On June 13, the UK released its digital strategy paper looking at all growth areas such as intellectual property, leveling up, and talent.
Minister for Tech and the Digital Economy Chris Philp explained, “I want us to go further and faster.”
“The UK should always enthusiastically celebrate the success of our digital businesses and champion our global leadership in areas such as fintech. The success and wealth created by investors and founders of digital business is a national success, to be applauded, encouraged, and emulated — not criticized.”
UK digital advantages
Numerous advantages are discussed in this paper, including fast internet access to all corners of the country and cyber security capabilities already in place or on the way.
A significant fact affecting fintech is that the UK has more tech unicorns than any other European country — more than France and Germany combined — and a new unicorn in the UK was created every 11 and a half days in 2021, according to a company tracking business Dealroom.
Over the last year, UK technology received more private capital than any other country in Europe – £27.4 billion ($33.4 billion) more than double the amount entering Germany, the second-place country, and more than triple that flowing into France, the third-place country.
According to the paper, the UK is also a world leader in emerging fields such as artificial intelligence (AI), advanced semiconductor design, and quantum computing.
The UK appears to be ahead when looking at its digital outlook.
The digital sector contributed nearly £151 billion ($184 billion) to the economy in 2019 and accounted for 9% of the national workforce.
According to Minister Philp, the growth has been possible due to these key areas:
- Digital infrastructure. Superfast broadband coverage is rising from 58% of UK premises in 2011 to over 97% today. The UK now has over 67% of homes and businesses with gigabit-capable internet, up from only 8% in July 2019. A good 4G signal covers 92% of the UK’s landmass.
- Data-driven economy. The UK is Europe’s largest data market. The UK’s data economy grew twice as fast as the rest of the economy in the 2010s, accounting for about 4% of the country’s GDP by 2020. The UK data economy reportedly has the most significant impact of any EU nation in absolute terms, estimated to be near £158 billion ($192 billion) by 2021; this is over double that of France, with only Germany as our closest competitor.
- Start-up scene. An analysis of business figures by Tech Nation found that a new tech company launched in the UK every half an hour throughout 2020. UK start-ups rank higher than their European counterparts in companies with over $1 billion in valuation and those likely to become unicorns (leading in Europe by 2021). One hundred fourteen unicorns were found in the UK in 2021, more than France and Germany combined.
- Investment community. There has been an unprecedented amount of investment in British tech companies. Start-up companies and scale-ups raised £27.4 billion ($33.4 billion) in the UK, almost as much as Germany ($16.8 billion) and more than three times that of France ($10.6 billion). UK tech investment accounted for over a third of the overall £79.3 billion flowing into the European tech ecosystem this year.
- Corporation Tax: According to the World Economic Forum’s Global Competitiveness Report, the UK has the lowest corporation tax rate in the G7.
What is next for UK digital growth?
The UK has developed an extensive venture capital investment environment through initiatives such as the Enterprise Investment Scheme (EIS), the Seed Enterprise Investment Scheme (SEIS), and Venture Capital Trusts (VCTs), along with a wide range of dynamic early-stage venture capital funds (VCs) that have strengthened the start-up sector.
To continue the sector’s growth, they need to ensure that market failures inhibiting growth are addressed.
The paper lists how the UK plans to support the digital tech sector:
- The Department of Communications will run a competition for Digital Growth Grants, Media, and Sport (DCMS) in the summer of 2022. They plan to continue investing in accelerating UK tech start-ups and scale-ups.
- The Department for Business, Energy, and Industrial Strategy (BEIS) will increase funding for the British Business Bank (BBB) and British Patient Capital.
- DCMS will host a roundtable with founders to explore and better understand challenges.
- The Treasury Department (HMT) will continue assessing and removing barriers seed-stage enterprises face when obtaining funding.
- HMT and Department for Work and Pensions (DWP) is consulting on new proposals that will require pension schemes to have a stated policy on investment in illiquid assets and remove performance fees from the cap on charges applying to workplace pensions.
“The UK has a strong domestic investor market for companies at the seed and early-stage level, as UK companies grow and raise capital to scale up, but there is more that can be done to facilitate the investment of UK capital into the digital economy,” said Philp.
Financial institutions in the UK can allocate more capital to pre-IPO technology if they follow their US counterparts’ example, the idea being that this will stimulate more innovation and offer the potential of greater returns for pension savers.
UK investors will also be encouraged to take a long-term view and understand that dividends are rarely generated by growth investing within a short period.
The regulatory charge cap will be removed from the charges subject to performance-based fees.
The UK Government will also support innovation and growth financing through InnovateUK and the British Business Bank’s initiatives, including British Patient Capital, British Business Investments, and Enterprise Capital Funds, aiming to maximize third-party investment in the UK and abroad.
All these initiatives will be interesting to see, or as Minister Philp put it, “the UK will be the best place in the world to start and grow a technology business. The Digital Strategy sets out this vision and the actions required to deliver it. Estimates commissioned by the Government suggest that our approach to supporting and strengthening the digital economy could grow the UK tech sector’s annual gross value added (GVA) by an additional £41.5 billion ($50.7 billion)by 2025 and create a further 678,000 jobs.”