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The UK’s new government already has big plans. In the first few weeks after the election, it will signal to the world that Britain is “back” as a leading global player and rekindle ties with old friends in Europe.
Yet Britain’s calling card, when it comes to tech industry credentials, is not as sparkling as it once was. Its big bet on tech, allegedly a priority for the Conservative party following Brexit, has yet to manifest into a new golden age for the industry.
In fact, the UK tech landscape has survived many things during the 14 years of consecutive Conservative governments: Brexit; a tech talent pipeline problem; a two-and-a-half-year hiatus of its membership in Europe’s key science and innovation program, Horizon; overreliance on foreign investors; and a worrying lack of appeal as a place to grow startups or go public. A majority Labour government could change all that and turbocharge the tech industry into a new renaissance—if politics don’t get in the way.
Despite all these headwinds, the UK tech sector is still in remarkably good shape. It has around 50 startup unicorns (companies valued at over $1 billion), and its tech industry remains the third-most-valuable in the world after the US and China. But in 2023, fewer than 300 startups accessed funding in a Series A round (according to figures from investment community VenturePath), and only six companies achieved unicorn status, a worrying direction of travel for the industry.
A lack of ambitious pro-tech funding has underpinned what some startup founders, investors, and tech advocates that spoke to WIRED describe as a “difficult period” for the UK economy, with increased competition from startup hubs around the world.
Their message to this Labour government is clear: Improve investment opportunities, unlock the potential of future technologies, and steal certain things from the playbooks of former Conservative governments—and other nations—to get ahead.
But Labour hasn’t provided them with much reassurance yet. Its manifesto promises “Labour will make Britain the best place to start and grow a business,” will speed up approval times for new technology, and will establish “binding regulation” to develop artificial intelligence. It mentions a few other specifics, such as to “scrap short funding cycles for key R&D institutions in favour of ten-year budgets.” It also promises to “make Britain a clean energy supplier.” However, the party’s overall plan is to “unblock tech barriers to restart the engine of our economy,” a statement that is very vague and open to interpretation.
Antony Walker, deputy CEO of UK tech-sector trade association techUK, said “barriers” the Labour party intends to remove could include “challenges around the R&D credit system” and issues around continuing to build out and deepen the UK’s digital infrastructure, including planning for things like data centers.
The first thing that the tech industry wants is more strategy and ambition. “We need a go-to market strategy that says, ‘Here’s the emerging technologies in the next 10 to 20 years that are going to become important,’ the SWOT analysis that demonstrates the strengths and opportunities in the UK versus the strengths and opportunities in other countries,” says Charles Sturman, CEO of TechWorks, an industry body that represents UK semiconductor and deep tech companies. In his view, these include quantum computing, AI, and neuromorphic computing. “I think we need a longer-term, multiyear, multi-parliament, at least 10-year strategy that does all of this. But then also what we need is the government to be prepared to put public money on the table.” This would involve reversing Labour’s pledge to be frugal—a political risk in the current economy.
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One way for Labour to unlock capital is to leverage the power of pensions and allocate more of their funds to venture capital to fill the Series A funding gap, says Edward Prior, head of investor services at early-stage VC fund SFC Capital. “There’s more US pension fund money in UK startups than there is UK pension fund money,” he argues.
“Yes, we need to be the best place to start a business, and we really are on a world-leading footing with that, but we also need to be the best to scale a business, because we are losing too much of our value for our economy in those scale-up stages, where there is not enough money coming into series A and beyond.”
If the new government is looking for inspiration to bridge the funding gap, it could adopt some of the previous government’s initiatives and see them through. There was no mention in Labour’s manifesto of any changes to the Conservatives’ EIS (Enterprise Investment Scheme), SEIS (Seed Enterprise Investment Scheme), and VCT (Venture Capital Trust) tax schemes, but VC funds argue that it is important that these initiatives are maintained to improve the startup economy.
Russ Shaw CBE, founder of Tech London Advocates & Global Tech Advocates, a support community for startups, says the biggest issue is funding for companies seeking unicorn status. He also highlighted issues with the talent pipeline, which Labour could tackle by delving into the thorny issue of immigration.
