London has suffered a three-year listings drought, but the pipeline of companies is not the problem.
Although initial public offering fundraising has fallen to multi-decade lows and the City dropped out of the world’s top 20 markets this year, Britain continues to produce fast-expanding businesses across tech, creative and consumer sectors.
This year’s ranking of Europe’s long-term growth champions, which includes companies that can demonstrate strong growth over a decade, shows that 17 per cent of the 300 companies come from the UK, behind only Italy with 22 per cent.
Analysts and economists say that compared to many other countries across the world, including in Europe, the UK is seen as a good place to both start and expand businesses. But increasing concerns about future access to capital and the necessary infrastructure have defined many of the signature polices of the UK’s Labour government.
In the UK, it is possible to form a new company and start trading within a day, a process that could take months in some European countries, according to Mohit Kumar, chief economist at investment bank Jefferies. He adds that the UK’s relatively good access to venture capital funding is another driver for growth.
“The UK is a much better place relative to continental Europe . . . it remains an excellent place to build a company,” he says.
Politicians deserve some of the credit for companies’ willingness to start their life in the UK, analysts say. Tax-based initiatives such as the Enterprise Investment Scheme, launched in 1994, and the Seed Enterprise Investment Scheme introduced eight years later, both reward investors that back early-stage companies with income and capital gains tax relief.
UK Prime Minister Sir Keir Starmer has vowed to go further with his stated mission to achieve the highest growth in the G7 leading economies, and to “bring back the animal spirits of the private sector”.
Helen Miller, director of the Institute for Fiscal Studies, a UK economic research body, points out that this vision has already got off to a strong start in the form of initiatives to increase public and private investment.
More stories from this report
Meanwhile, moves by UK chancellor Rachel Reeves to encourage greater investment by pension funds in British infrastructure and private markets is also promising, according to Miller.
If that money ends up being spent “wisely” and, for example, turned into better quality infrastructure, “that should translate into an even better environment for private sector growth,” she says.
Despite policymakers’ attempts to lure domestic capital into businesses, the narrative in the City has yet to change. On the stock exchange’s public markets, flows and listings remain depressed. At the same time, analysts say previous efforts from various governments to inject more private capital in order to promote growth at a corporate level have not worked.
“The investment case for the UK needs to be rebuilt . . . Despite all the efforts [from the government], more work needs to be done,” says Emmanuel Cau, an analyst at Barclays.
Only seven companies floated on the London Stock Exchange in the nine months to the end of September, compared with 231 in the US, according to data provider Dealogic. This represents a further dramatic fall from 125 new listings in the UK in 2021, which sank to just 17 last year.
A stagnant public market could pose a problem for growth companies, businesses expected to expand revenues and earnings faster than the market average, about to reach a stage when they would normally consider a listing.
This ranking focuses on long-term growth champions and so it is unsurprising that many in are now in their second decade.
However, while the UK’s start-up scene remains active — 85,485 new businesses were created in the first quarter of 2024, up 6.1 per cent on the same period of 2023, according to the Office for National Statistics — concerns over access to funding, which successive governments have tried to address, could mean that those companies struggle to become the long-term growth champions of the future.
Dom Hallas, executive director at the Start Up Coalition, an advocacy group for technology-led start-ups and scale-ups, says access to “quick” capital is crucial because it “allows the highest levels of ambition and pace”.
He adds: “If you are going to try to do something bold, you need the capital to take major risks and overcome major uncertainty when you start up.”
A post-financial crisis start-up wave combined with good access to venture capital, helped to seed a generation of British companies including some that appear in this year’s listing. They include consumer tech companies Fruugo and Gousto, and creative businesses such as Transmission and OCM Group.
Since then, a combination of global challenges — including Covid-19, the energy crisis following Russia’s full-scale invasion of Ukraine and US President Donald Trump’s tariff agenda — have created uncertainty for entrepreneurs building businesses.
More recently, UK companies have started to fear fresh tax hikes as the chancellor ratchets up her plans for rises in the Budget on November 26.
Several measures could affect UK growth companies, including “an enforcement drive to make sure small companies pay the tax they owe”, says the IFS’s Miller.
Nonetheless, some believe the UK will remain an attractive location for start-ups and smaller businesses looking to expand, for the same structural reasons that have made it attractive over the past decade.
These include the country’s English-speaking base, flexible labour market and internationally ranked universities, which provide a steady pipeline of skilled workers and entrepreneurs, says Jefferies’ Kumar.
“Most of the success isn’t policy driven at all,” he adds.
