‘Productivity is almost everything’
Productivity has always been the engine of rising living standards, and for most of modern economic history it delivered reliably. From 1839, when Bidwells was founded, through to the eve of the Second World War, productivity in the UK grew at around 1.3% a year as firms absorbed transformative technologies such as the steam engine and, later, electrification. The reorganisation of production around these innovations steadily raised output and wages. In the second half of the twentieth century, productivity growth accelerated to nearly 3% a year. Fiercer international competition and a greater willingness among British firms to adopt new technologies pushed the economy forward at a pace not seen before or since.
That momentum has now stalled. Since 2007, productivity growth has slowed dramatically, mirroring a pattern seen across other advanced economies. One explanation is that the tighter financial regulation introduced after the global financial crisis has constrained investment, limiting firms’ ability to modernise. Another is that the digital technologies of the past two decades — smartphones, social media, the consumer internet — have reshaped daily life far more than they have reshaped business processes. They have changed how we communicate and entertain ourselves, but they have not delivered the kind of broad based efficiency gains that earlier general purpose technologies once did. The unresolved question is whether AI represents a genuine break from this pattern.
The stakes are high. Over the long run, productivity determines the wages employers can sustainably pay, the tax revenues governments can raise, and the public’s sense of whether economic progress is being delivered. The frustration with mainstream politics today is rooted in the fact that real wages are scarcely higher than they were in 2007.
To adapt Paul Krugman’s famous line: innovation isn’t everything, but in the long run it is almost everything.
UK Productivity and Wages Adjusted for inflation
No technology has arrived faster than AI
AI has reached mass adoption faster than any technology in history. The telephone needed 75 years to reach 50 million users; ChatGPT did it in under two months, a sign of how sharply innovation has accelerated. Although many people treat November 2022 as the beginning of the AI era, the groundwork was laid years earlier. From 2017/2018 onward, modern AI was already embedded in areas such as facial recognition, drug discovery, fraud detection, and robotics. These early deployments primed the world for the explosive rise of generative AI, allowing it to scale at a pace no previous technology has matched.
Innovation is the engine of the wider economy
Innovation has clearly shaped employment trends, with information technology and life sciences experiencing the fastest growth over the past decade. The true impact is even greater than the data suggests, as spending by companies and workers in these sectors has supported additional jobs in areas such as professional services, hospitality and construction. Estimates indicate that every ten new jobs created in knowledge intensive industries generate a further seven jobs elsewhere in the economy. Yet this positive story has a downside: the decline in manufacturing, retail and publishing - especially newspapers -shows that new technology can eliminate jobs as well as create them.
A defining feature of both the tech and life science sectors is their tendency to cluster near universities and research institutes, where they can draw on a strong supply of skilled labour. Once established, these clusters often become self sustaining, attracting more companies, researchers and investment from other cities and countries. As a result, growth becomes concentrated in a small number of places, including London, the Oxford to Cambridge corridor and a handful of emerging regional hubs. Many towns and cities, however, are missing out on the economic gains generated by innovation.
Foreign investors pay more for what we build
In general, foreign and in particular US investors are more enthusiastic about science and tech businesses than UK investors, and are prepared to pay higher prices. Although not strictly comparable due to differences in the composition of the two stock markets, the long-term average price/earnings ratio for US equities is around 20% higher than the p/e ratio for UK equities. As a result, some UK start-ups relocate to the US where it is easier to raise capital. Many others stay, but are later bought out by foreign companies and investors.
The relocation of dynamic, new businesses is clearly negative for the UK economy, but what about the sale of UK based businesses to foreign owners? On the plus side, multi-nationals can provide new capital for expansion, open doors to new markets, and take on a lot of the support functions required to run a business. The original founders of the business may also use the proceeds from the sale to fund new UK start-ups, increasing the supply of local seed and venture capital. On the downside, the acquired company may lose control over its R&D and profits generated in the UK will be repatriated.
DeepMind, which is a leader in AI, is a positive example of foreign ownership. Since its acquisition by Google, now Alphabet, in 2014, its London workforce has grown from 75 to over 1,000. Founder Demis Hassabis was awarded the Nobel Prize in Chemistry in 2024 for his work in predicting protein structures, and hundreds of former employees have founded or joined other UK start-ups. Just last week, DeepMind’s spin-out Isomorphic Labs raised $2.1 billion led by Thrive Capital, with the UK Sovereign AI Fund among the backers.
The UK starts companies brilliantly and loses them at scale-up
The UK has become highly effective at creating new businesses, yet too many of them stall before they can scale. Companies that are growing revenues but are not yet profitable consistently struggle to secure the late stage finance they need, and as a result they rarely develop into large domestic or global players. Compared with their US counterparts, UK scale ups attract less than half as much capital at this critical stage, leaving a structural gap that weakens the country’s ability to build world leading firms.
New analysis from Bidwells and Beauhurst makes the picture even sharper. Since the start of 2022, for every pound raised by UK university spin outs at the growth stage, only eight pence has come from rounds funded entirely by UK investors. Not a single growth stage round above £75 million has been backed solely by domestic capital. This reliance on overseas investors is not a temporary fluctuation but a deepening structural feature of the UK’s innovation economy.
The full analysis will be set out in a forthcoming paper, but the conclusion is already clear: without a stronger base of UK growth stage capital, the country will continue to generate brilliant ideas only to see their economic value scale elsewhere.
