World awaits if we invest in the future
Updated: Mar 26
Ian Ritchie Business HQ / The Herald March 26th 2023
The UK is in dire need of technology innovative companies to compete globally, writes Scottish entrepreneur Ian Ritchie
UNLIKE many competitive economies, the UK has stagnated for the last 15 years. GDP per person in Britain remains today at the level it was before the 2008 crash.
The solution for this, everyone agrees, is to create better economic growth in the UK, and most of our political leaders have determined that innovation and enterprise is the key to creating that growth.
Sir Patrick Vallance, the government’s chief scientific advisor has argued that “the future success and wellbeing of the UK will be directly linked to how well we leverage science and technology over the next 50 years”; a view echoed by Prime Minister Rishi Sunak who recently wrote “I want to cement the UK’s place as a science and technology superpower by 2030”. Chancellor Jeremy Hunt has also spoken of the need to “fire up our country to be the world’s next Silicon Valley”.
These are fine words, but if we examine what is actually being done to encourage innovation and enterprise in the UK, we have to ask whether these ambitions have any hope of being realised.
Maybe we don’t really need too much more investment in basic scientific research – we’ve always been strong in that – but what we really need more than anything else is better performance by innovative companies prepared to reap the economic benefit from such research.
And the government seems to agree. George Freeman, the Minister of the newly created Department of Science Innovation and Technology has said, “for 40 years we have led the science and then lost the industrial investment to competitors.”
So how are we doing with improving that situation. Sadly, it’s not good.
This year’s edition of the Global Entrepreneurship Monitor (GEM), just published, reports that the UK has dropped from 18th to 25th in the ranking of world economies in entrepreneurial activity; we trail the USA, Germany, and France in our levels of enterprise.
The authors report that the UK is “insufficient in both the level of access to entrepreneurial finance, alongside insufficient entrepreneurial education at all levels, and diminishing government policy support.”
The House of Lords’ science and technology committee reported last summer that “the government appears to lack an overarching plan for the strategic development of UK science and technology” and criticised the strategic chopping and changing, and often unfulfilled promises to change policy in areas such as government procurement and tax incentives for research spending.
One glaring example of this is the demise of Tech Nation, the government agency that has actively helped 5,000 technology companies such as Monzo, Revolut, Darktrace, Skyscanner, and Peak AI to develop and grow in the UK, but which has suddenly had its funding withdrawn. It closes down this month.
Tech Nation built on the original success of London’s Tech City to spread entrepreneurial support throughout the UK – you might think that to be an ideal fit for the government’s ‘levelling up’ agenda.
Martha Lane Fox has said: “As an entrepreneur and digital champion, I’ve witnessed first-hand the impact that Tech Nation has had in creating one of the most exciting and dynamic parts of our economy.”
Also, following Brexit, hundreds of former EU business support schemes are currently being wound up even though UK funded replacements have yet to be put in place. Of the 1,087 EU business support projects backed by the European Regional Development Fund, 595 will close by the end of June and the remainder are also in the process of being wound up. All sorts of entrepreneurial support initiatives across the UK are suddenly being wound down.
Meanwhile, the government has been reviewing its own existing R&D Tax Credit scheme, stating that the “generosity of the small business scheme has made it a target for fraud and spurious claims” leading to a suspicion by many entrepreneurs that these support mechanisms, crucial to most early-stage technology businesses, are also likely to be challenged.
But the main requirement for our technology businesses to thrive and begin to hope to challenge Silicon Valley is the wider economic and financing environment in the UK, and here we are demonstrably losing out.
The recent decision by Cambridge headquartered computer company ARM to list its shares in the USA rather than London has drawn attention to the paucity of technology companies listed on the London Stock Exchange (LSE). Only 2 per cent of the LSE comprise technology companies compared to 20 per cent of global markets. There is no doubt that UK investors are technology averse, and have been for decades.
It's all very well the UK government ensuring that our science and technology research is of high quality, but we also need to see business creation and economic activity resulting from this research. Of the £24 billion raised by British technology business in 2022 less than 5 per cent was invested in innovative businesses arising from our research universities.
Restrictions on the flow of pension money and an aversion to smaller private firms, and particularly technology ones, have been a major gripe of tech and fintech figures who have made repeated calls to the UK’s pension giants. And as pensions funds are the major investor in our stock market it is essential that they change their ways and start to gain the skillset and expertise to back start-ups.
Investing in early-stage technology businesses, the model for Silicon Valley, only works if investors can eventually get a return on that investment, and that can only be achieved by either a listing of the company on a stock market, or an acquisition of the company in a trade sale.
The lack of enthusiasm of the LSE to technology businesses means that acquisition is the most likely exit, and in almost all cases, this means becoming sold to an international corporation and key decision-making activities moving away from the UK.
Jeremy Hunt might want to “fire up our country to be the world’s next Silicon Valley”, but unless we fundamentally rewire the way the UK handles innovative technology businesses, it’s never going to happen.