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Over the last five years, there has been a radical drop in the number of undergraduates studying computer-related courses. And the waning interest is prompting fears that the UK software industry is heading into a painful decline.

According to a collaborative report from Microsoft, the British Computer Society and Lancaster University Management School, at least 150,000 new graduates are needed every year to fill programming positions left vacant by retiring software developers, many of whom entered the industry over 30 years ago. But a 50% drop in student applications for computer science and information systems, and a similar decline in applicants for software engineering courses, means that only 20,000 graduates are entering the industry annually.

The erosion of interest to pre-1996 levels follows the collapse in demand for IT staff after the peak in 2000 – a surge caused by the Y2K bug and the development of new Internet applications. Moreover, as large parts of software development has shifted to countries such as India and China, the perception has been re-enforced that there is no longer major demand for such skills, or indeed that they represent a solid career path. The British Computer Society estimates that by 2010, around 102,000 IT and software jobs will have been off-shored from the UK.

Part of the outsourcing challenge has arisen because of the high quality and the large volume of technology graduates being turned out by countries that are targets for outsourcing, says Crispin O’Brien, chairman of the technology group at KPMG. “Countries such as India, and to some extent Russia, which are very good at adapting and bringing back Western techniques, pose a big threat [to the UK].”

But although the UK does have a degree of experience in software innovation, the danger lies in businesses being unable to attract and retain IT-literate employees to develop, support and maintain their in-house applications.

In the absence of that kind of local programming base, there is a danger that the IT project lifecycle will break down, as it is the programmers being trained in the UK that will ultimately become the business and technical analysts, system architects and project managers of the future. Without at least some of those skills, businesses will find it difficult to specify and manage projects they want to deliver through offshore partners.

Image is also a major problem. The IT profession, and programming in particular, is widely perceived as being the domain of socially challenged ‘geeks’ – something that TV shows such as the early 2006 sitcom, The IT Crowd, have done little to dispel.

With the same passion that young people enjoy the music players and computer games which the industry develops, “they need to realise that their own futures can lie in creating the software that enables those experiences,” says Matthew Bishop, senior director of Microsoft’s Developer Platform Group.