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Open for Business: UK Tech Sector Ready for Post Brexit Challenge
Author: Tech City UK CEO, Gerard Grech
As I take part in Web Summit 2016 (in Lisbon), I know that now more than ever Britain’s thriving tech community is going to be under scrutiny.
Our colleagues and friends from around the world will want to know how we are coping with the unexpected turn of events that saw the British public vote to leave the European Union.
There will be the curious, who want to know exactly what has changed since that day in June. There will be the pitying, those who think that Brexit is a self-inflicted wound which is totally unnecessary. There will be the gleeful, hoping that the UK’s challenges can somehow be turned to their advantage. And there may even be the envious, who admire this country’s decision to break off from an institution renowned for imposing layers of regulation on businesses.
Most of us in the digital economy favoured staying in the EU. Now we find ourselves in new territory — filled with opportunities and challenges. Here is why I think that a post Brexit world is an opportunity for the UK to future-proof the infrastructure on which its digital and tech businesses are growing. The caveat is that there may yet be twists and turns along the Brexit road, that we have not yet envisaged. Nonetheless, some of the best ideas and companies start up in times of adversity. The entrepreneurs who work in and set up Britain’s tech businesses are problem-solvers who thrive on challenge. I believe they will step up to the challenge of Brexit in the months to come.
A strong foundation to build from
Britain consistently punches above its weight when it comes to digital innovation and technology. In a recent OECD/McKinsey 2016 report in August, the UK was ranked top in its digital share of overall GDP (10 percent), beating the USA (8 percent) and Sweden (7 percent). The UK is starting from a strong foundation to build on its digital capabilities in a post Brexit world.
Rebooting economic policy
The Chancellor of the Exchequer Philip Hammond recently said he wants to reset economic policy and has committed to additional funding to science and technology for us not to miss out on a “once in a generation opportunity for Britain to cement its role as a leader in tech innovation.” This could be an opportunity to review certain conditions of our economy; from incentives for entrepreneurship like tax relief to specific training programmes to skill up the next generation of workers.
Equally, exporting companies – which many tech companies are – are currently benefitting from the devaluation of sterling which has made British goods and services more economically attractive overseas. This could fire the starting gun on a new phase of export growth for the UK economy.
Conversely, many tech companies may be facing higher costs for items like cloud storage if paid in dollars. Tech companies, however, do have an advantage here over many traditional businesses, including manufacturers, as they are mostly not importing components or paying for fuel in dollars.
An industrial strategy with digital transformation at the heart of it
The Prime Minister has said that she wants to create an industrial strategy for Britain. Last month we heard that Nissan, the Japanese car maker, would build its next models in the UK, following certain government assurances, especially in the area of green energy and electric cars. In this, Government has demonstrated that there will be help for sectors like the car industry and financial services. We also expect them to understand the unique needs of the tech industry and the evidence so far is that they are listening.
Tech and digital businesses have received a lot of support from Government since 2010 – including the Tech Nation Visa Scheme; tax credits for research and development and the early-stage investments scheme (SEIS). Now is the right time to create and embed a digital strategy in all aspects of UK commerce. The digitalisation of our world – both public services and private sector companies – is happening all around us. Government is recognising that and now the time is right to encapsulate its ambition for the sector in a digital strategy for the UK.
Putting education & skills at the top of the agenda
Our primary school children are starting to learn to code. But it will be another decade (at least) before we see that bear fruit amongst school leavers. We need to do everything possible now to accelerate UK education in digital and tech skills, for primary and secondary age children.
There is also an unmissable opportunity to concentrate on building better relationships between startups and tech firms and British universities, particularly in relation to students on STEM courses. Nor must we neglect adult learners, career changers and anyone who has an aptitude and interest to learn new skills.
Tech talent from around the world
Leaving the EU will force the UK to strategically address the issue of skilled immigration. The tech sector relies heavily on international talent at present. Why? Because while all industries need a skilled workforce to grow, not all industries are growing at the same rate. The UK’s digital economy is expanding at a staggering 32 per cent faster than the rest of the UK economy (in turnover). Additionally, those much-needed tech workers that fuel the digital economy are a scarce and precious commodity. Their specialist skills are not yet widespread, though they will be in time.
