The UK risks losing its brightest scale-ups, a new report from Virgin Media O2 has warned, with high-growth firms saying they are being held back by red tape, talent shortages, and funding barriers.

The network provider’s findings, coming just weeks ahead of the Budget, show that despite two-thirds (64%) of startups planning to increase investment and 85% wanting to stay in Britain, one in five of the UK’s fastest growing companies say they will move abroad within the next three years without action.

Virgin Media O2’s Growth Signals report, based on insights from more than 2,000 UK companies in high-growth sectors, found that twice as many startups see the US (68%) as a better place to grow their business compared to the UK (35%), with Britain lagging behind other major markets including Singapore (44%) and even the EU (38%).

These firms, which include many working at the forefront of critical sectors like AI and quantum, said that while they would like to keep a UK base, growing regulatory burdens (58%), political uncertainty (54%) and funding shortfalls (52%) make scaling their businesses nigh impossible.

Not helping matters, the study also contends that the UK is rapidly falling behind its peers in unlocking value from next-gen tech.

Only 16% of UK businesses are using AI, significantly less than both the US (35%) and China (58%), while Britain has attracted just $28 billion in private AI investment since 2013, around 6% of the global total, compared to $500 billion for the US and $119 billion for China.

After years of such underinvestment, the UK has just 3.6 GW of data centre capacity – a figure dwarfed by North America’s 20 GW – leaving frontier tech firms in Britain facing a serious bottleneck that could stall innovation, lead to higher costs, and trigger investor hesitation.

Taken together, Virgin Media O2 said these pressures saw £100 billion wiped from UK stock markets last year as exits outpaced IPOs and listings at nearly five to one.

“The UK has solid foundations to support tech startups, but other countries are moving faster in key areas, like digital infrastructure and adoption. Failing to follow suit risks seeing the UK fall behind,” said Roy Hotrabhvanon, CEO at PlayerData.

However, more encouragingly, homegrown founders still believe that, with the right support and reforms, the UK can remain a hub of innovation. 

Nearly half (47%) of startups remain optimistic about the country’s long-term economic prospects, citing high-quality research institutions (65%), international business environment (48%) and strong legal and regulatory frameworks (46%) as key strengths. 

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To capitalise on this, entrepreneurs say the government should encourage an environment that matches their ambitions by prioritising agile regulation, capital incentives, future-proof digital networks, and AI-ready talent, with a focus on long-term certainty.

“Bold and innovative businesses are created here in Britain because it cultivates home-grown talent with the ambition to match. But too many of the fastest-growing companies can’t see a route to scale in the UK and are now looking to prosper abroad,” said Lutz Schüler, CEO of Virgin Media O2.

“With an AI-powered economic revolution already underway, the question is now whether Britain leads or follows. Decline is not inevitable. This is a country that can maintain its place on the world economic stage and win if it fixes the frictions founders face every day.”

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