Light trails from traffic are seen as they pass around the Old Street roundabout, in the area known as London's Tech City, in London, U.K., on Tuesday, Dec. 17, 2013
London’s Silicon Roundabout: the UK capital has yet to produce a company the size of Facebook or Google © Bloomberg

Anyone who wants to understand how much the UK’s business landscape has changed in the past 50 years should read the Bolton Report, a 1971 government document on the state of British enterprise.

John Bolton, a leading industrialist, calculated that at that time the country had about 820,000 small and medium-sized companies (SMEs), accounting for barely 30 per cent of private-sector employment. He found the sector in a state of long-term decline and forecast further falls in the number of such companies.

Today, business numbers are at a record high of 5.2m registered companies, helped by a national fascination with entrepreneurship.

5.2mThe number of registered companies in the UK — a record high

Business start-up rates in OECD countries have generally risen since the banking crisis of 2008 but they have grown faster in the UK. SMEs account for just over 60 per cent of private sector employment, says the Department for Business.

The US-based Global Entrepreneurship and Development Institute in its latest index ranked the UK as providing the strongest environment for start-ups in Europe and the fourth most-successful worldwide. Meanwhile, the Conservative government, elected in May, is committed to extending the gains made.

There is a good deal of hope that the UK can move to a yet higher level of entrepreneurial activity and, in recent years, several new businesses have risen to “unicorn” status — passing the $1bn valuation mark.

But creating a company of the size of Google or Facebook, which could shift the centre of gravity for entrepreneurs from the west coast of the US to the UK, has proved elusive.

Many business owners and investors express concern that Conservative policies such as controls on immigration undermine Britain’s position as entrepreneur-friendly. “Finding talent is one of the most difficult things for start-ups, and it makes it much easier if we can look abroad,” says Nic Brisbourne, managing partner of Forward Partners, an incubator for start-ups providing funding, workspaces and expertise.

He recalls the hiring problems suffered by a retailer he had backed, after it found a candidate it saw as the ideal “chief architect” to oversee the building of its technology platform.

“We found a Ukrainian candidate who had the mathematical and statistical academic background, led teams of engineers and worked in a consumer tech start-up on the US west coast after finishing his degree. But the visa situation was too problematic and he ended up taking a role back on the west coast.”

Jamie Coleman is managing director of CodeBase, an Edinburgh-based tech start-up incubator and creator of the Turing Festival, a celebration of digital entrepreneurship held during the city’s annual arts festival. He agrees that the UK has some of the most attractive schemes in place for building companies, not least the Seed Enterprise Investment Scheme (SEIS), a tax break for investors in early stage ventures.

But such schemes, Mr Coleman notes, could be made to work better. “The unintended consequence of SEIS is that it effectively put a cap on early stage investing of £150,000,” he says. “Raising the top limit of SEIS would be incredibly useful, especially as many UK start-ups are business-to-business models, where both developer costs and customer acquisition costs are felt upfront.”

While cities such as Edinburgh have become entrepreneurial hotspots with a critical mass of founders and investors to nurture further business growth, the UK’s entrepreneurial revival has been led by London, which has cast itself as a global capital for digitally driven, fast-growing new ventures.

London has successfully promoted itself as a diverse location, claiming leadership in myriad niche markets for new companies.

These range from fintech ventures challenging mainstream banks with peer-to-peer lending, to fashion tech businesses enabling retailers to react speedily to fast-changing trends through clever use of sales data.

Food delivery has been another London success stories. Deliveroo, a company that delivers restaurant food to homes, completed a $70m funding round in January; takeaway food aggregator Just Eat listed on the London Stock Exchange last year with a valuation of £1.5bn.

“An important advantage is talent diversity,” says Jonathan Ortmans, director of the Kauffman Foundation, a US-based charity set up to promote entrepreneurship worldwide. He cites the latest Global Startup Ecosystem ranking, produced by Compass, a San Francisco-based benchmarking company. London offers the most diverse “ecosystem” for start-ups in the world, according to the ranking. About 53 per cent of London’s start-up employees are foreign and 18 per cent of their founders are female.

But entrepreneurial success in London — and in cities such as Edinburgh, Bristol and Manchester — is in stark contrast to other parts of the country.

Erkko Autio, professor in technology venturing and entrepreneurship at London’s Imperial College Business School, describes the UK’s start-up culture as “dynamic but unevenly distributed”.

“While London is a clear leader, the north-east is a clear laggard,” Prof Autio says. “The differences are large.”

Brent Hoberman
Brent Hoberman: founder-friendly policies are on offer from foreign governments eager to copy UK

Brent Hoberman, the tech entrepreneur and founder of Lastminute.com and Made.com, warns that the UK cannot afford to be complacent as foreign governments embrace founder-friendly policies. “The French have copied a lot of what we have done in the UK and have done a bit more in terms of marketing French tech,” he notes.

Mr Hoberman believes the UK government could do more to cut red tape and support smaller companies that want to export. Large corporates could play a greater part in helping to nurture small companies, he adds. He points to the Google Campus in London’s Old Street, providing space for technology entrepreneurs to network, and refers to such initiatives as “good citizenship”.

Saul Klein, founder of European technology start-up incubator Seedcamp and until recently a partner at Index Ventures, one of Europe’s most successful tech venture capital firms, says the UK entrepreneurial revolution has only just begun, driven by innovations in product and service delivery made possible by digital technology.

The growth of the UK’s digital economy has taken place in no small part because English is “the language of the internet”, Mr Klein says. This creates a chance for the UK to grab the productivity advantages offered by online networks and clever use of data to build business models.

“We have the chance to be one of the great tech nations,” he says. “For the UK, this is a massive soft-power opportunity. This comes around once a century.”

Compared with the era of the 1971 Bolton report, the past may feel like a foreign country for those creating companies in the UK today. The concern for policymakers must be that they do not allow the UK to fritter away its opportunities by undermining what has been achieved.

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