Building the companies that build the future: why the UK’s tax system must work for cleantech scale-ups
The UK has spent the last decade building one of the world’s most successful early-stage investment ecosystems. Schemes such as SEIS, EIS, VCT and EMI have helped mobilise private capital, nurture founders and support thousands of innovative companies.
However, for many of the companies that will deliver the UK’s industrial renewal and net zero transition, success does not come from writing code in a co-working space. It comes from building factories, deploying infrastructure, scaling manufacturing lines and proving technologies at commercial scale.
In other words, the businesses that will shape the clean industrial economy are capital-intensive and long-horizon.
As part of HM Treasury’s recent Call for Evidence on Tax Support for Entrepreneurs, Cleantech for UK submitted evidence highlighting how the UK’s tax framework can evolve to support this new generation of companies. The goal is not to overhaul what works - the UK’s early-stage incentives are widely respected - but to ensure that the tax system does not unintentionally slow companies precisely when they are ready to scale.
What exactly is the challenge?
Across the cleantech ecosystem, founders and investors consistently describe a similar growth journey.
Early innovation can often be financed. Angel investors and specialist funds support prototypes, pilots and early commercial validation. The UK’s tax incentives play a significant role here by reducing investor risk and expanding the pool of capital willing to back high-risk technologies. But the next step becomes much harder.
Scaling climate technologies often requires:
These stages demand orders of magnitude more capital than the early-stage phase and involve longer timelines before revenue materialises.
This creates the well-known “valley of death” between innovation and commercial deployment. For capital-intensive companies, it can be the difference between scaling in the UK or relocating to jurisdictions where policy frameworks better support industrial growth.
If the UK wants to remain competitive in sectors like advanced materials, energy systems, sustainable fuels or circular manufacturing, tax policy must recognise that scaling a climate technology company looks very different from scaling a software start-up.
Removing friction from the scale-up journey
One consistent theme emerging from our coalition of founders and investors is the importance of minimising drag in the system.
The UK does not need a radically different entrepreneurial tax framework. But it does need to ensure that its existing tools evolve with the realities of capital-intensive innovation.
At present, several structural features of the system can unintentionally create barriers:
Addressing these issues would not only support individual businesses, it would strengthen the broader innovation ecosystem. Because when experienced founders, engineers and investors recycle capital and expertise into the next wave of companies, the system compounds its own success.
What we recommended to HM Treasury
Drawing on experience from across our coalition of cleantech innovators and investors, we identified several practical adjustments that could strengthen the UK’s ability to build and retain high-impact companies.
These include:
1. Addressing the deployment-stage funding gap
2. Removing growth “cliff edges”
3. Aligning eligibility rules with capital-intensive sectors
4. Encouraging capital recycling
5. Providing long-term policy stability
A moment of opportunity
The global race to build the clean industrial economy is accelerating. Countries across Europe, North America and Asia are competing to host the companies that will manufacture next-generation batteries, sustainable fuels, advanced materials and circular production systems. For the UK, this is a crucial environmental and strategic economic question.
The country already has world-class universities, a strong venture capital ecosystem and a vibrant community of climate innovators. But maintaining that advantage requires ensuring that companies can grow, deploy and scale here, not just start here.
Tax policy may not always grab headlines, but it plays a quiet and powerful role in shaping where capital flows and where companies build their future.
If the UK can ensure that its entrepreneurial tax framework evolves alongside the needs of capital-intensive innovation, it will not only support individual scale-ups, it will help secure the country’s place in the industries that will define the 21st century economy.
