Summary of recommendations
- Place the ambition to be ‘the startup nation in Europe and one of the great startup nations of the world’ at the heart of the new Digital Strategy
- Use the government’s soft-power to act as a champion for the digital economy
- Provide more support to help prepare teachers to deliver the new computing curriculum in schools
- Provide more support to adults looking to change career, including through innovative providers like Makers Academy and General Assembly
- Create apprenticeships that work for digital startups and scale-ups, including better training offerings
- Ensure that the UK is open to the best digital talent from around the world through our immigration system — both for entrepreneurs and for workers
- Raise the level of ambition and set out a roadmap for ubiquitous ultrafast connectivity
- Adopt more permissionless approaches to innovation (eg regulatory sandboxes) across the public sector
- Encourage (or require) more industries to open up their data to their consumers using APIs
- Look at further areas (beyond fintech and the sharing economy) where government can do ‘deep dives’ into emerging industries with the aim of unlocking innovation
- Hold a review into changing modes of work, and how government can better support freelancers and the self-employed
- Clarify the UK’s position on encryption, amending the draft Investigatory Powers Bill to give certainty
- Go further on Government as a Platform allowing the creation of an app layer (based on open standards) on top of public services
- Support and incentivise digital transformation of local government (eg with funding, technical assistance, and setting standards)
- Bring more technologists and digital expertise into the heart of government (learning from the White House Office of Science and Technology Policy, and the Presidential Innovation Fellows)
- Reduce the barriers for digital businesses scaling internationally, including through the Digital Single Market
Optimism and ambition
We welcome the government’s plans to create a Digital Strategy. This is a brilliant opportunity to build upon the UK’s digital success, raise the level of ambition for the future, and bring together often siloed thinking on policies across government.
Things have been going well in recent years and the UK has a thriving digital economy, worth around 10% of GDP and contributing £180 billion to the economy. As TechCityUK identified in their TechNation report last year, there are now over 1.4 million people employed across the UK’s (at least) 21 clusters. In other words, this is big and matters for the UK’s future economic success. It is also an area of UK comparative advantage — for example there are more top ranked coders in London than in either San Francisco or New York. So it is right that public policy seeks to support the digital economy.
Beyond the purely economic rationale though, and perhaps more importantly, is the possibility and scale of transformation yet to come. As almost every sector and industry, including government itself, is ‘disrupted’ by digital technologies, there are huge opportunities ahead. Advances in artificial intelligence, autonomous vehicles, virtual and augmented reality, blockchain, personalised medicine, and more, will have profound (and largely positive) impacts on how we live our lives.
The role of digital startups and scale-ups
Digital startups play a large role in this innovation. We have the largest and fastest growing digital economy in the G20 and that is underpinned by a growing startup and scale-up ecosystem.
London was ranked as the best city in Europe for both startups and scale-ups, in the European Digital Cities Index. Cambridge and Oxford were also in the top 15.
British startups raised more than $3.6 billion in investment during 2015 and the UK is home to 17 of the 40 billion-dollar startups in Europe, the so-called ‘unicorns’ (including companies like TransferWise, Funding Circle and FarFetch).
During the 2015 election campaign, David Cameron said ‘I want this to be the startup nation in Europe and one of the great startup nations of the world’.
This ambition is within our grasp, but the policy environment must remain supportive for that to happen and it should be at the centre of a new Digital Strategy for the UK.
One of the government’s greatest achievements in the digital space has been through the use of its soft-power to champion UK digital success. The message has gone out from the top of government that digital technology should be supported, and that the UK is a great place to launch a digital business. For example, this can be seen from the Pitch10 events in Downing Street, from the establishment of TechCityUK, from the inclusion ‘Innovation is GREAT’ in the GREAT campaign, and from taking startups on trade missions. The government should double down on this strategy and continue to act as a champion for the digital economy.
Skills and immigration
The lack of talent is one of the top issues faced by digital startups, and more broadly the lack of digital skills across the UK poses a major threat to our digital future. It holds back high-growth tech companies from scaling, but also prevents small businesses from digitising, and excludes those without digital skills from taking advantage of the benefits of the digital revolution.
In the survey we ran to gather input for this submission, digital skills was ranked as the most important issue for the Digital Strategy to address (followed by infrastructure, then digital inclusion). Similarly Coadec’s Startup Manifesto survey in 2014 over 60% of respondents listed access to skill as one of their most pressing concerns. Similarly, Tech London Advocates found that 70% of advocates believed that a lack of talent was holding back London’s startup growth. It is also important to remember that this is not just about coding and software development, but applies to a broader set of skills including design, marketing, product management and more.
Similarly, various reports examining the issue of digital skills have found significant challenges. The Chair of the House of Lords Committee on Digital Skills concluded that ‘We are at a make-or-break point for the future of the UK — for its economy, its workforce and its people.’
