In this years’ Mais Lecture at the City University, Chancellor Rachel Reeves chose the moment to pledge new £2.5bn worth of funding to boost domestic AI and quantum computing in order to defend nascent UK tech firms and stop them “drifting off” to the US. 

In recent years, UK firms such as DeepMind and Oxford Ionics have been bought up by US firms as they sought investment to scale - robbing the UK of its own potential to develop the next Google or Nvidia. 

The Chancellor has absolutely focused on the right issue affecting UK start-ups, but a single funding boost may be throwing good money after bad if her Government does not fix the systemic issue that prevents UK firms from accessing funding and actively uses UK institutional money to empower US firms to buy developing UK growth firms. 

There are trillions of pounds in UK pensions, many of which due to inappropriate incentives are parked in passive global indices such as the MSCI Global Index. Any UK pension tracking this particular index will invest more into Apple Inc. than the entire UK economy as a whole on any given day. 

This outcome is clearly bad for SMEs, the UK economy, and pensioners and other citizens who require a strong economy and the services that these businesses provide. In order to fix this doom-loop and redesign the system, the Treasury must incentivise domestic allocation, reform regulations in order to encourage long-term investment and development of risk-bearing capital vehicles. 

The UK equity allocation of domestic pension funds is currently 2.8% - and the Chancellor has acknowledged the threat with the latest Mansion House accords. But these will only scratch the surface. Only a fundamental analysis of capital flows and the treatment of risk will fix this systemic issue, and until then new pots of investment will just be throwing good money after bad.