The UK's Chancellor of the Exchequer Jeremy Hunt has revealed a bold ambition to create the next Silicon Valley.
It's been a tough week in Silicon Valley.
Mass job cuts and employee walkouts at some of its biggest success stories, an emerging corporate fraud 'worse than Enron' and a likely prison sentence for its once youngest self-made billionaire. It would be unfair though to judge Silicon Valley's achievements by just one week’s worth of news headlines.
It also certainly didn't deter the Chancellor of the Exchequer Jeremy Hunt this week who revealed his ambition to create the next Silicon Valley in the UK in his Autumn Statement on the nation’s finances.
“We need to be better at turning world-class innovation into world-class companies…I want to combine our technology and science brilliance with our formidable financial services to turn Britain into the world’s next Silicon Valley,” said Hunt.
On the face of it, this is welcome news for the fintech industry, which has largely held up well despite an ever-worsening global macroeconomic picture.
A series of promises from Hunt, which mostly are billed to become a reality in two years and therefore are dependent on a Conservative election victory, directly referred to technology and the financial services industries as key to unlocking much desired economic growth.
This would suggest Hunt is taking fintech seriously, amid fears that Hunt’s most immediate pressure - stabilising the UK economy and tackling spiralling government borrowing could be at odds with an innovation agenda, says Russ Shaw, Founder of Tech London Advocates & Global Tech Advocates.
“The fear ahead of this Autumn Statement was that reducing the national debt and tackling inflation would take precedence over backing innovation and growth. Instead, the Chancellor’s plans to ‘turn Britain into the world’s next Silicon Valley’ were music to the ears of the UK tech sector,” he said.
Flagship commitments such as increasing the R&D budget to £20bn by 2025 a, building 'Investment Zone' clusters around universities suggest Hunt and Sunak are prepared to enact policies that match the lofty ambitions, he adds.
“In recent years, the tech industry has heard plenty of rhetoric from political leaders around commitments to championing Britain as a global science and technology superpower,” he said.
Hunt’s pro-innovation-led growth announcements were positive in painting innovation as a “core pillar” of his strategy, says Aman Behzad, Managing Partner and Founder of Royal Park Partners.
“I have no doubt that the UK has the potential to become the world’s next ‘Silicon Valley’, with incredible talent and ambition paving the way forward. Yet it remains to be seen how far today’s changes will go towards giving the UK’s leading businesses the ammunition and support they need to reach new milestones,” he said.
“Protecting and increasing the R&D budget to reach the target of £20bn by 2024/25 is a welcome decision, recognising the need to safeguard the country’s tech brilliance. That said, we will have to wait to understand the outcome of wider commitments” he added.
However, it as also “disappointing” to see too little emphasis on immediate measures that will cushion the blow for the UK’s tech and fintech firms dealing with current economic headwinds, Behzad said.
“As inflation continues to bite, it is eating into exiting R&D budgets, with companies facing real-term cuts and pressure to cut costs,” he added.
The Chancellor’s desire to turn Britain into the ‘next Silicon Valley, made possible by science and technology innovation as well as world-leading financial services can only help so far in terms of competing with Silicon Valley, whose success is cultural as well as the result of deep pools of financing.
“The Chancellor recognised that innovation drives competition – this is true for fintech, and if the UK takes a lead, Europe and the rest of the world will also step up. This investment will be channelled directly into the safe and fast introduction of new emerging technologies that will come to define the future. It’s certainly an exciting time to be in tech,” he added.
Despite the silver lining (that may or may not come in the next few years), others in the fintech space have more immediate concerns.
“Though the Government has rightly concentrated on economic stability, there is little help on growth as we are now in a recession. We would point to the freezing of the VAT threshold and the threshold for employer National Insurance as two regressive measures,” he added.
“Although the Government’s revaluation of business rates will be welcomed by thousands of businesses throughout the UK, there is still an existential risk that thousands more businesses will go into hibernation over the winter and may never return to trading.”
The sentiment was also echoed by another neobank CEO with SME customers. Rich Wagner, CEO and co-founder of Cashplus Bank says many of its customers are already feeling the pressure from declining economic sentiment.
“Many of our customers are sole traders and micro businesses operating across consumer-facing industries, where there is a slowdown, and in business-to-business, professional and service sectors, where those pressures are less acute for now, but all are seeing pressure on their margins,” he said.
“Many of our customers run healthy businesses that are being pushed into the red by spiralling costs and will welcome the announced relief on business rates, but all will be acutely aware of the wider impact of higher personal taxes and the need for their customers to make savings,” he added.
Wagner, however, adds that smaller businesses can also be a source of an eventual economic recovery, and that fact should prompt a simplification of the rules governing entrepreneurship.
“One thing the Chancellor should note is that in a recession, we begin to see an increase in company formations. These are businesses that will help us get out of the economic slump and therefore we must ensure they don’t think that starting a business is too much trouble. We need a business and regulatory environment that makes it attractive and easy to set up a business as well as having the right measures across tax, immigration and skills, he said.
The UK’s status as the world’s fintech capital, he adds, should be maintained, via a light touch in tax-raising from the sector.
“I understand the temptation to impose additional taxes due to higher interest rates, particularly on the larger banks, but it’s also important to recognise the role that the sector, and particularly digital challengers, will play in supporting businesses and getting the economy going again.”
Rome wasn't built in a day and neither was Silicon Valley, whose roots go back 50 or so years. The next important announcements central to Hunt's strategy will come in twelve months or so when, at the end of next year, the government says it will reveal changes to EU regulations in its five "growth industries": digital technology, life sciences, green industries, financial services and advanced manufacturing.
New powers given to its Digital Markets Unit - designed to challenge monopolies and increase competitive pressures - will also be worth watching closely.
Balancing short and long-term economic pressures is nothing new for the UK's long line of Chancellors, but Hunt is faced with one of the tougher economic challenges. If he can pull off the creation of the next Silicon Valley in the UK it will be nothing short of miraculous. And let's hope it comes with a bit less, scandal and fraud.