Apologies for my lack of knowlwege of Merlins economy in advance, I only really know about their stuff like investments, prices, food quality, etc from my own experience.
I don't really think 'destined for mediocrity' would be an appropriate term to describe their current state. A more fitting title would be "Always was Mediocre".
I largely agree that the lack of investments at their parks in the UK does seem to be because of the lack of competition. As much as I love the high quality theming and products Paultons seems to be aiming for, they just don't match the scale of Merlins investments sadly, apart from exceptions like Tornado Springs.
Talking of their investments, would it be controversial to say that even if Universal came to the UK, Merlin would still be the same company for the most part, offering half baked experiences? Even if Merlin wanted to up their game big time, I think they'd still struggle, but not because of the budgets, but actually Merlin "Magic" Making. For over a decade now we've seen what MMM is capable of, and personally I've never been impressed aside from a few projects such as Wicker Man, The Swarm, and Shipwreck Coast. The rest just fall flat on the creative side in my view. They're just copy and paste themes. None of them match or rival of what came during the 80s and 90s by Tussauds. They had a charm and a quirk to them, and the themes were always pretty unique and memorable. Nemesis compared to Nemesis Reborn being the latest example.
We went from a lovecraftion looking 'thing' with rotten skin and exposed flesh, trapped inside a pit where the area around it is full of rustic facilities with really weird architecture, a futuristic Drilling machine consumed by flesh, monoliths, a bus covered in Mad Max like-art as a Gift Shop, etc. A very striking and mysterious theme to say the least.
Skip 30 years later, the moment MMM touch that ride, all that uniqueness is pretty much gone. No more distinctive unique rustic area filled with mystery, the creature now looks like a fan made version with Godzilla 2014 spikes and an eye that looks like it's straight from Resident Evil 2/Lord of the Rings, no more rotten skin, its all just painted primary grey for some reason now. You can agree or disagree with me on the creature, but the area around it is inexcusable. It's just a generic military area that you can find in any other theme park but void of personality and not pleasant to look at. We already had X-Sector, we didn't need another that's somehow even blander. They try too hard to be flashy and innovative, but it comes off as all style, but no substance.
If Merlin want to up their investments, they need to focus on Marketing and Magic Making as I think that's were all the lackluster investments coming from. The "creatives" just don't seem that creative whatsoever. I can guarantee that if Professor Burps Bubbleworks or Toyland Tours never existed and was to be proposed to Merlin as brand new Dark Rides nowadays, they would be rejected without hesitation.
Now onto food. I won't go too much into detail as a great deal of that has already been debated, but the Cooked Food at Merlins parks are just poor outside of the Roller Coaster Resturant. Amarak seem to do LESS than the bare minimum, with Burgers and chips always looking so bare from being badly put together. I don't even want to get started into how on rare cases guests have been served mouldy and rotten food. That itself is outright disgraceful and concerning.
So personally, if Merlin want to up their game in consistency and quality in the guests experience, id:
1) Restructure Marketing and Merlin Magic Making so more unique and original ride themes akin to the 80s and 90s Tussauds attractions can emerge from them. Stop prioritising on Horror Themes at Alton Towers and start embracing the more quirky themes and styles like Thorpe, Chessington, and Alton itself had back in their heyday. Aka, get new Creatives.
2) Bigger Budgets. Must I explain this?
3) improve Food offering and quality. Bin Amarak and start serving food that actually tastes good. Even if we have to go back to using Cadbury and Fast Food corporations, it'd be better than Amarak.
4) Get more External Theming Companies involved. An odd one I know, but getting companies like Meticulous, Studios East Ltd, to help Merlin Magic Making, or even designing and building rides by themselves would be nice to see again for more variety. Tussauds did stuff like this back in the 90s. Some rides were designed by them, others were by External Companies. Toyland Tours (Tussauds), Haunted House (Sparks, Rex Studios), Bubbleworks (Sparks), Terror Tomb (Farmer Studios), Dragon River (Tussauds).
5) Small one, but longer opening hours, nothing too drastic, but an extra hour would make a huge difference in their parks personally.
If there's one thing Merlin have always excelled at, it's merchandise (shocking). They always produce some great looking stuff out there.
So all in all, even if Universal does make if to the UK, Merlin will need a bigger internal overhaul than many think personally.