“We have the Scale-Up Worker visa and the Global Talent visa, which are good, but it’s the process candidates have to follow that is fundamentally broken,” says Shaw.
Alan Chang from Fuse Energy, a clean energy company that launched two years ago, says his company has had to “jump through so many hoops” to bring talent from abroad over to the UK, and this is a problem Labour will have to fix by making high-skilled talent visas easier, quicker, and cheaper to acquire. “In my network, I know a lot of people who are very successful who have either left the UK or who are thinking about leaving,” he explains.
If Labour dropped the immigration health surcharge—a levy of around £1,000 ($1,276) annually for workers—it would make it much more attractive for skilled people to come to the UK, says Zach Meyers, assistant director for the Centre for European Reform. “The immigration surcharge is kind of insane, because it’s basically like a tax on their migrants. And that is a single step that would, I think, go a long way to addressing the skills problem.”
The new government would also do well to pay attention to the £250 billion of new value identified in the Alison Rose Review in 2019 that could be unlocked if women were backed to the same extent as men. Only 2 percent of VC funding is going to female founders, points out Emma Wright, partner at UK law firm Harbottle & Lewis, co-lead of the invest-HER campaign, and director of the Interparliamentary Forum on Emerging Technologies. She argues that there would be “a lot of benefit” from providing transparency on where investment money is going. “It would address both some of the missions around, for instance, social mobility or regional funding, but also the ability to then make an assessment of whether there is more to unlock within the economy.”
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Improving talent schemes is not the only thing the future government can capitalize on to make the UK a global connector. “The next UK government is going to be constantly confronted with this question about the extent to which it should align or diverge from the European Union,” says Walker, and unlike the Conservative government, a Labour government will be coming with “less baggage.”
“Maybe we will be able to look at it more on a case-by-case basis, which might be an optimal relationship for the UK in terms of the way it aligns or diverges from the European Union,” says Walker. “I think there will be a closer dialog, and certainly we have seen European institutions such as the European Commission already engaging more with the UK.”
The UK may still attract more VC funding than France, but President Emmanuel Macron leadership’s bid to create a successful generation of AI startups has not gone unnoticed among the UK tech community. The prospect of political instability across the channel following the French elections may provide the new UK government with an unexpected advantage.
“A lot of the French tech sector ecosystem has been built on public sector funding and investment by the French government into public sector funding. If the far right wins in France, will that funding continue?” says Shaw. “The challenge they will face, which I don’t think the UK has, is that if a lot of your sector is built on public sector funding, when you have a change in government, that potentially puts at risk the funding models you’ve put in place.”
“France is definitely stealing a march,” says Wright. But the UK may be able to leverage its independence. Wright argues that the UK has “some scope” to deviate from the EU AI Act, which may be seen as quite cumbersome from a compliance perspective, but could show leadership in global governance “and that pragmatism that we [the UK] are often known for with our regulation achieving the same outcomes.”
The industry still needs to keep up its levels of international investment, says Walker. “They [Labour] have talked about this idea of having a big international business summit early on. Then, I think there’s a bigger process of: How do you open up that access to capital markets in the UK? How do you address some of the risk aversion of some of the UK pension funds to make sure there’s the capital there? That’s going to be a critical area Labour need to focus on.”
The real question is: Does Labour have the capacity to make all of these changes? The slice of the UK tech industry that spoke to WIRED certainly thinks so. “There’s lots of excitement about what will come next,” Walker says.
Ultimately, the bottom line is that even if Labour does nothing at all to move the dial any time soon, a majority government will have a positive net impact on investment, and therefore tech. “I don’t think we can underestimate the importance of certainty for the next five years and how much that might lead to people being able to value markets and make some investments,” says Wright. “That’s the first thing they can do without major intervention.”
Let’s not forget that a 2022 Labour report, titled Start Up, Scale Up, outlined plans to transform Britain into the “startup hub of the world” and preempted many of the issues that still affect the industry today. Rachel Reeves, the then-shadow chancellor, preempted the path ahead: “We can continue down the road of managed decline, falling behind our competitors, or we can draw on bold thinking to propel us forward.”
