Business Secretary Peter Kyle has admitted that the Government is worried about entrepreneurs fleeing abroad. “There are people starting businesses that have gone to America actually in their droves,” he told Sky News yesterday. Kyle further stated that some of this was due to the tax decisions being made by the Government. Only last month, Revolut co-founder Nikolay Storonsky left the UK for the UAE.

Keir Starmer’s ministry has been repeatedly cursed by bad timing. It wants to invest in infrastructure when the era of cheap money has ended. It wants to rely on global capital during a period of geopolitical instability. It wants to be a hub for global innovation after decades of underinvestment in R&D and British businesses. The music has stopped and this government has found itself without a chair. How did we get into this mess?

It began in the early Eighties, when the Government chose to rely on tax competition to lure businesses to the UK. To keep taxes low, the country spent less on its own productive capacity. The idea was simple: as long as companies could make bumper profits, they wouldn’t mind if the UK skimped on energy, infrastructure, vocational training, or business support. That assumption, however, has proven to be a myth.

Government spending on research and development has fallen sharply over the decades. In 1981, the UK devoted a modest share of GDP (0.46%) to R&D; by 2016, that share had dropped by three-quarters. In today’s terms, the country has effectively foregone over £260 billion in investment. Spending has crept up slightly since, but it remains far below its former levels.

It is no surprise, then, that entrepreneurs are leaving: the UK is no longer backing business as it once did. Energy production is down compared with the early 2000s, with research by Common Wealth showing that public ownership once supported over twice as much investment as today’s privatized system. Energy costs are rising sharply as a result.

Support for businesses seeking to trade globally has also collapsed: in 1975–6, the UK spent the equivalent of £121 million on export promotion and trade cooperation; now it spends less than a third of that. Meanwhile, regional investment programs once received over £5 billion annually, yet today the UK Shared Prosperity Fund — the main structural investment scheme — faces an uncertain future.

The UK is being squeezed by the United States with the English language, deep capital markets and large talent pool on the one side, and the Gulf States with low tax rates and proximity to fast-growing Asian economies on the other.

Right-wing libertarians will say that this is why we need to cut taxes even further, but this just lands us right back where we started. It also requires cuts to public expenditure which will be political suicide.

The challenge is therefore to keep entrepreneurs in the UK with more than just low taxes. That means investing in core infrastructure — from energy to broadband — while redirecting public spending toward business support and innovation. Public investment in engineering and technical skills must also rise, especially after funding for adult skills programs has fallen by a third since 2003–4. A bolder industrial policy is needed, too: Golden Shares to stop asset-stripping of publicly backed firms, minimum domestic supply chain requirements for suppliers to the public sector, and preferential tax credits for companies which commit to investing in the UK. Taken together, these measures would make it genuinely worthwhile to stay and build here.

While the Government may have been dealt a bad hand, it has a choice about what it does next. Whatever it chooses to do, it has to move fast before the flight of entrepreneurs turns into a stampede.

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Andrew O’Brien is the former Director of Policy at the think tank Demos and currently Head of Secretariat of the Independent Commission on Neighbourhoods. He writes in a personal capacity.

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