funds, the UK figure is a mere 10%. Fragmentation within UK pension funds, coupled with a risk-averse investment approach, restricts their ability to provide substantial capital for high-growth science and technology ventures. This has seen UK equity allocation by pension funds plummet from 50% in 1997 to less than 5% currently.
The disparity extends to capital markets; in the first eight months of 2025, only 7 UK companies listed on the London Stock Exchange compared to 129 in the US. Capital raised by new UK listings even fell below that of the Angolan stock exchange. This perception of limited opportunity drives companies to seek valuations and funding elsewhere, exacerbating the cycle of capital flight and hindering the UK’s ambition to become a leading global technology hub.
Public Investment Bodies & Sovereign Wealth Funds
Public investment bodies and Sovereign Wealth Funds (SWFs) are crucial for addressing the UK’s “failure to scale” in science and technology. The recent Science and Technology Committee report highlights a significant disparity: while the UK boasts world-leading research—four of the top ten global universities—it lags in industrial R&D spending, ranking only within the top 100 globally. This “leaky pipeline” sees promising companies, often funded initially in the UK, seek later-stage capital and ultimately establish operations overseas, particularly in the US.
A key factor is the limited domestic capital available for scaling. The report details a stark contrast with the US, where 72% of venture capital funding originates from pension funds, compared to just 10% in the UK. Declining allocation of UK pension funds to domestic equities – falling from 50% in 1997 to less than 5% currently – starves UK companies of necessary investment. SWFs, like those utilized by other nations, represent a potential solution for injecting patient capital into high-risk, high-reward tech ventures.
Globally, SWFs manage substantial assets; the report notes their scale with illustrative data. Utilizing public investment institutions, like Innovate UK and the British Business Bank, alongside a properly capitalized National Wealth Fund, is critical. However, the report emphasizes that these bodies must operate with sufficient scale and consolidation to effectively compete with international funding sources and prevent the continued outflow of innovative companies and associated economic benefits from the UK.
Innovate UK & British Business Bank Roles
Innovate UK and the British Business Bank are crucial public sector bodies tasked with addressing the UK’s ‘failure to scale’ for science and technology companies. While the UK excels at early-stage innovation – boasting four of the top ten global universities – translating this into sustained growth remains a challenge. These organizations aim to bridge the funding gap, particularly at the later stages of development where UK companies often seek capital overseas. Their effectiveness is hampered by systemic issues within the UK’s investment landscape, including fragmented pension funds and a risk-averse approach to long-term investment.
The report highlights a significant disparity in venture capital funding sources; 72% of US funding originates from pension funds, compared to only 10% in the UK. This illustrates a critical shortfall in domestic capital available for scaling science and technology ventures. Innovate UK and the British Business Bank attempt to counteract this through direct investment, loan guarantees, and incentivizing private sector involvement. However, their impact is limited by the broader issues affecting the UK’s capital markets and the preference for listing companies on US exchanges—where valuations are often perceived as higher.
Recent data underscores the urgency of the situation; in the first eight months of 2025, only 7 UK companies listed on the London Stock Exchange, compared to 129 in the US. This outflow of capital and company headquarters necessitates a more coordinated and aggressive approach from Innovate UK and the British Business Bank. The report advocates for increased public investment, coupled with reforms to encourage pension funds to allocate a greater percentage of assets towards high-growth science and technology companies, to prevent the UK from becoming simply an “incubator economy.”
Barriers to Scaling: People, Skills & Visas
The UK faces a critical “failure to scale” for science and technology companies, largely hampered by access to skilled people. While boasting strong research foundations and early-stage startups, the nation struggles to retain talent and expertise needed for growth. A key issue is visa availability; attracting and retaining highly skilled workers from overseas is crucial, yet current policies often prove restrictive. This shortage impacts not just immediate scaling efforts but also long-term innovation and competitiveness on a global stage, pushing companies to establish operations – and jobs – elsewhere.
Access to late-stage capital isn’t the sole hurdle; a persistent skills gap exacerbates the problem. The report highlights a stark contrast with the US, where 72% of venture capital funding originates from pension funds, compared to just 10% in the UK. This underinvestment, coupled with a fragmented institutional investor landscape, creates a bottleneck. Companies needing expertise to scale – in areas like AI, machine learning, and advanced manufacturing – struggle to find qualified personnel domestically, intensifying reliance on – and vulnerability to losing – international talent.
