As the UK faces up to the economic challenges it confronts as a country, it should remain optimistic about its ability to thrive in an uncertain world.
Britain has four of the top 10 universities in the world, more unicorns than Germany and France; and the largest hub for venture capital and start-up investment outside the US. But, as pointed out by Gregor Poynton MP, even in Britain’s areas of greatest strength, the rest of the world is not standing still.
France, for instance, in recent years has been catching up with — and has in some cases overtaken — the UK with the introduction of a series of policies and initiatives to help ambitious businesses to scale-up.
France is home to the world’s largest ‘start-up campus’ — Station F in Paris, which was established with support from Facebook, Amazon and Microsoft in 2017. Station F has fostered an ecosystem that has raised over 1 billion euros per annum for the past three years, equating to 15 per cent of the annual total raised by start-ups in France.
Expanded Business creator share subscription warrants (BSPCE) enable start-ups established less than 15 years ago to offer employees and certain managers the option to subscribe for shares at a price set in advance. As of January 2020, foreign companies may also offer BSPCE to employees of its French subsidiary.
The introduction of the Tibi scheme to increase engagement and participation of French institutional investors like large insurance companies and private pension schemes has positioned France as a leading technology investment hub.
Given the UK government’s focus on increasing UK DC pension scheme investment into UK-based companies and infrastructure, alongside this welcome development Britain must look to match and improve on similar initiatives that could help accelerate investment and foster innovation.
In Britain, only about 80 companies utilised R&D (Research & Development) tax credits in 2023/24 — out of thousands of potential applicants. By contrast, France offers a more generous scheme for research-intensive companies which employ fewer than 250 people with a turnover of less than 50 million euros, or a total balance sheet of less than 43 million euros to qualify for R&D tax credits.
France’s R&D tax credit offer not just tax breaks but also social exemptions for companies under 11 years old. That might be controversial in a UK context, but in a country with strong social protections it shows a willingness to think holistically — where employees understand both the risks and the rewards of working in a start-up.
There are clear steps the UK could take in response. Recent efforts, for example, to simplify the R&D tax system are welcome, but Britain could go further and merge the existing schemes into a unified system that offers higher rates for the most R&D-intensive SMEs and provides clearer, faster advance assurance that works better for more companies.
Internationally, portfolio companies of venture capital firms are often recognised as independent entities, making access to R&D tax credit schemes more straightforward. The UK should learn from this too.
The Enterprise Management Incentive (EMI), which is the UK’s closest equivalent to the French BSPCE scheme, has been extremely effective in allowing SMEs compete with larger firms by giving their employees a stake in the company. But it hasn’t been reformed in 12 years and later stage companies could be supported better.
Scale-up is a problem across the UK economy and raising the limit of the seven-year rule relating to the EIS (Enterprise Investment Scheme) and VCT (Venture Capital Trust) funds, would provide more opportunities to scale-up and grow across nations and regions.
With the right commitment and support for STEM-based (Science, Technology, Engineering, Mathematics) start-ups and scale-ups, the UK can harness its economic strengths, unlock new opportunities and not just survive turbulent times but emerge stronger from them.
Andy Jalil
The writer is our foreign correspondent based in the UK.
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