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Amid the multiple strands of the UK government’s mammoth multi-year public spending and investment programme laid out in the so-called Spending Review 2025 on June 11 was an item few will have paid much attention to: a £10.3 billion ( US$11.89 billion ) increase in the financial capacity of the British Business Bank ( BBB ), the state economic development agency, to £25.6 billion. This is one of many elements of the government’s plan to drive more long-term domestic institutional capital into its home market.
In this instance, the objective is to ramp up the flow of private venture capital as part of the government’s industrial strategy to boost growth. The role of the BBB is to mobilize and channel funding to encourage start-ups and allow smaller UK businesses to scale.
So far so reasonable. The BBB already lays claim to being the largest investor in UK venture and venture growth capital funds, the most active late-stage investor in UK life sciences and deep tech, and whose equity programmes have apparently supported 22 ( 56% of ) UK unicorns.
How much? Not much
But here’s the thing: the increase in the BBB’s capacity – an extra £7.1 billion in loans and equity and an additional £3.2 billion in guarantees – will, we’re told, lead to around £2.5 billion in investments each year for the next four years. That’s a two-thirds increase compared to 2025-26. Again, sounds reasonable enough.
Except that those numbers don’t add up to much in the context of the UK’s US$3.5 trillion economy, so government hopes are riding on tens of billions of pounds – their number – of private venture funding they believe will be crowded in as a result of the BBB’s expanded activities.
Tens of billions? Are they serious? A number of that magnitude reaches the outer edges of ambition. Unless of course the government imposes draconian rules that mandate that a certain percentage of UK assets under management is allocated to specific market segments. ( The current British government does seem keen on the grotesque idea of politically-motivated investing autocracy, so who knows? )
Voluntary moves afoot
Beyond the unhealthy issue of dragging investors kicking and screaming into one of the riskiest market segments out there, there have been moves to mobilize private venture capital without the use of force. But I don’t see these initiatives generating anything like the amounts of venture capital the government appears to be hoping for.
For example, the BBB is setting up the British Growth Partnership ( BGP ), a Financial Conduct Authority-regulated investment vehicle targeting UK pension money. The pitch is that the BGP can create access to high-growth companies – presumably offering high returns – in the form of public-private partnerships.
There has been some early interest shown here: in late May, London LGPS CIV, the investment pool for all London-based Local Government Pension Schemes with combined assets of around £51 billion ( US$69 billion ), said it intended to work with the BBB on the BGP’s launch. It joins Aegon UK ( the pensions provider with £216 billion in assets under administration ) and NatWest Cushon ( the workplace savings and pensions fintech acquired by NatWest in 2023 ), which were the first to announce last November that they intend to invest in the BGP’s initial fund. A first fund, incidentally, targeting the hundreds of millions of pounds.
The recently established Long-term Investment for Technology and Science programme, another government initiative, is seeking to unlock £1 billion in private capital. In February, Schroders Capital ( the investment firm’s private markets division with US$99 billion under management ) announced the first close of the UK Innovation LTAF ( long-term asset und ) at £500m.
Half of the funding for the Schroders fund came from a cornerstone investment from the BBB and that was match-funded by Future Growth Capital, the private markets venture between Schroders and the Phoenix Group, the long-term savings and retirement provider with around £290 billion of assets under administration. The fund will invest in artificial intelligence, cybersecurity, fintech and payments, consumer, infrastructure software, vertical software-as-a-service, oncology and biotech discovery platforms.
The BBB also awarded £100m to alternative asset manager ICG to invest in innovative life-sciences companies. That, too, is matched by Phoenix.
I have nothing disparaging to say about these or other initiatives that emerge. The issue I have is one of expectations for venture capital mobilization overall. As I mentioned above, I’m just not seeing it emerge in anything like the volumes the government is expecting.
I understand that there is a need for venture capital to fund start-ups and entrepreneurship, but it’s risky, something the British government seems to be conveniently underplaying, such is the intensity of its political fervour. The BBB’s Evaluation of Start-up Loans report published in December 2024 showed a loss/default rate for loans in 2018/19 estimated at 21.7% and for 2021/22 loans at 30.1%. The bank works to a 40% default rate baseline.
It’s called venture capital for a reason.
