The UK’s world-class science and technology sector is in deep trouble. Despite producing Nobel laureates, breakthrough research, and promising startups, Britain is failing spectacularly at turning its innovations into homegrown, globally competitive companies.
A damning new House of Lords report, titled “Bleeding to Death: The Science and Technology Growth Emergency”, paints a picture of a nation sabotaging its own future by allowing its most valuable tech firms to be snapped up by foreign buyers or relocate overseas, taking jobs, tax revenue, and long-term economic power with them.
The report, published just days ago by the House of Lords Science and Technology Committee, doesn’t mince words.
“The UK economy is bleeding out in a national crisis of growth,” it states bluntly. “We are in a new technological and geopolitical context… yet the UK has seen a procession of promising science and technology companies moving overseas rather than scaling here.”
Britain has long suffered from what insiders call the “failure to scale.” The country excels at the early stages: spinning out startups from elite universities like Oxford, Cambridge, and Imperial College.
In fact, the UK ranks third globally for venture capital (VC) investment and has produced over 185 “unicorns”, startups valued at over $1 billion.
But when these companies need serious capital to grow into giants, what the report calls “scale-up” finance, they hit a wall. There simply isn’t enough domestic late-stage funding available. As a result, they turn to US investors, who now dominate the UK’s tech cap tables.
And once US money comes in, the gravitational pull shifts: companies relocate headquarters, list on NASDAQ, and ultimately leave the UK behind.
Recent examples are stark:
- Oxford Ionics, a quantum computing firm, was acquired by US-based IonQ for $1 billion in June 2025.
- OrganOx, an Oxford spin-out making life-saving organ preservation tech, sold to Japanese firm Terumo for $1.5 billion in August.
- Wise, the London fintech darling, announced it would move its primary listing from the London Stock Exchange (LSE) to New York, prompting the Financial Times to call the lack of domestic equity capital “an emergency for the British economy.”
- AstraZeneca, the UK’s largest R&D spender, recently upgraded its US share listing, fueling fears it may fully decamp, a move that would leave a £200 million hole in UK stamp duty revenue alone.
“We need to make sure that that does not happen with the rest… otherwise we are just subsidising R&D,” warned Tom Adeyoola, Executive Chair of Innovate UK, during evidence sessions.
Why is this happening? Blame the pension funds
At the heart of the crisis lies a shocking statistic: UK pension funds now allocate less than 5% of their assets to UK equities, down from 50% in 1997. That’s a 90% decline in just under 30 years.
Compare that to the US, where 72% of venture capital comes from pension funds. In the UK? Just 10%.
Why the difference?
The report traces it back to a fateful policy shift in the early 2000s. When new accounting rules forced companies to put defined-benefit pension liabilities on their balance sheets, they shifted holdings from risky equities into “safe” government bonds (gilts).
The result?
Trillions of pounds in long-term capital were pulled out of the UK stock market and innovation ecosystem.
“Where pension schemes used to account for 60% of the holdings of public companies in the London Stock Exchange, they now account for 2%,” explained Professor Sir John Bell, President of the Ellison Institute for Technology.
The consequence?
A “shallow” capital pool. In the first eight months of 2025, only 7 UK companies listed on the LSE, compared to 129 in the US. Even Angola’s stock exchange raised more IPO capital than London during that period.
The government has tried to fix this.
The Mansion House reforms, first launched in 2023 and expanded under Chancellor Rachel Reeves, aim to redirect pension capital into UK growth companies.
The plan includes:
- Requiring large defined-contribution pension schemes to hold at least £25 billion in assets by 2030 (to achieve economies of scale).
- Encouraging pension funds to allocate 10% of portfolios to private assets, with 5% ringfenced for UK investments.
- Creating new investment vehicles like LIFTS and the British Growth Partnership to help pension funds invest in tech.
But the Lords are skeptical.
Sir John Bell called the current approach “a firm handshake” that “is not going to get you where we need to be.”
Others warn that without mandation, or at least the threat of it, pension funds may continue to favor low-risk infrastructure over high-potential tech.
The report urges the government to reserve the power to mandate investments and even consider clawing back tax relief from funds that fail to meet targets.
It also recommends surveying pension members to see if they’d prefer more of their savings invested in UK companies, a move that could shift the cultural narrative.
One of the report’s most striking insights? Government contracts can be more valuable than grants.
“The biggest driver of innovation is not investment but procurement,” said Saul Klein, co-founder of Phoenix Court and a DSIT non-executive director.
“The most valuable thing for any company… is not us investing more in that company; it is the company getting a purchase order.”
Yet the UK’s public procurement system is risk-averse, slow, and biased toward large, often foreign, incumbents.
In contrast, the US runs the Small Business Innovation Research (SBIR) programme, which mandates that 3.2% of federal agency budgets go to innovative SMEs, totaling $6.2 billion annually.
The UK’s equivalent? Contracts for Innovation (formerly SBRI), which funded just £42 million in 2024/25, a fraction of 1% of what the US spends.
The Lords recommend the UK adopt SBIR-style targets, celebrate officials who back innovative domestic firms, and even consider a “presumption in favour of buying British” for emerging technologies.
Perhaps the most urgent recommendation? Create a National Council for Science, Technology and Growth, modelled on the National Security Council, and chaired by the Prime Minister and Chancellor.
Why? Because right now, responsibility is fragmented across departments, DSIT, DBT, Treasury, Home Office, with no one accountable for the big picture.
As Lord O’Donnell, former Cabinet Secretary, put it: “We have a constitution that is all about departments… there is very little about cross-department work. That makes life really hard.”
The proposed Council would include ministers from key departments, heads of public investment bodies, and scientific advisers. Its mission: break silos, align strategy, and stop the bleeding.
Talent drain and University crisis: The foundations are crumbling
The crisis isn’t just financial. The UK is also losing its human capital. Scientists and entrepreneurs face upfront visa costs of over £20,000 for a family of four, 17 times higher than in peer countries.
Meanwhile, universities are in financial freefall, with 72% projected to run deficits in 2025/26 due to frozen tuition fees and government cuts to international student numbers.
Yet the government plans to introduce a levy on international students, a move the report calls “self-defeating,” as overseas fees subsidize much of the UK’s world-leading research.
“Rather than addressing this issue, the Government will introduce an international student levy which will make the situation worse,” the report warns. “The UK cannot afford to take its strong research base for granted.”
The tone of the report is dire, but not hopeless. The UK still has four of the world’s top ten universities, a thriving startup scene, and global leadership in life sciences and AI.
“The most likely candidate to become the Government’s ‘trillion-dollar tech company by 2035’ probably already exists,” the report concludes.
“The Government must stop the bleeding: convince that company, and dozens of others looking overseas, that the best future for them is in the UK.”
But time is short. As the Lords put it: “There is a rapidly closing window of opportunity… Leadership and a sense of urgency at the highest levels is needed to stop the bleeding and drive growth.”
If the government acts decisively, with bold reforms, coordinated leadership, and a genuine commitment to homegrown innovation, it may yet turn the tide.
If not, Britain risks becoming nothing more than an “incubator economy”, brilliant at birth, but powerless to raise its own giants.