Between 2010 and 2014 the gross value added of the digital sector grew by 27%. Companies like Just Eat, Shazam, Skyscanner, Mimecast and Zoopla have become household names in a relatively short time and are providing high-value jobs across the country in ways that could not have been predicted 10 years ago.
Fast tracking visas for international workers with much-needed skills will increasingly become necessary if freedom of movement is curbed. A fall in readily available low and mid level skilled workers for sectors like retail and hospitality might lead to accelerated investment in light automation, such as self-service checkout at supermarkets (where it makes sense in fast moving cities and time is of the essence).
International competitiveness raises the game for the whole of Europe
European cities are raising their game. That is good news for us all. Berlin, Milan, Paris, Amsterdam, Dublin and Stockholm are doing their best to lure away startups or have them co-locate across Europe. In doing so, they have to improve business conditions in their own cities. This raises the bar for the whole of Europe’s tech community and underlines that Europe, as opposed to the US, is a great place for companies to base themselves.
Let’s have joined-up thinking across the UK and across industries
With fast-growing tech and digital communities thriving outside London, there is more need than ever for the country to pull together to address the tech community’s needs. The London versus Manchester/Cambridge/Leeds debate is old hat. We sometimes treat a trip to these places as a pilgrimage. This is a small country, with the population concentrated in a handful of prominent cities. Now more than ever, the tech communities in these places must coordinate efforts and work together to promote the whole sector.
Equally, links between more traditional or established industries and tech must be strengthened and invested in. No industry is escaping the impact of technology. Tech innovation has ushered in new energy providers; more efficient banking and investment companies; cheaper travel; accessible education and more.
Appetite persists for deals
Depending on how you look at it, we have seen some huge endorsements for the UK tech community since 24th June. Japan’s Softbank agreed to buy the UK’s biggest tech company ARM Holdings for £24.3 billion. Darktrace, a cybersecurity startup, attracted a $65 million investment from UK private equity group KKR in the month after the vote, and according to Beauhurst, the largest deal of the summer was a raise of £210M for Deliveroo. Investors are still willing to invest in exceptional talent and potential. In fact, they may have even more desire to invest than ever before – especially since the depreciation of the pound.
The London Stock Exchange is the second largest financial market in the world
By the number of companies listed, and while there has been some post-Brexit uncertainty surrounding IPOs, the market has a track record of overcoming difficulties. Recent successes include payments firm Worldpay, which raised over $2.6 billion and cyber security firm Sophos, now worth more than $1.6 billion. Between 2011 and 2015 there were 22 tech IPOs on the LSE, with average proceeds coming in at $492 million.
Time to reduce red tape (further)
While the UK is an easier environment in which to start a business than many other countries in Europe, improvements could always be made. Small businesses and startups in particular feel that red tape and employment costs can push them to the brink, especially in the early days when they are existing hand to mouth. Brexit provides a great opportunity to reduce and consolidate regulation. The Brexit vote will also concentrate minds on building robust, competitive businesses from a lower cost-base.
Britain is a pioneer and will continue to be
Britain is at the forefront of many tech developments. Driverless cars, the microchips behind smartphones, graphene, the internet of things, artificial intelligence, 3D printing, virtual reality and advanced robotics are all inventions in which UK-based companies and scientists have played and continue to play leading roles. British technology and science will continue to be at the cutting edge in future because we have a phenomenal base from which to do so. There are 170 universities in the UK, with six in the world’s top 30 and 91 in the top 1000. We have three of the world’s top 10 universities in Oxford University, Cambridge University, and Imperial College. Our turnout of graduates is the highest in Western Europe. British universities are world class and produce over 5,000 new STEM PhDs per year.
In conclusion, we know that Brexit is a challenge. However, the keys to success for any economy are to ensure it is competitive, prosperous, fair and adaptable.
On the building blocks that I have outlined, we are building a sustainable ecosystem for our tech companies across the whole UK. Day by day, the digital sector is becoming integral to the British economy as a whole.
This project will not be derailed by Brexit. If anything, the urgency of future-proofing the British economy only becomes clearer.