The consultation, ‘Financing growth in innovative firms’, looks at ways to ensure start-ups have access to the finance they need and has identified a £4bn funding gap between US and British firms. The national investment fund is intended to help address this gap. 

Currently, British businesses also rely on funding from the European investment fund. The Treasury says a new UK based fund would help ensure that firms still have access to the funding they need, should this relationship end when the UK leaves the EU.

The consultation looks at how these firms might benefit from investment originating from pension funds; and how to commercialise research from UK universities and drive investment in firms across the UK.

Philip Hammond, Chancellor of the Exchequer, said: ‘Britain is an innovation powerhouse and it’s vital that we make sure our cutting-edge firms have the funding they need to meet their potential and conquer new markets.

‘The new fund could be set up as a public-private partnership or be placed fully on the government’s balance sheet to be sold off once it has established a sufficient track record.’

The consultation forms part of the ‘Patient Capital Review’ announced by the Prime Minister in November 2016, to strengthen the UK as a place where innovative firms can obtain the long-term patient finance they need to scale up.

According to its findings, while the UK leads Europe in the creation of so-called ‘unicorns’, it significantly lags behind the US which accounts for 54% of these £1bn plus companies; and China which accounts for 23%. Just 4% are based in the UK.

Top US firms are also younger than UK firms, again suggesting the US is more effectively growing new businesses into large scale firms. Ten of the UK’s largest 100 listed firms were created after 1975 compared to 19 in the US but only 2 in Europe.

The consultation closes on 22 September.

Financing growth in innovative firms is here.