Career pathways and permeability within the UK also contribute to the issue. The report suggests a lack of clear progression routes for skilled workers within growing tech companies, potentially driving them to seek opportunities abroad. This is compounded by the UK’s declining share of global industrial R&D spenders – currently only three in the top 100 – indicating a systemic challenge in fostering a thriving, long-term ecosystem for scientific and technological advancement and retaining associated expertise.
University Funding & Spin-Out Companies
University funding and the creation of spin-out companies are vital for UK science and technology growth, yet a “leaky pipeline” threatens this potential. While the UK boasts four of the top ten global universities, only three rank among the top 100 in industrial R&D spending. This disconnect stems, in part, from difficulties scaling companies within the UK. Successful spin-outs are frequently acquired or list overseas due to a lack of late-stage capital available domestically, effectively exporting the economic benefits of UK research.
A key issue is the fragmentation and risk aversion of UK institutional investors, particularly pension funds. Comparatively, 72% of US venture capital funding originates from pensions, versus only 10% in the UK. This disparity has worsened since 1997, when UK pensions allocated 50% of assets to domestic equities—now less than 5%. This lack of domestic investment starves promising spin-outs, forcing them to seek funding (and eventual relocation) abroad and hindering the growth of a robust UK innovation ecosystem.
Public investment bodies like Innovate UK and the British Business Bank are essential, but insufficient on their own. The report highlights a need for increased scale and consolidation within these organizations. Furthermore, the UK’s capital markets are underperforming; in early 2025, only 7 companies listed on the London Stock Exchange compared to 129 in the US, indicating a perception that higher valuations are available elsewhere, exacerbating the ‘incubator economy’ problem.
R&D Funding & Research Foundations
R&D funding in the UK faces a critical shortfall, hindering the scale-up of promising science and technology companies. A key issue is the limited domestic capital available, particularly in later-stage venture funding. While the UK boasts a strong research base – four of the top ten global universities – it ranks low in industrial R&D spenders (only three in the top 100 globally). This forces companies to seek funding overseas, often in the US, leading to acquisitions or listings on foreign exchanges and a loss of economic benefit.
Pension fund investment plays a vital, yet underutilized, role. The US sees 72% of venture capital funding originate from pension funds, whereas the UK figure is only 10%. A historical decline in UK pension fund allocation to domestic equities – falling from 50% in 1997 to less than 5% currently – exacerbates the capital gap. Fragmentation within UK pension funds also limits their capacity for high-risk, high-reward investments essential for scaling innovative companies.
Research foundations and university spin-outs are thriving, generating a healthy stream of early-stage startups. However, sustaining growth requires substantial late-stage capital. The report highlights a “leaky pipeline” where promising companies exit the UK ecosystem due to funding scarcity. In the first eight months of 2025, only 7 UK companies listed on the London Stock Exchange, compared to 129 in the US, demonstrating a clear trend of capital flight.
Leadership & Cross-Government Coordination
The UK’s struggle to scale science and technology companies stems from a critical lack of coordinated leadership. The recent Science and Technology Committee report highlights the need for a “National Council for Science, Technology and Growth,” mirroring the National Security Council, to drive decisive action. Currently, fragmented governmental approaches hinder progress, despite ambitions to become a top three global scale-up location and secure a trillion-dollar tech company by 2035. Clear direction from the Prime Minister and Chancellor is deemed essential to address this “bleeding” of economic potential.
A significant issue is the inadequate flow of capital, exacerbated by a fragmented financial landscape. While the UK boasts a strong research base and promising start-ups, scaling faces hurdles. Only 10% of UK venture capital originates from pension funds, compared to 72% in the US. Pension fund allocations to UK equities have plummeted from 50% in 1997 to less than 5% currently, starving innovative companies of vital late-stage funding and pushing them towards overseas acquisition or listing.
