By Jess Bowie

31 Jan 2013

The government says that boosting our high-tech industries is key to getting the country’s economy moving again. But do its deeds match its words? Jess Bowie examines Whitehall’s work to support innovative businesses.

A few years ago, Private Eye’s ‘Scenes You Seldom See’ cartoon depicted a plumber inspecting the pipes behind a family’s washing machine. The accompanying caption was: “You know what? The last bloke did a really good job!”

Plumbers aren’t alone in failing to appreciate the handiwork of their predecessors. Such comments are also seldom seen after a change of government; each administration invariably pans all of the last lot’s policies, even if it retains many of them under subtly-altered titles.

Among its many departures from the Labour way of doing things, the coalition government seems particularly determined to leave its mark on support for Britain’s high-tech industries. Since 2010, it has been busy dismantling old structures and introducing a wave of new policies, schemes and initiatives aimed at boosting technological innovation in the UK. Last December, as the prime minister announced £50m of funding for Tech City – the technology cluster around Old Street roundabout in East London – he described the UK as being “in a global race”, and promised that government would do everything it could to put the UK in the best possible position. “As well as backing the businesses of today,” he said, “we are creating an aspiration nation and also backing the innovative, high-growth businesses of the future.”

Exploiting the raw material
In this time of recession, the government – in its rhetoric, at least – has recognised that innovation in the high-tech sector could underpin a return to sustainable economic growth. Britain not only has an excellent track record in this area, but also huge reserves of untapped potential. In areas such as pharmaceuticals, defence, data analytics, digital media and renewable energy, the UK boasts numerous world-leading industries which cut across the remit of many government departments.

So what does Britain need in order to succeed in the PM’s “global race” for innovation, and how can government help? When CSW spoke to managers in a range of high-tech businesses, a few key themes emerged. Firstly, they said, policies should enable us to exploit our existing assets in the high-tech sector – and that means providing geographical bases in which high-tech businesses can interact with each other; giving companies easy access to skilled workers; and making the UK an attractive place for foreign high-tech firms considering making inward investments. Secondly, government needs to make sure small and medium sized businesses (SMEs) – which, in the high-tech field, often have the best ideas – can access funding, grants and government contracts to help them grow. Finally, government needs to remove the regulatory and infrastructural barriers that obstruct the growth of innovative businesses, and aim to create a long-term approach able to win broad political support.

Someone well positioned to assess the coalition’s approach to high-tech business is Mike Lynch, founder of the multinational software firm Autonomy. And for Lynch – who is often referred to as the British Bill Gates – there’s a new feeling in the air. “You had a period under Tony Blair where there was a genuine attempt to move particular entrepreneurial high-tech thinking forward... then that seemed to go into stasis under Gordon Brown,” he says. The momentum has now returned, he believes: “All the messaging now is positive – about high-tech, and also the idea of people starting businesses and being entrepreneurial. That makes a massive difference.”

The current government shows a genuine understanding of the importance of exploiting Britain’s “raw material”, says Lynch. “Our universities are as good as anywhere else in the world, so what we’ve got to do is take all this amazing brain power... and turn it into economic impact.” Ministers have, he believes, “understood that’s now possible, and what they’re doing at the moment is trying to understand what levers to pull to make that happen.”

Babies and bath water
If Lynch is to be believed, the coalition certainly has the will. But are they going about things in the right way? Treasury initiatives such as Patent Box and Research and Development Credits have been welcomed across the sector, as have big-name schemes like Tech City and the new Open Data Institute (see box). But by scrapping England’s nine regional development agencies (RDAs) last March, the government seemed to be abolishing one of its main tools for supporting businesses, high-tech or otherwise. There to pick up the slack – or so it was hoped – was the government’s self-styled innovation agency, the Technology Strategy Board (TSB), which aims to support and fund both big and small companies across the high-tech spectrum, and a patchwork of Local Enterprise Partnerships (LEPs) newly formed by businesses and local authorities at a sub-regional level.

Although many in the high-tech sector weren’t sad to wave goodbye to the RDAs, some of which were seen as ineffective and high-handed, David Cairncross, a senior policy adviser at the CBI, admits that when they were scrapped “clearly some babies went out with a lot of bathwater”. One of these ‘babies’ is simply an awareness among companies that help is still on offer. Unlike the old RDAs, the TSB has limited contact with businesses on the ground; and for small, high-tech firms this creates a barrier to receiving support. “The government are expecting LEPs to take that role, but LEPs simply do not have the capacity to be a touch point for thousands of businesses in their area,” says Dr Glenn Athey, executive director of the Greater Cambridge Greater Peterborough LEP.

“We’ve got two full-time equivalent staff covering the whole portfolio of economic policy,” he adds. “We’d love to have the resources to have a much better relationship with all our technology businesses and to be able to then translate their needs back to the TSB, but we’re just not in a position to do that at the moment.”

David Bott, the TSB’s director of innovation programmes, says this is something the TSB is trying to rectify: it is increasingly using social media to raise awareness of its offer, and many of its people spend most of their time on the road. “Sometimes we meet people at meetings or exhibitions or conferences, and sidle up to them and go: ‘Hi, we think you’re doing some interesting things, do you know about what we do to help companies like yours?’,” Bott says.

