The EU Scale Up Fund Is No Cure for Britain’s Growth Malaise

1The wrong moment to reopen Brexit

As the Prime Minister announced his resignation outside Number 10 this week, he was battling against the sound of “Ode to Joy” ringing from the speakers of Brexit protestors. It is poignant that the EU anthem played out the Prime Minister’s last decisive act — Europe and membership of the EU remains a difficult issue in the Labour Party.

For a nation in the midst of economic and political uncertainty, it is bewildering that the government has been touting closer relations with the EU — putting Brexit, and what it means, back on the political agenda at precisely the wrong moment.

Not only does it risk distracting ministers further from their stated economic growth mission, it has inevitably reopened old wounds and signalled that the democratic mandate expressed in the 2016 referendum may once again be up for debate. Labour’s manifesto was clear: there would be no return to the customs union, the single market, or freedom of movement. Yet it also left room to renegotiate a closer relationship with Brussels on investment and industrial policy.

Andy Burnham, should he become our next Prime Minister, may be tempted to continue Sir Keir Starmer’s charm offensive, or even turbo-charge it, in a foolish attempt to grow the British economy.

2The EU is not a panacea

A sovereign Parliament has every right to pursue that course, provided the terms are transparent and politically legitimate. But the government has not been straight with the public. The EU is not a panacea for Britain’s weak economic performance.

The EU’s share of global GDP has been shrinking for decades, while the United States and much of Asia have consistently outpaced European growth. Why would Britain seek inspiration from the very institutions that have presided over relative economic decline across the continent?

The government’s strained attempt to integrate more closely with the EU while remaining inside its manifesto red lines has led ministers to champion British participation in a number of EU-backed investment initiatives aimed at scaling innovative companies.

3A modest stake, an endless entanglement

The most prominent is the EU’s €5 billion Scaleup Europe Fund, designed to address the late-stage equity investment gap for European technology businesses. The fund combines €1 billion of public capital from the European Innovation Council under Horizon Europe with €4 billion from private investors, and will be managed commercially by Swedish private equity firm EQT, selected as the fund’s manager in May 2026.

Negotiations are reportedly ongoing ahead of a UK-EU summit later this summer, with sections of the business lobby already building the case for British participation. Yet what has received far less attention is the fact that while Britain rejoined the broader €95.5 billion Horizon Europe programme as an associated country, it deliberately opted out of the EU’s direct equity investment instruments. Reversing that position to join the Scaleup Europe Fund would likely require a formal treaty change.

This is exactly the sort of endless institutional entanglement voters rejected in 2016.

Years of negotiations, treaty amendments and political bargaining — all for a relatively modest stake in a €5 billion venture capital fund. This is the same rejoining by stealth that has crept up the agenda since the reset began: integration sold as access, commitment sold as collaboration.

4The scale problem Britain shares

To put that stake in perspective, major American venture capital firms investing at comparable stages and in similar sectors often manage £15–20 billion individually — and there are many of them. The EU is attempting to solve a genuine problem. European venture capital ecosystems lack the scale of their American competitors, creating an investment gap that pushes promising companies to relocate technology, intellectual property and talent to the United States.

Britain faces the same challenge. Our most innovative firms too often redomicile abroad, taking with them jobs, tax revenues, technological capabilities and the wider spillover effects that come with successful innovation ecosystems.

There are domestic answers to this problem. One obvious solution would be to encourage institutional investors, particularly pension funds, to follow their counterparts in Australia and Canada by allocating more capital into growth assets and venture capital rather than remaining overwhelmingly concentrated in gilts and low-yield fixed income. But that is a debate for another day.

5Brussels in the back seat

What should concern us now is the government’s increasingly supplicant approach to European capital. Britain appears willing not merely to seek access to this fund, but to financially contribute to it, despite the European Commission playing an active role in the fund’s governance and strategic direction.

The Commission, as a founding investor, will participate on equal terms with other investors and hold representation within the fund’s governance structure. The manager may be commercial, but Brussels will still be sitting in the back seat influencing investment priorities. It does not take much imagination to see how that dynamic could disadvantage British firms as non-EU participants.

6Not in the pipeline

The small print already points in that direction. Businesses within the European Innovation Council’s existing portfolio are expected to provide a pipeline of potential investments for the fund manager. British firms are largely excluded from that ecosystem because, under the terms of our Horizon association, we are barred from participating fully in EIC equity programmes beyond grant funding.

In short, British companies will not be in the pipeline for investments from the EU’s Scaleup Europe Fund.

The claim that this is simply a commercially driven investment vehicle, free from political considerations, is for the birds. This is ultimately an EU strategic project, designed to strengthen the bloc’s technological competitiveness against the United States and China. The Commission will not be a passive investor.

7An industrial-strategy instrument, not a commercial fund

How exactly the British government intends to participate remains unclear. But if ministers are seriously considering committing British taxpayer-backed capital into a politically directed European investment structure, Parliament should scrutinise the proposal carefully.

British capital should not be pooled to subsidise European competitors at the expense of building deeper and more competitive domestic capital markets of our own.

Britain has, in many respects, benefited from associate membership of Horizon Europe, securing one of the highest levels of funding among its participating states. But Horizon is primarily an R&D collaboration framework. The Scaleup Europe Fund is something fundamentally different. It is an industrial strategy instrument designed to bankroll strategic European technologies as part of the EU’s wider economic and geopolitical competition with China and the United States. Why, then, should Brussels prioritise the interests of a non-member state that chose to leave the bloc?

8Back our own companies

Britain’s long-term prosperity will not come from outsourcing growth to European institutions. It will come from building the confidence to back our own companies, unleashing our own capital markets, and pursuing a genuinely independent growth strategy.