The Lords’ diagnosis: Two levers, both needed
The Lords' November 2025 report Bleeding to Death sets out four recommendations:
Pension reform. Enforce the Mansion House Accord through the Pension Schemes Act 2026, requiring DC pension funds to allocate a minimum share of assets to UK private capital, including venture.
Institutional consolidation. Bring Innovate UK, the British Business Bank and the National Wealth Fund into a single coherent investment architecture, rather than the fragmented current arrangement.
SME procurement targets. Mandatory percentages for government departments awarding contracts to UK SMEs — anchor demand that helps companies build to scale on home revenue.
LSE reform. Close the persistent valuation gap with NASDAQ that drives the strongest UK spin-outs to list in New York.
The message that runs through these is twofold: more UK capital, more reliably deployed, and a UK listing venue that actually competes. Neither lever works alone. Even UK-funded companies will choose to list overseas while London trades at a 20% discount to New York. Listing reform alone delivers nothing if there is no domestic capital to fund the rounds beforehand.
Doing, but not yet delivering
To be fair to government, the picture is more substantial than the Lords' diagnosis alone might suggest. Real money is being committed, real regulation is being reformed, and real infrastructure is being built.
Three lines of action stand out.
Public R&D anchors. LIBRTI at Culham, the Health Data Research Service at the Wellcome Genome Campus, a ten-year commitment to the National Quantum Computing Centre at Harwell, and the Swindon drone testing facility (525,000 sq ft, one of Europe's largest).
Business-friendly regulation. Simplified clinical trial rules. The NHS willing to pay higher prices for new drugs. A principles-based approach to AI regulation, more flexible than the EU's. The Automated Vehicles Act 2024. A visa system being overhauled.
Infrastructure. AI Growth Zones with fast-track planning and prioritised grid connections. Power and grid increasingly treated as the binding constraints they are. Planning reform now central to the innovation agenda, not adjacent to it.
These are not small things. But they describe what government is doing. The Lords' point is that they do not yet describe what government is delivering, coherently, in one direction, with the late-stage capital architecture aligned to the early-stage research investment
The UK is not too small to be globally ambitious.
We are not too small to be ambitious. We need to stop using size as an excuse to temper our aspirations. Switzerland, with eight million people, is home to Roche and Novartis. Denmark, with six million, produced Novo Nordisk, whose market capitalisation briefly exceeded the entire Danish GDP in 2024. Israel, with nine million, has more than twice the number of unicorns the UK does and raises more venture capital per capita than the United States. The constraint is not population. It is specialism, capital depth, and whether exit proceeds are recycled back into the ecosystem that created them.
So what does the implementation of today’s policy ambition actually deliver? It produces a top tier specialist economy. The UK is already there in life sciences, AI and fintech; the task now is to hold those positions and add one or two more deep verticals. The scale up gap could narrow significantly at Series C and beyond as the Mansion House reforms take effect. More UK headquartered companies would reach global scale. Cambridge, Oxford and London would continue to compound, while emerging clusters anchored by public R&D would reach critical mass. None of this is wishful thinking. It is within reach if the measures already announced are delivered with discipline.
The real stretch comes from what becomes possible if we go beyond what is currently on the table. The UK could reach global top tier status on commercialisation per capita, well above where it sits today. Foundation based reinvestment vehicles could compound multiple deep clusters at far greater scale and across more regions. We could see multiple UK headquartered science and technology champions operating at globally significant scale. Our clusters could compete directly with Medicon Valley, Kendall Square and Tel Aviv. Other countries have already achieved this, but it requires both the macro level reforms to land and the local infrastructure to be ready to absorb and amplify what those reforms unlock.
Where macro reform meets local delivery
Whichever vision you back, the same observation holds. The macro reforms turn the capital tap on. But where that capital actually goes - and what it delivers - is decided by what's been built locally. The specification of available space. The supply pipeline. Housing, schools and amenity. The depth of partnerships with universities, the NHS, anchor institutions. These are the conditions that determine whether macro-level policy produces local economic outcomes.
Choosing ambition over caution
What stands out now is the sheer breadth of constraints being tackled at once: pension reform, listing reform, public R&D anchors, planning, visas, regulation. None of these measures is transformative on its own, but taken together—and delivered as promised—they reopen a domestic capital tap that has been effectively shut for a generation. Yet macro reforms can only turn the tap on. Whether that capital becomes real economic activity depends entirely on the supply of specialist space, housing, schools, amenities, and on the strength of partnerships with universities, the NHS and other anchor institutions.
The Ellison Institute’s £890 million commitment at The Oxford Science Park, and DeepMind’s expansion from 75 people to more than 1,000 in London, show how quickly the right local conditions can convert capital into employment, innovation and economic value. These are examples of what happens when place is ready.
If today’s reforms land as announced, the UK will build a respectable specialist economy. But a genuine global powerhouse demands more. It requires a far bolder approach to domestic capital, deployed at the scale and with the patience that frontier science requires. It requires a skills base capable of growing the companies that emerge. And it requires sustained investment in frontier R&D—the public anchors and university partnerships that attract and retain global leaders in the first place.
None of this is possible without place. Clusters only thrive when the specialist space, the housing and the infrastructure that bind them together are built ahead of demand, not in response to it. That is the conversation Bidwells is opening at UKREiiF 2026: how to create the places that allow capital, talent and science to compound into something globally significant.