The report underscores a “leaky pipeline” where promising UK companies increasingly relocate to access capital and favorable market conditions. In the first eight months of 2025, only 7 UK companies listed on the London Stock Exchange, compared to 129 in the US; newly listed UK companies raised less capital than even the Angolan stock exchange. This exodus, coupled with low industrial R&D spending (only three of the top 100 global spenders are UK-based), points to systemic failures requiring urgent, cross-governmental attention.
National Council for Science, Technology & Growth
The House of Lords Science and Technology Committee report highlights a critical “failure to scale” within the UK’s science and technology sector, jeopardizing economic growth. The report details how promising companies are frequently forced to seek funding and ultimately relocate overseas, particularly to the US. This drain of innovation stems from a lack of late-stage capital availability domestically, with only 7 UK companies listing on the London Stock Exchange in the first eight months of 2025, compared to 129 in the US. This creates an “incubator economy” where growth occurs elsewhere.
A key recommendation of the report is the urgent establishment of a National Council for Science, Technology and Growth – modeled on the National Security Council. This council is envisioned as a cross-governmental body providing clear leadership and coordination to address systemic issues hindering scale-up. The UK’s institutional investors, particularly pension funds, are identified as a major contributor to the problem. In 1997, they allocated 50% of assets to UK equities; now, it’s less than 5%, severely limiting domestic investment in high-growth tech.
The report also points to fragmentation within the UK’s pension system, hindering substantial investments in science and technology. While 72% of US venture capital funding originates from pension funds, the UK figure is only 10%. This disparity, coupled with a lack of late-stage capital, is driving companies abroad. Establishing the National Council is presented as a crucial step toward reversing this trend, coordinating efforts to foster a robust domestic funding ecosystem and retain economic benefits from UK innovation.
UK’s International Competitiveness in R&D
The UK faces a critical “failure to scale” for science and technology companies, risking its economic future. Despite possessing a world-leading research base – evidenced by four universities within the global top ten – the UK lags significantly in industrial R&D spending, ranking only 3 out of the top 100 globally. This disconnect stems from a lack of late-stage capital; companies are frequently forced to seek funding – and ultimately relocate – to the US, transforming the UK into an “incubator economy” that exports its high-growth potential.
A key driver of this problem is the structure of UK institutional investment. While 72% of US venture capital originates from pension funds, the UK figure is just 10%. Fragmentation and risk aversion within UK pension funds – allocation to UK equities has fallen from 50% in 1997 to less than 5% – limit their ability to provide the substantial, patient capital required by scaling tech companies. This underinvestment perpetuates a vicious cycle, driving companies to list – and raise capital – overseas.
Public investment bodies are also underperforming. The first eight months of 2025 saw only 7 UK companies list on the London Stock Exchange, compared to 129 in the US. Furthermore, newly listed UK companies raised less capital than even the Angolan stock exchange, signaling a serious lack of domestic investment appetite. Addressing these systemic issues – from pension fund reform to boosting public investment – is crucial if the UK is to retain the economic benefits of its R&D and achieve its stated ambition of becoming a global tech leader.
Addressing the ‘Incubator Economy’ Problem
The UK is facing a critical “failure to scale” for science and technology companies, risking becoming an ‘incubator economy’. Promising startups are consistently moving overseas for funding and growth opportunities, depriving the UK of jobs and tax revenue. A key driver is limited access to late-stage capital; only 10% of UK venture capital funding comes from pension funds, compared to 72% in the US. This, combined with fragmented pension fund management, starves innovative companies of necessary investment for expansion.
A significant issue is the disparity in capital market activity. In the first eight months of 2025, only 7 UK companies listed on the London Stock Exchange, a stark contrast to the 129 listings in the US. This trend, coupled with companies seeking higher valuations abroad, creates a detrimental cycle, further limiting capital availability within the UK. The UK even saw less capital raised by new listings than the Angolan stock exchange, highlighting the severity of the problem.
Addressing this requires decisive action and cross-governmental coordination. The report emphasizes a need for clear leadership from the Prime Minister and Chancellor, alongside establishing a National Council for Science, Technology and Growth. Reforming pension fund investment strategies, bolstering the UK capital markets, and increasing public investment via institutions like Innovate UK are vital steps to prevent the continued outflow of promising companies and secure future economic growth.
