Britain has the talent. So why aren’t more businesses scaling?

Britain should be exceptionally good at building successful businesses.

We have world-class universities, respected scientists and engineers, a sophisticated financial sector, globally recognised creative industries and one of Europe’s most established technology ecosystems.

The UK continues to create ambitious founders, promising start-ups and genuinely innovative ideas.

Yet somewhere between starting a successful business and building one at scale, something appears to break.

The number of UK scaleups has now fallen for three consecutive years. Smaller exporters have faced growing pressure. Promising science and technology companies continue to look overseas for investment, ownership and access to larger markets.

So what is holding Britain back?

The easiest answer would be to blame one government, one political decision or one economic shock. The more uncomfortable possibility is that there is no single explanation.

Britain’s growth problem may be the result of several weaknesses that have accumulated over decades.

Understanding those weaknesses matters because the country may now be approaching another defining economic moment.

Artificial intelligence offers the UK a genuine opportunity. But that opportunity will not be captured simply by producing a handful of successful AI start-ups.

It will depend on whether thousands of established businesses can use the technology to become more productive, capable and competitive, while bringing their people with them.

The scaleup problem

The starting point is a troubling set of figures.

According to Vestd’s UK Scaleup Report 2026, the number of UK scaleups has continued to fall since reaching a peak of 129,080 in 2023.

By 2025, that number had declined to 128,760.

The reduction may appear relatively small, but the direction of travel matters. The total number of businesses operating in the UK continued to rise over the same period, suggesting that Britain is still creating companies but is struggling to help enough of them progress to the next stage.

Scaleups are generally defined as businesses employing between 20 and 249 people. They sit between early-stage companies and large enterprises, and they play an important role in creating jobs, developing talent and building export capability.

The decline is also being felt across much of the country.

England recorded growth of only 0.01% in 2025. Wales experienced its eighth consecutive year of decline. Scotland fell by 0.85%, while Northern Ireland moved from growth of 2.32% in 2024 to a fall of 3.33% the following year.

One year of disappointing figures might be dismissed as economic noise.

Three consecutive years are more difficult to ignore.

The question is not whether Britain can create businesses. It clearly can.

The question is why so few of those businesses make the transition from small and promising to established and internationally competitive.

A country that creates but struggles to scale

This problem extends beyond conventional SMEs.

In November 2025, the House of Lords Science and Technology Committee published a report with an unusually stark title: Bleeding to Death: The Science and Technology Growth Emergency.

The Committee argued that Britain has developed a relatively healthy ecosystem for research, spin-outs and early-stage start-ups but remains far less effective at helping those companies scale.

The UK has four of the world’s top ten universities, according to the report, but only three of the top 100 industrial research and development spenders.

It warned that Britain risks becoming an “incubator economy”, producing promising young companies that eventually move overseas in search of capital, customers or more favourable conditions.

That does not mean every company that accepts international investment represents a national failure. Businesses must make decisions in the interests of their employees, shareholders and customers.

But when promising companies repeatedly conclude that their next stage of growth is more achievable elsewhere, it is reasonable to ask why.

The Committee identified several possible causes, including limited access to late-stage capital, fragmented public support, risk-averse investment institutions, short-term policymaking and procurement processes that tend to favour established suppliers.

These are structural problems rather than the responsibility of one individual or one government.

They have also been discussed for a long time.

Is this a leadership problem?

Michael Heseltine once recalled arriving as President of the Board of Trade and asking officials about Britain’s industrial strategy.

He was reportedly told that the department was not permitted to use those words.

The story is striking because it reflects a debate that has continued for decades.

What role should government play in developing strategically important industries? Should markets determine the shape of the economy entirely, or should the country make deliberate choices about the capabilities it wants to build?

Britain has since produced numerous industrial strategies, policy papers and growth plans.

The difficulty has rarely been announcing an ambition. It has been maintaining priorities long enough for businesses to make decisions around them.

Companies invest over years, not electoral cycles. They recruit and train employees, develop products, enter markets and build facilities on the assumption that the environment around them will remain reasonably predictable.

When incentives, regulations and strategic priorities repeatedly change, even well-intentioned policies can become another source of uncertainty.

The House of Lords report called for sustained leadership and coordination across government, arguing that previous industrial strategies have often been too small, too fragmented or too short-lived.

