Committee publication · Report · 7 June 2026 · HC 123
1st Report - Investing in the UK economy
From: Business and Trade Committee
Inquiry: Financing the real economy
Government response deadline: 7 August 2026
Summary
The Business and Trade Committee's first report examines why UK investment lags peer G7 economies, preventing achievement of the government's growth mission. It identifies a systemic paradox: despite £3 trillion in pension assets, a world-class financial centre, and leading universities generating 1,300 spinouts, 380,000 UK businesses cannot access needed finance. The report sets out seven key reform areas—policy stability, market access, capital repatriation, regional banking, public finance consolidation, venture capital expansion, and equality—to mobilise £180–200 billion in additional annual investment.
Key findings
- UK investment at 19.7% of GDP is second-lowest in G7; matching Japan's rate would require £180–200 billion extra per year
- 380,000 UK businesses wanting finance cannot access it; Allica Bank estimates a £65 billion SME lending gap, while 94% of UK scale-ups are acquired before maturity, half by overseas buyers
- A 'valley of death' phase prevents many start-ups from scaling; deep tech and life sciences companies face particular difficulty securing growth capital over longer development cycles
- Policy uncertainty and frequent government reversals on tax, immigration, and infrastructure have chilled business investment; Minister for Investment denied evidence of access-to-finance problems, contradicting extensive testimony
- Seven systemic reforms needed: maximise policy stability, market opportunity, capital scale, regional banking access, public finance integration, venture capital incentives, and support for underrepresented entrepreneurs (women, ethnic minorities, disabled)
Recommendations
- Ministers must maximise policy stability and predictability by making decisions and sticking to them, creating a prize for the UK to become one of the most predictable business environments in the G7
- Government must leverage its £385 billion purchasing power to create revenues for UK start-ups and scale-ups through procurement reform
- Implement sustained reforms to repatriate UK pension fund and retail savings investment from abroad; reform tax regime to stop penalising UK equity investment relative to foreign equities
- Rebuild regional banking capacity to increase SME credit access; address collapse in SME overdraft provision (down 85% since 2000) and improve the Bank Referral Scheme (which delivered only £128 million over nearly a decade)
- Consolidate fragmented public finance institutions (British Business Bank, National Wealth Fund, etc.) to simplify business access and clarify roles; ensure Industrial Strategy Advisory Council is established as statutory Industrial Strategy Council with enforcement powers
- Increase venture capital tax incentives to grow the undersized UK VC market; address that 74% of UK venture investment goes to buyouts rather than start-ups and growth firms
- Establish targeted support and tailored incentives for left-behind regions and women, minority ethnic, and disabled entrepreneurs to address systematic underserving of over half the UK's entrepreneurial talent
- Ensure the Industrial Strategy is funded and delivered with robust measurement framework; coordinate across 150 commitments across 20 departments with effective governance and sustained political backing
Tone
CriticalTopics
Key actors
Liam Byrne, Lord Stockwood (Minister for Investment), Blair McDougall (Minister for Small Business and Economic Transformation), Will Hutton, Lord Adair Turner, Professor Tera Allas, British Business Bank, National Wealth Fund
Notable line
“380,000 UK businesses that want finance cannot get it. The Alternative Investment Market has lost over 1,000 companies since”
Key Quotes
“The Government will not deliver the highest rates of growth in the G7 unless it makes bold reforms to the nation's institutions for mobilising investment.”
“We are brilliant at start-ups and scale-ups, but too many of them— 94%—get acquired before they reach maturity. Half tend to be acquired by UK companies and half by companies overseas, largely American companies.”
“… he "genuinely have had no evidence for the broad statement that it is hard" for businesses to get capital.”
“"not hopeful" for the UK's growth outlook, citing negative headwinds from additional labour market regulation and declining productivity in the public sector.”
“UK investors have a good appetite for that early stage when a firm has new ideas, but then enter "that valley of death" between receiving start-up investment and the later investment that follows when a company has a revenue stream.”
“… the UK is at the "bottom of the league table", investing roughly 3% of GDP less than its peers for many years. She said that when investment fails to match depreciation, the capital base shrinks and people become less productive than they might be.”
Source · parliament.uk record ↗