MPs Warn Government Must Overhaul Investment System or Abandon Growth Ambitions

Britain's ambition to lead the G7 in economic growth will remain out of reach unless the government undertakes a fundamental transformation of how the country channels its wealth into productive investment, according to a major new report from the Business and Trade Committee published today.

The report identifies what it calls a deep investment paradox at the heart of the British economy. The UK boasts one of the world's premier financial centres, pension funds holding £3 trillion in assets, more than £264 billion in capital sitting idle, and a university sector that has spawned over 1,300 spin-out companies in the past twelve years generating more than £20 billion in investment and nearly 29,000 jobs. And yet an estimated 380,000 businesses seeking finance are unable to access it.

The Committee concludes that the UK's annual economic growth fell from an average of 3% between 1993 and 2007 to just 1.6% between 2009 and 2025, and that forecasts offer little hope of improvement. The IMF downgraded its UK growth projection in April to just 0.8% for 2026, well below the G20 average of 3.2%. Economists giving evidence to the inquiry were blunt: one professor from the University of Cambridge said that if the UK economy were being marked in an exam, it would fail.

The scale of the investment deficit is stark. To match Japan, which has the highest investment-to-GDP ratio in the G7, Britain would need to mobilise an additional £180 to £200 billion every year. The UK ranked last among 17 high-income countries for ease of obtaining entrepreneurial finance. SME overdraft provision has collapsed by 85% since 2000. The Bank Referral Scheme, designed to connect rejected loan applicants with alternative lenders, has delivered just £128 million to businesses over nearly a decade.

Particularly alarming is the scale of the so-called "valley of death," the financing gap between a company's early start-up stage and the later investment that follows once revenues materialise. Some 74% of all venture capital invested in UK firms in 2024 went to buyouts rather than start-ups or growth-stage companies. Ninety-four percent of UK scale-ups are acquired before reaching maturity, half of them by overseas buyers. One analyst told the Committee that close to 3,000 companies with turnover exceeding $25 million had been lost to foreign acquisition in the last decade alone, representing nearly $1 trillion in exported economic value.

The report is also critical of how the UK's public financial institutions have been configured. UK Export Finance, the country's export credit agency, holds a total financial capacity of £80 billion, more than three times that of the British Business Bank, yet in 2024-25 it supported just 496 of the UK's 5.64 million small businesses, representing less than 0.01% of the SME population. The Committee is calling on the Treasury to justify this imbalance and consider reallocating resources toward the institutions better positioned to support domestic growth.

The Committee sets out seven areas demanding urgent reform: maximising policy stability; using the government's £385 billion procurement budget to generate revenues for growing firms; incentivising pension funds and retail savers to invest in UK equities; rebuilding regional banking infrastructure; consolidating the fragmented landscape of public finance institutions; strengthening the venture capital and angel investor ecosystem; and tackling persistent inequality in investment access for women, minority ethnic entrepreneurs and businesses outside London and the South East.

Committee Chair Liam Byrne MP put the challenge plainly, arguing that Britain does not lack money, it lacks the institutional capacity to put that money to work. He said that if the UK continues to export its savings, sell its scale-ups, and allow its financial system to serve other economies better than its own, it risks being left behind in the emerging age of artificial intelligence.

The Committee acknowledged that the Government has taken meaningful steps; among them the Mansion House Accord to encourage pension fund investment, reforms to capital markets, and the creation of the British Growth Service and Office for Investment. But it warned that these measures fall well short of what is needed, and expressed frustration that one minister denied there was a problem at all, claiming he had seen no evidence that businesses struggle to access capital.