A new report from Tech Nation shows that despite recent political turmoil, the UK’s tech sector still punches above its weight.
Based on the relative size of our economy, last year’s scale-up tech investment was 2.5 times higher than would be expected. We can rightly brand ourselves a ‘tech nation’, having created 35 per cent of tech unicorns – that is $1bn+ valued businesses – across Europe and Israel. Perhaps unsurprisingly, fintech is our number one sub-sector, with high-growth fintech firms receiving around £4.5bn in investment between 2015 and 2018.
London dominates – attracting £9bn from 2015 to 2018 in investment – with Cambridge a distant second at £583m. This disparity isn’t necessarily something to lament: it’s not a zero-sum game. London’s success doesn’t come at the expense of Britain’s other burgeoning tech hubs around the country. But we should be wary of ways we are stymieing the growth of other tech hubs, as well as London’s further growth.
As has been thoroughly argued by academics, think tanks, and even the odd politician, London’s greenbelt restricts the supply of homes and pushes up costs. This means fewer tech entrepreneurs and workers are able to build businesses in London than want to. Though tech talent is distributed at birth evenly across the country, opportunities aren’t. Businesses grow in clusters because proximity to capital, people and institutions matters. If people can’t afford to live in our capital, we’re foregoing unique opportunities for collaboration and wealth creation that simply can’t be replicated anywhere else.
Restrictive planning policy more generally doesn’t just drive up house prices – it drives up the cost of office rents for tech companies. As Paul Cheshire and Christian Hilber showed over a decade ago, the ‘regulatory tax’ of restricted planning for Britain are orders of magnitude greater than cities in the US and continental Europe. In the UK the effect peaks in London’s West End, where the ‘regulatory tax’ is as high as 800 per cent, but they also revealed that office space in Birmingham costs 124 per cent more than in fast-growing, twice as big, and land-strapped Singapore.
Poor infrastructure also dampens economic growth. Using data from 40 million bus departures, it has been shown that Birmingham’s poor bus transport network undermines agglomeration – ie. the benefits that come when firms and people are near one another – that cities of its size normally benefit from. If you want to build a tech company in cities with bad transport your talent pool is diminished.
Tech Nation has received substantial government funding over the years to help it deliver support to tech entrepreneurs through various programmes, skills training and the exceptional tech talent visa scheme it manages. This funding is why Culture Secretary Jeremy Wright referred to it as a lever of government in his speech and why the Prime Minister has written the foreword of the report
A section of Theresa May’s opening remarks is telling: “Local economies in our towns and cities benefit from the international reach that our companies create, and the global investment they attract. They are able to do this by harnessing the world class talent the country offers, which allows them to take their UK products and services global.”
What the Prime Minister fails to acknowledge here and in her policies is that a lot of our world-class talent wasn’t born in the UK. Having lobbied for, created and successfully built the Tier 1 Exceptional Talent Visa in digital technology, Tech Nation is all too aware that finding talent is the number one challenge for fast-growing tech businesses, which is why it was a major theme of the Q&A at the report’s launch.
Despite some positive baby-steps, the post-Brexit immigration white paper would make the system harder for entrepreneurs. As I’ve argued elsewhere: “The suggested £30,000 salary threshold to hire workers will hit cash-strapped startups hard, which currently incentivise many employees with less in the hope and promise of the realisation of a vision. Often this is done with equity to make up for comparatively low salaries.” In addition, the implementation of the well-intentioned Start Up and Innovator visas has been a botched job.
UK tech is in a good place, but it’s a big world out there. The tech sector relies on a steady flow of international talent which we need to keep flowing, and we need to overcome Nimbyism and poor infrastructure. If we want to remain a leading tech nation, we’ll need the politicians and policies to back Britain’s tech entrepreneurs.
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