By Matthew Evans, Director, techUK
Creating the right environment for businesses across every part of our economy to adopt and use new technology is vital to supercharge UK economic growth. From automotive to banking and retail to hospitality, the future is increasingly digital, and businesses large and small are grappling with how they can embrace tech to help them and their customers.
The benefits of getting this agenda right are self-evident. Artificial intelligence has the potential to add £232 billion to the UK economy by 2035, electric vehicles could unlock £28 billion within the same time frame, and the internet of things (IoT) is estimated to save us in the region of £75 billion over the next five years. But driving change across an entire business, let alone the whole of the UK, will be the one of the biggest challenges of the coming years.
Luckily, the UK is starting from a position of strength. It already has regional hubs that not only have a heritage of innovation but are leading the way on developing new technologies. Take Manchester as an example. It’s a city steeped in technological innovation – the birthplace of the first steam-powered modern railway in 1761, and the Small-Scale Experimental Machine, arguably the world’s first modern computer, in 1948. Today it has a tech cluster with a total digital turnover of £2.2 billion.
To build on this innovation across the whole of our economy and society, there are three areas that we need to focus on – digitisation, R&D and skills.
While the UK is already home to some of the world’s most cutting-edge businesses and industries, driving economy-wide productivity means enabling non-digital businesses also embrace new technologies with confidence.
As Chief Economist of the Bank of England, Andy Haldane, highlighted in June last year, as of 2015 only 13 per cent of UK companies had adopted all five basic technologies (using computers, the internet, websites, e-purchasing and e-sales). Fewer than 10 per cent of companies have adopted more advanced technologies, such as mobile access to email, online ordering and fast broadband access, and more than a quarter had not adopted any.
We must therefore encourage the take-up of digital services, software and tools such as cloud computing, supply chain management software, manufacturing of IoT technologies and new AI-driven solutions.
To achieve this, techUK supports accelerating the pace of investment in digital infrastructure and strongly agrees with the government’s ambition for 15 million premises to have access to gigabit full-fibre connectivity by 2025 and nationwide connectivity by 2033.
Providing the underlying infrastructure isn’t the only challenge. The UK lags behind in providing support to businesses to digitise. Our tax system has become increasingly outdated as software and licences have replaced hardware as the driver of productivity. An urgent review is needed to reconfigure our system to better support operational expenditure, alongside traditional capital expenditure to ensure that reliefs and allowances provide the right incentives to adopt service such as cloud, CRM systems and increasing AI.
Research and development
techUK strongly welcomed the government’s commitment to spending 2.4 per cent of GDP on R&D by 2027. But to achieve this, we need a comprehensive package of measures to support UK R&D in digital industries. For example, we must ensure that the UK maintains a competitive offer for those who locate R&D here. The upcoming Digital Competitiveness Review is an important opportunity to ensure that our R&D tax credit system keeps pace with global competitors.
Tech is a huge contributor to global R&D spend. According to Bloomberg, seven of the top 10 R&D spenders are tech companies. Software publishing alone was responsible for £1.4 billion of R&D investment in 2017, and represents only a small part of digital sector expenditure. Yet we aren’t punching our weight globally in attracting this spend – we are well below the EU average, and currently spend less than half of countries such as Israel or Sweden on R&D as a percentage of GDP.
It is also vital that businesses are able to source the skills and talent needed to meet the digital skills gap the UK is facing. More work is needed to enable the next generation to develop their digital skills and help businesses, and local authorities, to get the support and help they need to drive the design, adoption and implementation of digital services.
Industry must support measures to increase the number of people undertaking vocational training through high-quality apprenticeship schemes. However, apprenticeships have not kept pace with the government’s ambition since the introduction of the apprenticeship levy.
techUK members have continued to raise significant concerns with the apprenticeship levy, and their ability to use levy funds for training and support their wider ecosystem of partners. Between May 2017 and the end of January 2019, levy-paying employers used only 15 per cent of the total £3.9 billion funds available.
Despite the government rightly prioritising apprenticeships by setting an ambition of three million new apprenticeships by 2020, the latest findings from the National Audit Office suggest the government is unlikely to meet this target. The report shows that despite the apprenticeship levy raising over £2 billion from employers in 2017/18, there were only 375,800 starts that academic year. This was 26 per cent lower than the 509,400 new apprenticeships in 2015/16, the last full year before the reform. Clearly something is not working.
techUK strongly supports significant further reforms to the levy to help to ensure the policy is achieving its intended purpose. Industry and government must work to ensure that apprenticeships remain a key component of our efforts to close the skills gap and offer individuals a variety of routes into tech.
Supercharging our digital economy
Provided that both industry and government focus on getting these three areas right, we are confident that the UK can continue to realise the full economic and social opportunities, value and benefits of advanced digital technologies.
To develop this vision further and determine next steps for the whole of the UK, we are holding our fourth annual Supercharging the Digital Economy event in Manchester on November and invite all who want to join in this debate to come along.