This is not necessarily an argument for more government intervention in every business decision.

It is an argument for clarity, consistency and a better understanding of the conditions businesses need in order to invest.

Does policy understand the reality of running an SME?

There is also a gap between discussing business growth at a national level and experiencing it inside a growing company.

A 30-person manufacturer, software company or professional-services firm does not experience the economy in the same way as a multinational corporation.

Its leadership team may be managing sales, recruitment, cash flow, operations, compliance and technology adoption simultaneously.

It is unlikely to have a dedicated government-relations team, export department or transformation budget.

This matters because policies designed around the capabilities of large organisations do not always translate effectively to smaller businesses.

Vestd’s figures also reveal a significant regional imbalance. London remained the only English region to record scaleup growth in 2025, increasing by 1.73%.

There are positive signs elsewhere. Cambridge and Winchester recorded strong growth, while Liverpool and Stockport also moved in the right direction.

However, much of the country continues to struggle.

This raises a broader question: are the institutions shaping economic policy sufficiently connected to the practical experience of operating a growing business outside London?

There is no simple answer, but the regional differences suggest that national policy is not producing consistent outcomes.

The cumulative effect of economic shocks

Government policy is only part of the picture.

Britain has also experienced a succession of major economic shocks.

The financial crisis of 2008 and 2009 exposed the risks of an economy heavily dependent on financial services. It was followed by a prolonged period of weak productivity growth, subdued business investment and pressure on real wages.

Brexit then introduced new trading arrangements with the European Union.

The causes and consequences of Brexit remain politically contentious, but its effects on smaller exporters cannot simply be ignored.

Research from the Centre for Economic Performance at the London School of Economics estimated that the Trade and Cooperation Agreement reduced total UK goods exports by £27 billion, or 6.4%, in 2022.

The impact was not evenly distributed.

The research found that the average value of EU exports fell by 30% among the smallest fifth of exporting firms, while exports among the largest fifth were not significantly affected.

Around 16,400 businesses that had previously exported to the EU stopped doing so after the new agreement came into force.

Brexit is not the only cause of Britain’s growth problem. Many of the country’s weaknesses predate the referendum, and businesses have also faced the pandemic, supply-chain disruption, inflation, higher interest rates and geopolitical uncertainty.

But it is one part of the economic environment in which SMEs are now expected to operate.

Acknowledging that evidence is not the same as adopting a party-political position. It is necessary if the aim is to understand the conditions affecting British businesses.

What happens when ambition meets limited support?

For many SMEs, exporting is one of the clearest routes to growth.

It can also be one of the most intimidating.

Entering a new market may require finance, regulatory knowledge, local partnerships, additional employees and the ability to tolerate a period of uncertain returns.

Large corporations can spread those costs across established operations. A growing SME may be placing a significant part of its future on a single expansion decision.

UK Export Finance has committed to supporting 1,000 SMEs annually by 2029.

During 2024 and 2025, it supported 496 SMEs, with more than £600 million issued directly to smaller businesses.

This is meaningful support, and 83% of the SMEs assisted were based outside London.

However, the figures also demonstrate the scale of the challenge. Thousands of businesses may have the potential to export, but many lack the finance, confidence, knowledge or internal capacity required to take the next step.

The answer is unlikely to be funding alone.

Businesses also need practical guidance, management capability, access to networks and enough time to make use of the support available.

Has Britain become too afraid of failure?

There may also be a cultural dimension to the problem.

Analysis published by the Onward think tank, drawing on Global Entrepreneurship Monitor data, reported that 53% of working-age Britons said fear of failure would prevent them from starting a business.

That figure had risen from 44% in 2019 and 35% in 2016.

It would be easy to interpret this simply as a failure of ambition.

The reality is likely to be more complicated.

Starting a business can place savings, housing security, career prospects and family finances at risk. What appears to be cultural risk aversion may also be a rational response to the potential personal consequences of failure.

Even so, attitudes towards failure matter.

Innovation requires experimentation, and experimentation includes the possibility that an idea will not work.

An economy that wants more entrepreneurs must create conditions in which an unsuccessful attempt does not permanently define the person who made it.

That does not mean celebrating recklessness or ignoring poor decisions. It means distinguishing between irresponsible behaviour and a thoughtful risk that failed to produce the intended result.