There has been progress, including the computing curriculum and the new support for apprenticeships. It is vital, however, that UK’s Digital Strategy raises the level of ambition to solve the UK’s skills gaps. Everyone in the country should be able to access training and support they need to benefit from digital technology.
This begins in schools, and despite the new computing curriculum, there is insufficient support being given for CPD for teachers. For example, it was recently reported that the government was struggling to recruit “master teachers”. We recommend that more support is provided to help prepare teachers to deliver the new computing curriculum in schools.
We recommend that more support is provided to adults looking to change career into the digital world, including through innovative providers like Makers Academy and General Assembly, who offer intensive ‘bootcamp’ style learning in fields such as web development and product management. This could take the form of subsidies, better loan offerings, and better signposting (eg from careers services, and jobcentres).
As the government is trying to increase the number (and quality) of apprenticeships, they should ensure that there are suitable apprenticeship schemes for startups and scale-ups. Some funding raised from the new Apprenticeship Levy should be invested in improving the quality of training, and providing incentives to high growth tech companies to take on apprentices. We heard from some of the more innovative training providers (as mentioned above) that they would need an increase in the flexibility of the rules to be able to fit into the formal systems.
As well as enhancing the digital skills of UK residents, the Digital Strategy should ensure that the UK is open to the best digital talent from around the world. Our immigration system should be making it easier, not harder, for entrepreneurs to come to the UK to launch their digital businesses, and also for digital businesses to recruit top talent from overseas.
As Justin Fitzpatrick, co-founder of DueDil puts it, being open to talent can be a comparative advantage to the UK, at a time when startup hubs around the world are in fierce competition: “The immigration system should have one objective, to make the UK the most attractive place for the most skilled people in the world to settle. The UK needs to do more to capitalize on its status as a global hub, and forward thinking immigration policies are one way to make the most of a natural competitive advantage.”
This is a common refrain from startup founders, and the general tone of responses to Coadec’s survey on immigration last year was summed up by Hiroki Takeuchi, Co-founder of GoCardless who said that “If the government wants to maintain London’s edge, they should be making it easier not harder to bring talented people to the UK”.
Recent reforms have been steps in the right direction — for example the reform of Tier 1 (Exceptional Talent) with the creation of the TechNation visa is a positive move. Similarly, the addition of digital roles to the Shortage Occupation List and the Migration Advisory Committee’s review of the Tier 1 (Entrepreneur) visa suggests helpful reforms.
More broadly though, the overall direction of travel on immigration has been negative. Scrapping post-study work visas during the last parliament, as well as the Tier 1 (General) route, have made it harder for talented migrants to come to the UK.
The MAC’s recent report on Tier 2 immigration sets out further recommendations aimed at restricting the flow of skilled migrants into the UK, specifically raising the minimum salary threshold and introducing a new ‘immigration skills charge’ of £1,000 per year. The MAC do specifically note the harm that new salary thresholds may cause startups, who tend to reward employees with equity in return for lower salaries, and we hope the government listens to their recommendation to consider them a ‘special case’.
Infrastructure and connectivity
A common theme among responses to our survey ahead of this Digital Strategy submission was the desire for better digital infrastructure across the country. The UK’s Digital Strategy should set out a roadmap for ubiquitous high speed connectivity, both fixed and wireless.
The UK lags behind many competitors — for example in the European Digital Cities Index, London ranks 12th for digital infrastructure, while in Akamai’s State of the Internet Report the UK ranks 14th in the EMEA region for average connection speeds.
Beyond this the government has said that ‘its ambition is that ultrafast broadband of at least 100Mbps should become available to nearly all UK premises’, but without setting out the steps (or level of public investment) needed to achieve this. The Digital Strategy is an opportunity to revisit both the level of ambition (which could be raised) as well as the roadmap to achieving it, including public investment.
21st Century Regulation
It is welcome that ministers have made clear that they are on the side of the disruptors, now this Digital Strategy is an opportunity for the government to formally set out its approach to innovation and disruptive technologies.
Where possible the government should be encouraging permissionless approaches to innovation. In other words, rather than taking the precautionary approach of regulating something until it is proven to be safe, only directly intervening if a strong case can be made.
As the head of the Competition and Markets Authority set out in a recent oped ‘We do not serve the interests of the public or the wider economy if we slam on the brakes’, and that while ‘there is a role for regulation, especially where safety is an issue… technologies… have the potential to overtake the role of regulation, and safeguard consumers by empowering them with information.’ In other words that disruptive innovation and competition usually serve consumers well, and there is a risk that regulators (in this case he’s referring to the TfL in regard to Uber) may damage both competition and harm consumers by over-regulating new entrants.
Government should encourage the use of permissionless models, such as the recently announced ‘regulatory sandbox’ at the FCA, and apply the lessons from these across the public sector.
