The UK government has announced new figures revealing that British technology companies brought in over £12bn in venture capital funding since the start of this year (second only to the US). The UK is home to more private companies in the technology sector valued at over $1bn, also known as tech unicorns, than any other European country.
The government used the start of London Tech Week to release these figures along with the publication of a new UK Digital Strategy. The aim of the new strategy is to bring 'cross-government tech and digital policies together in one unified roadmap for ensuring digital technology, infrastructure and data drives economic growth and innovation in the coming years.'
Motivations for a new strategy
Despite the promise that the present buoyant market offers, the technology sector in the UK continues to face challenges. In addition to headwinds in general market conditions at present, the most significant of these are the resource and talent gap as well as regulatory hindrances. While innovative businesses continue to flourish and evolve rapidly, the development of the UK regulatory framework has sometimes not kept pace in a way that might be considered pro-innovation. For example, existing metrics, such as those relating to ESG reporting, often cater to businesses in more established, traditional markets rather than those bringing disruption. In the absence of an adequately supportive framework, businesses in the technology sector are consequently struggling to obtain the credentials for which investors are looking. The combination of these factors has contributed to investment in technology businesses being lower than it could be, particularly where patient capital is concerned.
The new Digital Strategy represents a unified plan that addresses these challenges and puts the UK at the forefront of shaping the governance and regulatory infrastructure supporting innovation in the country. At a London Tech Week panel event, Digital minister Chris Philp described the strategy as a roadmap to strengthen the UK’s 'global position as a science and technology superpower', adding that the UK’s prosperity and place in the world depended on it.
One of the most notable changes in the new strategy is a soft-touch regulatory approach which some might argue is a decidedly anti-EU divergence. It calls to mind the words of Oliver Dowden, the previous Secretary of State for Digital, Culture, Media and Sport, who previously asserted that leaving the European Union was an opportunity for the UK 'to be an unashamedly pro-tech nation, and unleash all the innovation and enterprise that emerging technologies can provide.'
Essential areas of focus
To achieve its objectives, the government is focusing its efforts on the following six areas of development:
1. Digital foundations – this comprises the four foundational pillars of a growing economy; establishing a robust digital infrastructure, a secure digital environment, unlocking the power of data and, more notably, a light-touch pro-innovation regulatory framework. Despite the last of these, the government is keen to ensure that a highly-digitalised future does not compromise safety and security. The Online Safety Bill is arguably the most important development in this area, while engagement with other measures such as a code of practice for app store operators and developers will be on a voluntary basis.
2. Ideas and intellectual property – the government will increase funding for research and development into the seven technology families previously identified in its Innovation Strategy. Notable areas of research include artificial intelligence, quantum computing and advanced semiconductor design. As a further incentive, research and development tax reliefs are also expanded to cover cloud computing and data acquisition.
3. Digital skills and talent – although the UK’s buoyant labour market already offers a host of highly-skilled, well-paying jobs, the government estimates that its own efforts towards sustaining the UK’s trajectory of becoming a tech superpower will create a further 678,000 jobs. To tackle the ever-widening digital skills gap constraining the growth of technology businesses, emphasis will be placed on improving digital education and providing training to upskill the existing workforce. New Global Business Mobility routes and visa options are also expected to bridge the gap between overseas talent and UK businesses.
4. Financing digital growth – the government intends to support long-term growth by addressing the UK’s lack of patient capital by encouraging institutional investors, especially pension funds, to take a more proactive approach to investing capital in technology businesses. The Solvency II regulatory regime is also under review with the aim of facilitating long-term capital being made available from insurance firms, potentially unlocking a significant amount of capital for investment as a result.
5. The whole UK: spreading prosperity and levelling up – this comprises a nationwide approach to improving connectivity and supporting SMEs to improve the adoption of cutting-edge technologies. The objective here is to encourage the formation or further development of technology hubs outside of those already existing in London and the South East. Reforms to public procurement will also afford public bodies, including the NHS, more flexibility in procuring technology solutions from promising SMEs. Growth in innovative digital and data solutions is also expected to contribute towards Net Zero initiatives, including programmes such as the £1bn Net Zero Innovation Portfolio (aiming to encourage investment in low-carbon technologies and systems) and the UK Centre for Greening Finance and Investment (aiming to address data challenges to support green finance).
6. Enhancing the UK’s place in the world – the government’s vision is for the UK to be 'at the forefront of global regulation on technology, cyber, digital and data.' While maintaining a marked pro-tech approach, it will also take a leadership role in influencing the future of international data governance, digital trade and partnerships to ensure that the regulatory landscape evolves to reflect its values of freedom and openness.
What does this mean for the future?
It could be said that much of the new Digital Strategy represents a mere consolidation of existing measures, or even a slow continuation of ambitions that were included in earlier digital strategies (such as the ongoing efforts to provide nationwide access to a 5G signal). However, it is clear that increasing thought is being given to the UK’s role in the disruptive world of technology and that this publication represents more than just an ambitious statement of intent. Rather, it is a shift in attitude. It still remains to be seen whether the government’s brazen pro-innovation aspirations can manifest an environment that is genuinely capable of pushing the UK to the forefront of the global technology race.
How can Burges Salmon Help?
If you have any questions about the matters discussed in this article, please contact David Varney or another member of our Technology team.