Decent proposals
Even for those who do know about the TSB, accessing its grants can be an onerous task. “We tried once,” says Mike Bartley, who runs TVS, a 70-strong software testing company based in Bristol. “I don’t want to be too negative on the TSB, because I know people who’ve found it extremely useful. But you do have to jump through quite a few hoops to qualify... From a personal perspective, it’s very difficult.” According to Bott, however, the TSB is streamlining its application process: “We’re continuing to change things, so our application form is increasingly resembling how you would build a business plan to take to an investor.”

One thing seen as key to growth for high-tech businesses, particularly SMEs, is the opportunity to win government contracts. The Ministry of Defence is well versed in helping businesses to develop technologies that it might want to buy, and its R&D funding – distributed by its Centre for Defence Enterprise – is available to everyone from the man in a shed with a wacky idea up to engineering giants such as Cosworth. The TSB, through its Small Business Research Initiative (SBRI), offers similar opportunities to businesses in other fields: Whitehall departments outline a specific need, and invite companies to pitch for the contract.

Nick Sturge is centre director of SETsquared, a business incubator working with high-tech startups in the South-West – and he approves of the initiative, but says that few departments are making use of the facility. “The TSB are very good at managing calls for proposals... but there just aren’t enough,” he says. “You have a customer issue: the customer is the NHS or the MoD putting out a challenge, [and] there aren’t enough challenges coming forward for SMEs to quote against”.

Sometimes, regardless of the effectiveness of initiatives aimed specifically at their sector, high-tech companies find other areas of government policy working against them. For the Cambridgeshire LEP’s Athey, infrastructural weaknesses in the Cambridge area are not only having a knock-on effect on high-tech businesses, but also on the area’s potential to develop its appeal as a cluster and attract foreign investors.

“We lack the infrastructural capacity to have a really good offer,” Athey says. “We do have a good offer, but it could be better if we had a better infrastructure. That’s critical.” Mike Lynch, who has strong ties with the Cambridge tech community, agrees, telling CSW that planning policy is one of the basic headwinds facing businesses in the area and that more business-friendly “planning along the A14 or along the M11 would make quite a big difference”.

Another significant counter-current for tech companies is immigration policy. Indeed, Bartley says that in this area the government seems to be actively “rowing backwards.” His software firm can’t recruit enough highly-skilled engineers in the UK, and seeks staff overseas. “It’s a political football at the moment,” he complains. “We’ve got an office in India. There was a rule that said that a person had to work for us for six months, and then we could transfer them to the UK for a certain period. That six months has gone up to a year now. So there have been a few small changes that make it harder. If you can demonstrate [foreign employees] have got a list of skills which are in short supply and that you’re paying them a decent salary and they can do the job, I’m not sure whether there should be any barrier apart from that. Why say they have to do a year rather than six months?”

The impact of party politics has been felt keenly in one corner of the high-tech industry: renewable energy generation. Uncertainty and mixed messages around energy policy – such as those created by new energy minister John Hayes when he attacked wind farms in October – spook investors and damage the industry’s growth prospects. Though the Energy Bill is now moving through Parliament, it remains hard for those in the sector to relax. “Government is changing policy at a very sensitive time,” says Maf Smith, deputy chief executive of renewable energy trade association RenewableUK. “Essentially it’s asking the industry to change between one mechanism of support structure and another, and that obviously makes us wary.” Smith also spares a thought for civil servants, saying they too are being asked to change tack “while managing a coalition and managing different points of view about what government policy should be. It can be difficult to know where government policy is headed on sensitive areas”.

Taking the long view
As Smith’s concerns imply, business likes nothing more than stability and nothing less than short-termism. So in Lord Heseltine’s recent growth report, the veteran minister recommended building strategic relationships with industry to ensure that “the long-term impact on technological advantage and the UK industrial base are taken into account in the procurement of specialist technologies”. Heseltine also called for a stronger relationship with key trade associations, and the creation of formal partnerships between each sector and the government.

This was “music to the ears” of Julian David, director general of the technology trade body Intellect, who tells CSW that on the back of Heseltine’s report the government is now in the process of setting up ministerial-level councils across 10 sectors, modelled on the Automotive Council. Crucially for the high-tech sector, these will include an Information Economy Council. “This is good stuff,” says David. “This is government getting together with industry at the right level... and having a strategic, long-term, systematic approach to the things that need to be done. That will be the glue that turns us from Tech City to Tech UK.”

Britain perhaps has some way to go before becoming “Tech UK”. More government contracts must be awarded to high-tech SMEs; the LEPs, which are still in their infancy, must be helped to plug more of the gaps left by the RDAs; government must learn when to set politics aside – not only to make it easier for skilled engineers to work in Britain, but also to prevent internal coalition bickering from undermining investment in key areas like renewables.

Without a doubt, however, high-tech businesses are enjoying a friendly atmosphere. Entrepreneurship is being encouraged, tax credits and funding are on hand if you know where to look, and the government is moving to more closely involve high-tech industries in its long-term strategies.

Of course, in the current climate of economic gloom, the amount of money government is providing to support businesses has declined dramatically since the days of the RDAs. But if the coalition’s policies create a legacy of more closely-targeted, tightly-focused support for high-tech businesses, that could form the basis of a promising legacy. Might the next administration defy the proverbial plumber and admit that there’s much to be said for what the last lot achieved? Unlikely, but you never know.


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