British tech businesses are booming. They hit a ten-year business activity high point in March, with nearly half of tech businesses measured looking to hire more staff this year. According to a CBI survey 70% of London businesses believe the biggest driver for economic growth within the capital will come from the technology and creative industries.
London’s technology, media and telecoms (TMT) sector alone contributes £125 billion a year to the economy, or 8% of national GDP. Although some of the most headline-grabbing businesses are fast-growing start-ups based in the capital, this growth is seen across small and medium sized businesses too.
This isn’t just good news for tech business owners and their employers. The growth of this sector nationwide could provide jobs and stimulate local economies, particularly in university cities like Birmingham or Newcastle. Analysts at KPMG anticipate that the sector’s robust performance could lead to strong flotations on the London Stock Exchange (LSE).
This would not only boost the capital’s global standing as a tech hotspot, but is likely to be good news for British investors, the majority of which choose to invest at least part of their portfolio in UK companies.
The tech sector’s current rude health validates the government’s decision to invest in Tech City, an organisation dedicated to promoting the growth of tech businesses, from startups to medium-sized enterprises. With such wide-ranging benefits, what more could be done to encourage digital and tech companies to flourish?
Finding somewhere to live and work
One of the most pressing issues facing tech companies in London, where 28% of TMT jobs are located, is the cost of housing in London. In the CBI survey, 40% said this was a pressing concern.
The average house price in London is now 10 times more than the average salary, pushing the dream of home ownerships beyond the means of even the relatively well-paid, particularly when combined with the capital’s high rents.
This dampens the appeal of London living, making it harder for ambitious companies to recruit and retain staff from the provinces and abroad, and more expensive to hire them.
It’s not just London’s residential property market which is overheating. The cost of renting an office in Silicon Roundabout is rising beyond the reach of new startups.
Meanwhile, established tech companies that are looking to expand are struggling with inflexible leases, which fail to take into the account the rapid growth, these types of businesses often experience.
For companies based in London, initiatives for affordable housing and working spaces are paramount. Tech City currently helps entrepreneurs find appropriate offices, although it seems that some businesses may find themselves needing to look beyond Shoreditch and Old Street as the cheap rents and ample space that originally drew companies there in the noughties disappear.
This could be an opportunity for other cities, where rents and property prices are more reasonable, to develop their tech clusters, contributing to countrywide wealth generation.
Tech City is currently running Cluster Alliances in major areas, although extending government funding competitions to cover businesses in more areas outside London would also encourage nationwide tech growth.
Mind the skills gap
In a 2013 survey, 77% of Tech City businesses said that they could grow faster if they were able to recruit enough skilled staff, while 42% report finding it difficult to retain their best staff. This trend is reflected nationwide, with developers and data analysts in particular demand.
While making programming a compulsory part of the National Curriculum will help the British economy find the workers it needs in ten or 20 years, companies need skilled employees now. Again, this could prove to be a considerable opportunity to reskill adults of all ages.
Although much of the focus is on traditional undergraduate routes and digital apprenticeships, providing routes for older workers to retrain could help offset problems caused by the decline in established occupations, such as administration.
It would also address the frustrations of those who are finding themselves unable to progress beyond a middle level of their careers and help increase the number of people in higher paying jobs.
Like small and medium sized businesses across the country, a third of Tech City businesses feel that lack of access to finance is hindering their growth. While the government has announced an increase in funding through the Technology Strategy Board, there’s a need for private financing too.
Encouraging established businesses to invest in startups, as Tesco and John Lewis do, can help to stimulate wider economic growth as well as providing the new enterprises with opportunities for mentoring.
The government recognises that many viable SME finance applications are rejected by the biggest banks and is actively looking at ways in which these businesses could access alternative source of finance.
The exceptional growth of Britain’s tech companies is an opportunity for the country as a whole, not just those who work in the industry, but one that government agencies could help to maximise by addressing the biggest problems facing the sector.
In a virtuous cycle, improving SME funding, increasing affordable living and working space and tech skills would benefit other businesses too.