Britain's tech industry is not as healthy as we are being led to believe

Prime Minister Theresa May making a speech at Queen Elizabeth Olympic Park, east London, to mark the launch of London Tech Week
Prime Minister Theresa May making a speech at Queen Elizabeth Olympic Park, east London, to mark the launch of London Tech Week Credit:  Leon Neal/PA

The rain outside may have been coming down in sheets but there was no shortage of undimmed sunny optimism on display at the opening day of London Tech Week on Monday.

As 50,000 people filed into a string of venues across the capital, HM Government did its best to gloss over the simmering political chaos in Westminster by spewing out a brace of upbeat pronouncements about the magical condition of the nation’s tech industry.

Since last year’s event, it claimed 13 new “unicorns” - technology companies worth more than $1bn - have been created, bringing the total number in the UK to 72. 

At 18, London has more financial technology unicorns than San Francisco’s 15. While London also leads European cities with 45 unicorns, compared to 10 in Berlin, 9 in Paris and Stockholm respectively.

All of this sounds terrific naturally. 

'Britain on the cusp of the next industrial revolution'

And with all of the panache to be expected of a Prime Minister awaiting the removal vans to arrive outside 10 Downing Street any day now, Theresa May rounded it all off with a stirring speech about how Britain sits “on the cusp of the next industrial revolution. Government will back you all the way etc etc”.

In a sense, she was right.

Although some of the statistics were a stretch (do AutoTrader, which was founded in 1975, car insurer Admiral, or oil and gas research firm Wood Mackenzie, set up in 1973, really qualify as technology ‘unicorns’ for example?) Britain’s technology industry does have plenty to be proud of.

It remains resilient, spurred on by a strong entrepeneurial culture and good universities which continue to produce expertise in areas such as Artificial Intelligence (AI) and financial technology. 

Helped by the City of London, a deep pool of capital and expertise also exists to help fund young and innovative companies, which benefit from a sensible tax and regulatory regime.

But complacency can be a dangerous British trait. 

And with all this talk of unicorns, there is a risk ministers may be tumbling, deluded into a fantasy kingdom of their own making.

The reality about UK talent and investment

Look beyond the spin and the rosy headlines, and there is cause for concern - and not just about the fuzzy definition of Britain’s current crop of unicorns.

A recent report from Penningtons Manches, the law firm, and Beauhurst showed foreign investment into the UK slumped 29pc last year and cited political turmoil as a key factor.

In 2018, British companies raised a total of £4.2bn in deals involving at least one non-UK investor. That’s not bad but was down from a record £6bn a year earlier. 

Speaking with delegates at London Tech Week it was clear that three years of unresolved Brexit uncertainty are poisoning many of the things which helped build a fertile breeding ground for technology entrepeneurship in the first place.

One of the enduring themes this year was the impact on investor confidence and whether the UK is facing a brain drain of talent. 

There are other problems too. 

Britain’s investment in research and development remains poor.

Total R&D expenditure in the UK in 2016 represented 1.7pc of GDP, unchanged from 2015, and well below the EU’s provisional target of 2pc. 

Compare that to Sweden and Israel which both exceed 4pc.

The UK is also performing below competitor nations in Europe, and lags below the OECD average.

This matters because if the UK aims to build a high-tech economy after Brexit then funding for research and innovation will be paramount to spur the growth of the next generation of companies.

Funding of UK R&D from overseas continued to fall in 2017  - the most recent year available - for the third consecutive year to £5 billion in 2017. That was 10.2% lower than the peak in 2014 of £5.6 billion.

Perhaps more important, the UK’s reputation as a stable, open economy is suffering.

Three years after the EU referendum, much of the optimism around the UK’s technology industry is fading and there is concern that Britain is losing investment, jobs and business to rival European centres including Paris, Berlin and Stockholm.

The issue is not so much a fear of Brexit itself as the sense of drift and uncertainty around where the country is going while the prospect of a Corbyn government doesn’t help.

Ronan Harris, managing director of Google’s UK operations, summed up the atmosphere well:

“If you’re sitting on the West Coast in California and you’re reading the headlines about what’s going on with Brexit, it’s creating uncertainty. We have to work that little bit harder to sell ‘Brand Britain’”. 

It’s a sales pitch that whoever replaces Theresa May as Prime Minister will need to focus on hard if he or she is to shore up confidence in a vital national industry.