Future of the UK’s Tech Industry
‘UK- India workshop on innovation and technology commercialisation’ hosted by UK Trade and Investment (UKTI) Photo: Sarah Mooney / British High Commission New Delhi
As the birthplace of the industrial revolution, the United Kingdom became the global leader in technological advancement for centuries. From 1750 to 1850, the UK produced over 60% of global carbon emissions due to its technological preeminence. However, the UK has taken a backseat to the US and East Asia in technological leadership in recent decades.
Big Tech and superstar firms such as Facebook, Google, Amazon, Tesla, Apple and Microsoft emerged from Silicon Valley talent and investors, while the UK has been unsuccessful at producing native firms that mirror SV’s successes. In fact, none of the top 20 UK firms by market cap are in the tech sector. Similarly, the 20 wealthiest British people are almost exclusively heirs to fortunes or from the finance sector, whereas Bill Gates, Elon Musk, and Jeff Bezos sit atop the American list. The lack of growth in the tech sector is also reflected in the GDP statistics, with the UK’s 2021 real GDP per capita (in USD) sitting at $47,334, down from $50, 653 in 2007.
The explanation for the decline is complex, but involves cultural and legal barriers that have made the UK an inhospitable environment for tech firms. With no history of successful tech startups, firms have had trouble growing due to shortages in talent. In addition, top firms have been reluctant to adopt new software platforms and invest in addressing cyber regulations. Finally, tax processes in the UK are notoriously difficult to navigate, and Brexit has only worsened legal complications. As the digital economy reaches 15.5% of global GDP, the UK’s continued decline in the tech sector will have far-reaching consequences. Perhaps most frighteningly, economic woes can fuel populism, resulting in even worse economic policy.
An illustration from the industrial revolution in the UK Photo: Unknown / Britannica
While the decline has been precipitous, there are still some signs of hope. For example, the industry leader in AI development, DeepMind, is headquartered in London. These bright spots have led to London becoming the top destination for foreign direct investment in tech.
Another reason for optimism is the strength of the UK’s universities. Oxford-led labs are playing a critical role in the development of the next generations of technological platforms, such as quantum computing and fusion. Similarly, Cambridge provides human capital to UK tech firms. Cumulatively, these successes have led the UK’s tech industry to a one trillion-dollar valuation. These strengths proved vital during the pandemic, where the UK’s tech sector’s resilience provided a vital lifeline to the economy. Mirroring the US, valuations of UK tech firms skyrocketed. Pre-pandemic, the industry had already been outpacing the broader economy’s growth by 6x, but the pandemic’s influence supercharged that trend. Low interest rates made capital accessible, and lockdown pushed people to spend a greater share of their time online.
Despite these promising glimmers, the future of the UK’s tech industry looks rocky. Recent political instability has made the regulatory environment uncertain. Regardless of the UK’s Brexit status, firms are likely to be deterred by the high costs of doing business and the difficulty of recruiting talent. The UK will need to make significant changes to its immigration policy, tax regime, and infrastructure spending to compete with other global tech hubs. Otherwise, the UK risks being left behind in the next wave of technological innovation.