The strongest entrepreneurial cultures do not pretend that failure is painless. They make it possible to learn, recover and try again.

The reasons for optimism

The danger in discussing Britain’s economic weaknesses is that the conversation can quickly become an argument for managed decline.

The evidence does not support that conclusion.

Britain still possesses significant strengths in engineering, advanced manufacturing, science, financial services, technology and the creative industries.

Its universities retain considerable international standing. Its founders continue to create ambitious companies. Its researchers continue to produce important discoveries.

The 2025 Global Innovation Index ranks the UK sixth in the world.

That position should not create complacency. Britain ranked fourth between 2020 and 2023 and fifth in 2024 before falling to sixth.

But warning signs are not the same as a eulogy.

Britain has not run out of intelligence, creativity or ambition.

The challenge is converting those advantages into widespread, durable growth.

The AI opportunity

Artificial intelligence makes this conversation particularly urgent.

The Government’s Artificial Intelligence Sector Study 2024 identified 5,862 AI companies operating in the UK, an increase of 85% since 2022.

Together, those companies generated £23.9 billion in revenue, contributed £11.8 billion in gross value added and employed more than 86,000 people.

These figures demonstrate that Britain has a credible foundation in AI.

But there is a risk of defining the opportunity too narrowly.

Success will not be measured only by whether Britain creates the next major AI laboratory or global software platform.

It will also be measured by what happens inside its existing businesses.

Can a regional manufacturer use AI to improve production planning and reduce administrative work?

Can a professional-services firm help its employees research, analyse and communicate more effectively?

Can a small exporter use technology to understand new markets, translate materials and serve overseas customers?

Can a growing company introduce AI without weakening trust, creating unnecessary anxiety or automating processes that were already poorly designed?

These questions may be less dramatic than the race to build the world’s most powerful AI model.

For most SMEs, they are far more relevant.

Technology cannot replace leadership

AI is not a substitute for a functioning growth environment.

It cannot resolve inconsistent policy, repair trading relationships, improve access to finance or decide what kind of economy Britain wants to build.

It cannot replace capable leadership inside businesses either.

Technology can help people work faster, reveal patterns, improve decisions and reduce repetitive administration.

But those benefits emerge only when organisations understand what they are trying to achieve.

Poorly implemented AI can introduce new costs, create risk and deepen employee anxiety. Thoughtfully implemented AI can give stretched teams greater capacity and allow people to concentrate on work requiring judgement, creativity and relationships.

That is why adoption must begin with people and business problems rather than the technology itself.

The objective should not be to introduce AI simply because it is fashionable or because competitors are discussing it.

It should be to help organisations become more capable while ensuring that employees understand, influence and benefit from the change.

What would it take for Britain to grow again?

There is no single policy that will transform Britain’s economic performance.

Progress is likely to require greater consistency from government, better access to patient capital, stronger export support, closer attention to regional business communities and a healthier relationship with entrepreneurial risk.

It will also require action from businesses themselves.

Leaders cannot control every part of the economic environment.

They can decide whether to invest in capability, develop their people, improve their operations and explore new technology before competitive pressure makes those decisions unavoidable.

Britain’s challenge is not a shortage of intelligence, creativity or ambition.

It is the distance between possessing those qualities and creating the conditions in which they can succeed.

The UK has a genuine opportunity in AI, engineering, science and advanced services.

But opportunities do not remain open indefinitely.

The question is not whether Britain can recreate the industrial economy it once had. It cannot, and perhaps it should not try.

The more useful question is whether it can build a different kind of economic leadership: one based on technology, expertise, adaptable businesses and people who are confident enough to turn ideas into action.

Britain still has the raw material.

What happens next depends on what businesses, investors, educators and policymakers choose to do with it.

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Sources

• Vestd: The UK Scaleup Report 2026
• House of Lords Science and Technology Committee: Bleeding to Death: The Science and Technology Growth Emergency
• London School of Economics: Brexit Reduced Goods Exports by £27 Billion
• UK Export Finance Annual Report and Accounts 2024 to 2025
• Onward: The British Entrepreneur
• WIPO: United Kingdom Global Innovation Index Ranking
• UK Government: Artificial Intelligence Sector Study 2024