To build the next set of unicorns, fix the regulators

For all the ideas and investment, it's regulation that is holding back innovation. Join our campaign 👉

We’re convening discussions with founders, investors & policymakers to fix the regulators. Email us to get involved, and share this with anyone else who should:

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Startups and investors have long campaigned for policy changes to improve access to capital and talent, two of the critical ingredients for any tech ecosystem. But we’ve lost track of the third ingredient: access to customers. Over-stretched regulators now stand between an ever-growing number of UK startups and their users. For many this is now their biggest barrier to growth.

Unlike capital and talent, there’s been little focus on the backlogs and bottlenecks at the UK’s regulators. And today, in the post-Brexit, AI era, we are particularly exposed: regulators are left unable and under-equipped to carry out both their existing and future duties.

Progress in AI, bio, food, health, finance, transport and many other sectors is core to the UK’s economic growth. But while entrepreneurs in the ‘markets that matter’ are holding up their end of the bargain, regulators are increasingly unable to move as quickly as the public interest demands.

This change has crept up on the UK over the decade since politicians, regulators and entrepreneurs combined behind the ambition to make it the “fintech capital of the world”. This compact worked, delivering a group of globally-leading companies and putting the UK second only to the US in terms of the vibrancy of its startup ecosystem.

Yet ten years on, this spirit of innovation and regulatory capacity has stalled. We cannot compete with the US on market size or government subsidies. But we can become the best place for startups to design, test and bring innovation to market, in partnership with regulators.

Singapore and the US are already tempting UK cultivated meat companies to relocate, not least because they have moved more quickly to regulate and provide innovators with an efficient, quality authorisation service.

A similar story is playing out in almost every other sector where UK entrepreneurs and policymakers should be partnering in the public interest. Medical device and biotech startups battle MHRA delays daily, fintech startups regularly face backlogs at the FCA, while AI companies wait nervously for regulators with limited capacity or technical expertise to take on new powers.

Getting back on track

Regulators need three things to get this right: resources, rules and ambition.

Some have the ambition and the right legislative rules but lack the resources. When demand for doing the day job grows — particularly as they took on new duties post-Brexit — space for enabling innovation gets squeezed out. The Food Standards Agency stands ready to drive home the benefits of recent changes to the law around genetic editing, but can’t find the cash to deliver a new novel foods system (read our recent interview with the CEO, Emily Miles). 

These regulators need funding that matches the importance of their role in enabling innovation. Even tens of millions more per year would be a tiny fraction of the wider government science budget. And this isn’t just about core staffing — pay bands hold regulators back from hiring appropriate technical talent and rewarding internal efforts to accelerate innovation. Here, food and AI startups will find common cause.

Other regulators are constrained by the rules they operate within, even if they have the resources and ambition to drive innovation. As we discussed with Alex Kendall, Wayve CEO, the various road safety authorities cannot push on with autonomous vehicles without a change in the law. But even deregulation requires investment: both of scarce ministerial and parliamentary time (which has continually held back the Transport Bill) and of regulatory capacity to design and implement new systems once the law changes, as we’ve seen with gene editing.

A final group, including the FCA, lack the ambition and incentives to prioritise innovation next to their primary duty to protect consumers, even where they have the resources and legislative flexibility. So instead of fast-tracking its backlog of startup applicants, it is pressuring some to “voluntarily” withdraw. This short term conservatism not only comes at the expense of the UK’s chance to build the next generation of great fintech companies, but also the long term benefits that competition and innovation generate for consumers.

These regulators need political instruction to prioritise innovation and political cover to take risks. Greater use of periodic steers from Ministers is one way forward. We also need to hold regulators to account, both through Parliamentary scrutiny and new data, to measure both performance and the costs of foregone innovation.

Green shoots

Fortunately there is momentum. New consultations from the government and the House of Lords are digging into the state of UK regulators. The review into pro-innovation regulation started by Sir Patrick Vallance, and picked up by Dame Angela McLean, will publish its final recommendations soon. The Harrington Review, which searched for answers on inward investment, will have something to say on wider questions of how we make the UK as attractive as possible.

But these initiatives need to include a whatever-it-takes commitment to plug funding gaps and fix the regulators. The Frontier AI Taskforce is a case in point. Its £100m budget took the resource question off the table, while bringing in Ian Hogarth and Matt Clifford anchored its commitment to attracting expertise from the tech sector itself. This approach should be the norm not the exception.

For all the hand-wringing about the UK’s industrial strategy or its response to the US Inflation Reduction Act, it is regulatory agility and ambition that can make the biggest difference to our economic outlook. It is time to take that opportunity seriously.

We’re convening discussions with founders, investors & policymakers to fix the regulators. Email us to get involved, and share this with anyone else who should:

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