One mechanism to help promote competition, unlock innovation and empower consumers would be to encourage (or require) more industries to open up user data to their consumers using APIs. There is a good model of this currently underway through the government’s plan for banks to open up a standard API for personal current accounts, enabling users to access their data and pass it on to a trusted third party. In time, this will allow the emergence of an entirely new ‘software layer’ or app store on top of traditional bank accounts. In the same way as you can currently connect your Facebook account to another service like Instagram, this would allow you to seamlessly connect your bank account to your expenses or tax software.
The government has also had successes at reforming the regulation of disruptive industries by conducting reviews into specific industry verticals. For example, the review into the sharing economy led by Debbie Wosskow led to a series of positive recommendations many of which were taken up as government policy. Similarly there has been a big push to support FinTech innovators, with support from the top of government. The Digital Strategy should look at possible further areas where government can do ‘deep dives’ into emerging industries and technologies with the aim of unlocking innovation.
One area ripe for review would be changing modes of work, and regulation surrounding freelancers and the self-employed. As digital platforms increasingly enable people to find work and work more flexibly, there is a growing divide with traditional employees. For example on maternity or paternity pay, sick leave and pension provision, freelancers and the self-employed lose out. While we are not saying that platforms should be required to take on these responsibilities, government should look at how it can do more to incentivise innovation in this area. For example, the VC Nick Grossman in the US has written about the emergence of innovative tools to support workers in the sharing economy, while Tim O’Reilly has set out interesting ideas on creating a new middle-ground category of worker between a full employee and a contractor.
Another area of law several of respondents to our survey raised was the issue of encryption in the context of the draft Investigatory Powers Bill. We agree with their concerns that the draft Bill does not give certainty on the status of strong encryption in the UK, and that it is possible to read the Bill as requiring communications providers to alter their products to remove or compromise encryption. The Digital Strategy should make clear the UK’s position on encryption, as there remains a risk that the perception of the UK as a place to build digital businesses will be harmed.
Every sector is being transformed by digital technologies and the public sector is not immune. The last parliament saw a shift in the way government approaches digital services, adopting user-centred design, and with the growth of GDS, the programme of exemplars, and the longer term ambitions of Government as a Platform (GaaP).
As well as changing the way that citizens consumer public services, there is also the opportunity to unlock innovation in the private sector. Already government open data and APIs allow innovation by third parties, including the creation of digital businesses like Citymapper (built on TfL data). The ambition for Government as a Platform should go further, allowing the creation of an app layer on top of public services. For example, the Verify identity assurance programme should be opened up so that third parties can also use it, such as banks using your Verify credentials to meet KYC (know your customer) requirements.
As Eddie Copeland suggests in his recommendations for the Digital Strategy, there should be an app store (based on open standards) to ‘create a thriving marketplace for innovative solutions, enabling government and local authorities to benefit from the very best products provided by the private and third sectors.’
Local government in particular has struggled to join up, with many local authorities running their own, separate, legacy systems. More support (financial and technical) should be provided from central government, as well as help setting standards and convening. For example new devolution deals could include requirements for councils to build shared digital services.
A more digital government also requires more technical expertise. The Digital Strategy should look at how government can boost digital skills across the public sector, as well as recruit top talent from the private sector. One model which seem to work well in the United States are the White House’s Office of Science and Technology Policy, which offers expert advice to the President on tech issues, as well as running initiatives (eg on improving diversity in STEM). Another mechanism also from the US is the Presidential Innovation Fellows, which brings leaders from the tech and innovation community into the heart of government. The UK should learn from these examples and make a renewed effort to attract technologists to public service.
The UK government has played a leading role in setting out a positive vision for what a Digital Single Market should look like in Europe. It’s vital that the government continues to build alliances in order to promote their vision of a single market in which digital businesses can scale quickly across the continent, and consumers benefit from more competition and better services. The UK should continue to promote one-stop-shop mechanisms, more digital processes for things like setting up a company and paying taxes, and a more positive attitude to innovation.
A potential problem for the Digital Strategy is how expansive it is in scope. As the digital economy become just the economy, and as digital technologies transform all elements of society, there is almost nothing that one could rule out of scope for a UK Digital Strategy. We hope that the government bears this in mind as it constructs both the Strategy, but more importantly the mechanisms for implementing it. Public policy always struggles to keep up with the pace of technological change, but this Strategy is hopefully an opportunity to reflect on how it can catch up, including new structures and incentives within government and the public sector.
Ending on an optimistic note, the UK already is a world leader on most things digital, including the startup community that Coadec represents. We hope this Strategy builds on the UK’s successes and ensures that we remain at the forefront of the digital revolution.
Coadec is the policy voice of UK digital startups. Set up in 2010 by tech entrepreneurs, The Coalition for a Digital Economy (Coadec) is a non-profit that campaigns for policies to support digital startups in the UK.
Our supporters include digital startups and entrepreneurs, developers, VCs and angel investors, technology companies and academics. Coadec is sponsored by iHorizon, Intuit, Google and TechHub.
To find out more about our work please, visit www.coadec.com.