It's because the UK is so good at financial services.

It's fairly easy to deploy capital in the UK in mainland Europe, the US, India, China, ASEAN, and Middle East, which means there isn't much of an incentive to deploy it within the UK in industries that the UK cannot compete directly in.

For example, Dyson has almost entirely shifted operations to ASEAN (Phillipines and Malaysia primarily).

And AugustaWestland/Leonardo, Rolls Royce, AstraZeneca, GSK, BT Group, JLR, and BAE have largely shifted operations to the US and India.

The UK could make it harder to offshore, but then that also destroys the UK's entire financial and services industry, because most of the capital in the UK exists because it's a connector for global markets and would leave if that is ended.

They're damned if they do, damned if they don't.

I think "capital" is the wrong word for it. We've got a lot of money lying around, but capital implies something productive can be done with it. We can't eat money, and we can't tax it or else they'll screw off. Perhaps if we stopped acting as the worlds fixer for tax dodging we would end up being better off. I can't help but view the City as a kind of tumour, sucking the life out of the rest of the country to enlarge itself.

I think most folks when say Capital they mean “Finance Capital” which UK is really good at. Even historically speaking UK was at the forefront of financial engineering which complimented their physical engineering and enabled to spread their empire and colonize so much.

But UK post WW-2 and specifically post Thatcher stopped investing in physical engineering and overindexed on financial services the results are for all to see now.

But you are right. I think the financial engineering has reached its limits and we see China’s investment in physical engineering over last couple of decades beginning to pay off.

The Chinese strategy of forcibly keeping their financial sector depressed seems pretty sensible as a long term strategy.

On the other hand, the UK has all these cheap engineers. Is it just that they're not actually cheap, on the international market?

Rent, taxes and industrial regulation plays a big part. As does power costs. Then there is political costs, it’s hard to rely on UK politicians not doing foolish things and tanking your company on a whim.

Cheap compared to the US. On-par for most of the Western world. Expensive on the international market.

Not really. UK salaries are largely comparable to those for a similar caliber of talent in China or India ($30-50k mid-career is doable in both markets).

The difference is countries like India, Czechia, Poland, Israel, Romania, etc all provide competitive tax incentives or subsidizes for R&D work, so you can hire competitive talent AND get preferential tax treatment.

It was always going to be a trap, but it’s been so long in the making that those who started the UK on that path have long since retired wealthy.

> I don't understand why it's so bad in a country that's supposedly amazing at financial services.

Because it's focused on predatory finance: funds cornering housing markets, money laundering, debt markets (think public debt and CDS), currency/rates speculation, etc.

It's not about predatory or non-predatory finance.

In order to become a major financial hub, UK has very favorable foreign transaction laws.

A significant amount of British-domiciled capital is foreign originated but only parked in the UK because of strong contracts law and linkages to just about every major investable market.

This is both a boon and a curse, because why would you finance a $1M seed in London when you can deploy that same capital for a similar sized seed in Tel Aviv or New York and get a better return on investment by exiting or funding additional rounds.

There is no innovation ecosystem in the UK, and it's too late to build one because other markets are just too competitive at this point - India, Israel, Czechia, Poland, etc provide very competitive tax incentives and subsidizes for foreign R&D investment and have done so for decades now.

You might assume the answer is to add additional roadblocks, but that makes British financial services extremely non-competitive, and puts 2.5 million jobs (and voters) at risk.

This is the exact same trap that Singapore and Hong Kong has fallen into, and both are trying to minimize it by becoming the goto financial hubs for target startup scenes (China for Hong Kong, India+ASEAN for Singapore) and investing in foreign startups (eg. Temasek Holdings in Singapore).

The UK needs to do something similar - it needs to give up ambitions of being a peer of the "big boys" in innovation, and concentrate on becoming competitive in international dealmaking, maybe by making a public-private international VC fund like Temasek.

Baillie Gifford (HQed in Edinburgh) and Index Ventures (HQed in London) are competitive in Tech Growth Equity globally (and especially in the Bay). There's no reason there can't be more Baillie Giffords or Index Ventures in the UK.