The City exodus undermining Starmer's plans for a tech revolution

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3 hours ago

Standing on stage at London Tech Week on Monday, Sir Keir Starmer declared Britain was 'unequivocally, unashamedly and defiantly open for business'.
'Britain once again, after years of chaos, is a stable partner for investors,' he told executives gathered for a conference.
The country would be a 'maker', not a taker, of artificial intelligence (AI) software, the Prime Minister asserted, flanked by Jensen Huang, the superstar boss of US chip giant Nvidia.
He also came armed with impressive-sounding announcements, including a billion-pound pledge to boost the UK's computing power and a programme to train school children in AI software.
Yet despite Starmer's bullish remarks, things are far from rosy in the British tech scene.
That very morning, Alphawave, a British semiconductor company, had announced it was set to become the latest tech business to quit the London stock market after revealing its £1.8bn sale to American rival Qualcomm.
The sale follows a drop of more than 50pc in Alphawave's shares since floating in 2021.
Hours later Spectris, a FTSE 250 company that makes high-tech instruments and software, revealed it had received a £3.7bn takeover bid from private equity company Advent.
Just three days before Starmer's speech, financial technology champion Wise – yet another 2021 alumnus – announced that it would shift its primary listing to New York.
Kristo Käärmann, Wise's co-founder, said the change was aimed at raising his company's profile in 'the largest market in the world', after pressure from major shareholders to relocate.
Meanwhile, Deliveroo, the fast food delivery app that went public the same year as Alphawave, also served itself up for a £7.6bn takeover by US competitor DoorDash last month, bringing an end to a similarly unhappy spell on the London Stock Exchange.
The exodus poses a major challenge for the Prime Minister and Peter Kyle, the Technology Secretary, as they attempt to make the UK a hotbed of AI investment.
In January, Starmer set out plans to 'turbocharge' the domestic tech industry with new 'AI growth zones' that will allow companies to easily secure planning permission and power connections for data centres – the key infrastructure needed to underpin AI development.
The Prime Minister has also sought to link AI directly to the lives of citizens, arguing the software can help NHS hospitals run more effectively, aid teachers in the classroom and even do away with Whitehall bureaucracy.
And on Monday, there was some good news for Starmer.
Nvidia's Huang argued that the UK was in the 'goldilocks' zone: great universities, a good start-up culture and the third-largest amount of investment in AI companies globally – behind only the US and China.
'The ecosystem is nearly perfect for take-off. It's just missing one thing. It is surprising that this is the largest AI ecosystem in the world without its own infrastructure, which is the reason why we're talking about it so much, which is the reason why the Prime Minister's announcement is such a big deal,' he said, referring to efforts to boost the amount of computing power in the UK.
Yet data centres or not, Britain has consistently struggled to nurture technology companies from start-up to 'scale up' stage.
Whereas the US has created titans such as Google, OpenAI, Amazon and Facebook owner Meta, few such champions exist in the UK.
What's more, many of those that have emerged over the years have been sold off or opt to list on the other side of the Atlantic, rather than at home.
Take Arm Holdings, for example, the Cambridge-based chip designer that was taken over by Softbank in 2016 and then floated as a standalone business in New York, rather than London, in 2023.
Or the leading AI lab Deepmind, which was snapped up by Google in 2014 for a reported £400m – and has since become a powerhouse within the tech giant's operations.
The London Stock Exchange has traditionally been where UK-based businesses go to raise capital for growth, but in recent years some of Britain's brightest tech start-ups have shunned the City and preferred to remain private instead.
Many of those that are now considering a listing could go elsewhere.
Revolut, the fintech star, has in the past dismissed a London listing as 'not rational', while the founder of Octopus Energy, another company seen as a promising listing candidate, said it was 'not obvious' the UK capital would be its first choice.
Tech companies complain they get lower valuations in the UK than the US, making it harder to raise money to grow and attract the best talent through share-based pay packages. Entrepreneurs says British investors prefer reliable dividends over growth companies, a preference that particularly punishes tech.
As a result, many go elsewhere. This is despite ministers repeatedly trying to make London more attractive through various reforms to listing rules, including changes to allow founders to retain control over their companies by holding different classes of shares.
Andrew Griffith, the shadow business secretary, argues that the loss of prestigious listings is 'symptomatic of a 'vibe shift' away from London'.
'This socialist government's culture war on wealth creators, plus London's crime and congestion, have combined so that push factors outweigh the natural attractions that the UK has,' he says.
'Conversations which used to happen here are now taking place in Milan, Miami or Dubai.
'You can deliver technical reforms to listings all you like, but if wealth creators feel under attack they won't succeed.'
Brent Hoberman, the dotcom investor who co-founded Lastminute.com and now runs Founders Forum, the co-host of London Tech Week, agrees that part of the problem is a culture and tax regime that treats entrepreneurs – including those who come here from other countries – too harshly.
He says the Government must understand 'the value of the tremendously successful entrepreneurs who have been living in this country and how damaging it is when they leave', amid a recent exodus of millionaires.
'Why do they leave? Partly because of non-dom tax changes introduced by the Conservative government,' he says. 'But also because this [Labour] government has gone further and faster, including with inheritance tax changes.
'That perceived unfairness by those people means they choose to leave to countries that give them very competitive deals.
'Hopefully this week signifies a course-correction, embodied by the Prime Minister's keynote alongside Jensen Huang – promoting the UK's global leadership in AI.'
Orlando Bravo, managing partner of tech-focused investor Thoma Bravo, also recently claimed that the strict rules governing London-listed companies makes it unnecessarily difficult to buy them, depressing their values.
It was a somewhat self-serving argument from an American company that has bought several UK-listed businesses, including cyber security firms Darktrace and Sophos. However, ministers should be wary of ignoring such feedback at a time when the decline of the market appears to be accelerating.
Ministers will be keenly aware of all these challenges - not least Baroness Gustafsson, the investment minister who until recently was chief executive of Darktrace.
On Monday, she joined Sir Keir at the opening of London Tech Week but said little other than the pre-prepared questions she asked the Prime Minister on stage.
'How do we create an AI ecosystem?' Gustafsson asked during a sit-down chat with Nvidia's Huang.
It is a question that ministers will now be weighing with much greater urgency, as they scramble to ensure the most promising tech companies don't take their best ideas elsewhere.
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