MPs call for radical overhaul of Britain's investment system to unlock up to £200 billion of growth a year

The Government will not achieve its ambition of delivering the highest growth in the G7 unless it undertakes sweeping reforms to Britain's investment institutions, the Business and Trade Committee warns today.

In a major new report, the Committee concludes that Britain suffers from a deep investment paradox. The UK is home to one of the world's leading financial centres, pension funds managing £3 trillion in assets, at least £264 billion of undeployed investment capital and world-class universities that have created more than 1,300 spin-out companies in the last twelve years.

But an estimated 380,000 businesses that want finance cannot get it.

Decades of individually defensible policy decisions have collectively weakened the institutions that should connect British savings with British enterprise. And so Britain exports capital, sells promising scale-ups too early, and struggles to finance the growth companies that could power higher living standards.

The report (embargoed, attached) concludes that Britain must mobilise an additional £180–200 billion of investment every year to match the investment performance of the strongest economies in the G7.

Liam Byrne MP, Chair of the Business and Trade Committee, said: "Britain is not short of money. We are short of institutions capable of putting that money to work.

We have £3 trillion in pension assets, £264 billion of undeployed investment capital, £610 billion sitting in cash savings accounts and one of the world's great financial centres.

Yet 380,000 businesses that want finance cannot get it.

For too long we have exported our savings and sold our scale-ups and watched other countries capture the rewards. If Britain wants the highest growth rate in the G7, we need the best system in the G7 for turning savings into investment and ideas into world-leading companies."

Key recommendations include:

• Double the British Business Bank's Growth Guarantee Scheme immediately and set out a pathway to deliver the roughly £4 billion expansion required to match the scale of publicly-backed loan guarantee programmes in Germany and the United States.

• Increase the maximum size of loans guaranteed by the British Business Bank's Growth Guarantee Scheme from £2 million to £5 million and make the scheme permanent.

• Instruct the Office for Investment to within six months set out a pipeline of "term-sheet ready" investment opportunities capable of absorbing new pension fund investment.

• Reform incentives for pension funds to increase investment in productive UK assets and use annual evaluations of the Mansion House Compact and Accords to assess whether further measures are required to repatriate UK savings into UK investment 

• Review the tax treatment of UK equities, including the impact of Stamp Duty Reserve Tax on investment in British companies, to ensure the UK is maximising investment in London equity markets.

• Publish an assessment of a new retail investment savings account modelled on Sweden's highly successful ISK scheme, to help grow the UK equity market

• Kickstart the creation of a new regional banking systems with regional BBB offices, dovetailed with a radical expansion of Post Office banking hubs to put business banking back on the high street.

• Backstop the creation of a new regional banking system with consultation on a UK equivalent of the US Community Reinvestment Act to encourage banks to support lending in local communities.

• Establish a case management service through the Office for Investment for the UK's 14,300 High Growth Firms, ensuring they receive proactive support from public finance institutions, R&D tax credits and other government programmes throughout their growth journey

• Create a single front door for businesses seeking support from Britain's public finance institutions.

• Consider merging the British Business Bank and National Wealth Fund into a single institution to simplify access to finance.

• Triple the size of the UK's venture capital industry over the next decade, advancing the British Business Bank's British Growth Partnership with a UK scheme matching the design and scale of France's Tibi initiative, while updating the requirements and thresholds for Venture Capital Trusts.

- Expand the Enterprise Investment Scheme and Seed Enterprise Investment Scheme to increase investment into growing British firms.

• Restore the previous 28-day target for processing R&D tax credit claims, widen eligibility and review how the scheme can better support innovative firms seeking to scale.

Key findings include:

• Britain requires an additional £180–200 billion of investment annually to match the strongest-performing G7 economies.

• 380,000 businesses want finance but cannot access it.

• UK pension funds manage approximately £3 trillion in assets.

• Investors hold at least £264 billion in undeployed capital.

• UK savers hold approximately £610 billion in cash savings accounts.

• The Alternative Investment Market has lost more than 1,000 companies since 2007.

• Ninety-four per cent of UK scale-ups are acquired before reaching maturity, with around half purchased by overseas buyers.

• At age ten, London-based scale-ups raise only around half the capital secured by comparable firms in San Francisco.

• The UK ranks 17th out of 17 comparable high-income countries for access to entrepreneurial finance.

• SME overdraft provision has fallen by 85 per cent since 2000.

• The Bank Referral Scheme has delivered just £128 million in finance over almost a decade.

The Committee's programme for reform is built around seven priorities:

Scale up UK investment funds

UK pension funds manage around £3 trillion in assets. UK funds and investors also sit on at least £264 billion in undeployed capital. Yet much of this money is invested overseas rather than in British firms.

The Committee concludes that sustained reforms are required to encourage greater investment into productive UK assets with annual evaluations of the Mansion House Compact and Accord, with the Office for Investment overseeing the development of a pipeline of ‘term sheet-ready' opportunities.

Put procurement to work

The report argues that Government is not making sufficient use of its £385 billion annual purchasing power to help create the revenues and order books that growing firms need to attract investment.

The Committee calls for the Government to use the Procurement Act aggressively to ensure more of the UK's £385 billion annual procurement budget supports SMEs, high-growth firms and university spin-outs, backed by a new case management service for High Growth Firms to ensure they have access to the growth finance they need.  

Deliver stability and predictability

The report concludes that investors require certainty before committing capital and that policy instability has discouraged investment in recent years.

The Committee argues that Britain should seek to become the most predictable business environment in the G7, putting the Industrial Strategy Advisory Council on a statutory footing  

Rebuild regional banking

The Committee warns that 33 parliamentary constituencies with a combined population of more than three million people are now without a single bank branch after the number of bank and building society branches fell by around 40 per cent in the decade to 2022.

The report notes that the UK ranks 17th out of 17 comparable high-income countries for ease of obtaining entrepreneurial finance, SME overdraft provision has fallen by 85 per cent since 2000 and the Bank Referral Scheme has delivered just £128 million of finance over almost a decade.

Fix state support for growth

The Committee concludes that Britain's public finance institutions are smaller than many international peers, difficult to navigate and insufficiently coordinated.

It calls for a White Paper for a long-term business support service, modelled on international best practice such as the US Small Business Administration, bringing together access to finance, export finance, procurement, skills, export support and business advice.

Incentivise venture capital and angel investment

The report finds that the UK venture capital market remains substantially smaller than that of the United States and that around three-quarters of venture investment is directed towards buyouts rather than start-ups and growth firms.

The Committee argues that stronger incentives are required to mobilise institutional and retail capital into venture investment, particularly in growth sectors such as AI, advanced manufacturing, life sciences and clean technology.

Back entrepreneurial talent everywhere

The report warns that access to investment remains deeply unequal across the country.

London captured 49 per cent of UK equity funding deals in 2023. Women-led companies received just 18.6 per cent of angel investment in 2024. Black women-led businesses received only 0.02 per cent of venture capital investment in 2020. All-minority ethnic founding teams received less than 2 per cent of UK venture capital investment value in 2023.

The Committee recommends targeted support for underserved regions and entrepreneurs, greater transparency from public finance institutions and stronger measures to ensure entrepreneurial opportunity is available across the whole country.

The report concludes that unless Britain fixes the institutions that connect savings, investment and enterprise, the country risks falling behind competitors in the global race to build the next generation of world-leading firms.