New Quantum founder Carmen Palacios Velacero hopes the government will keep its promise. … [+]
The challenges facing entrepreneurs in the innovation economy have been barely addressed by the two main political parties in the run-up to the UK general election. A close look at the manifestos of both Labour and the Conservative parties reveals promises to reduce the burden of council tax (business rates system), improve access to capital and tackle late payments – all, of course, evidence of political friendliness towards small businesses. Meanwhile, support for technology start-ups is barely mentioned beyond an oblique reference in promises and plans to grow the green economy.
But thinking again, one might ask: in reality, couldn’t something more be done to support UK founders? As it stands, they have access to public funding through the grants scheme, can raise capital with the support of the state-backed British Business Bank, and can enjoy capital gains tax relief through Entrepreneurs’ Relief when they sell their business. Meanwhile, investors in qualified companies can access significant tax relief under the Enterprise Investment Scheme and its sister scheme, the Seed Enterprise Investment Scheme. This is generally accepted to be an investment driver, even if it distorts the flow of capital to qualified companies.
Add to this the numerous support programs such as accelerators and industry challenges, and you could say that entrepreneurs are already doing pretty well. And is supporting entrepreneurs really a priority at a time when the Treasury is running out of cash due to the huge costs incurred during the pandemic and helping to keep energy bills near-affordable after Russia’s invasion of Ukraine?
Gareth Jefferies is a partner in the European investment team at venture capital firm RTP Global. In his view, there is limited public interest in the health of the tech startup sector. “Tech is really important, but I’m not sure voters care about it,” he says.
Still, it’s an issue politicians need to address. “Pro-technology today means pro-business tomorrow,” he added.
Human resource and financial issues
So why is there so little being said about it this election? Because it could be politically difficult for both major parties to directly address the needs of founders during election time, when the main challenges entrepreneurs cite are talent retention and funding.
Until the UK’s education system is able to produce more skilled software engineers and technicians, attracting talent from overseas is necessary to ensure talent remains relevant, at a time when both political parties are highlighting their ambitions to reduce immigration. Then there’s the issue of Brexit, which ended the free movement of workers from the EU to the UK. “Immigration-friendly policies could attract EU talent, but I can understand why this isn’t being discussed,” Jeffreys says.
Moves to increase the supply of capital to growth companies have been less controversial. The Mansion House agreement, for example, includes plans to encourage pension funds to allocate more of their investment capital to small and medium-sized businesses with growth potential. Here, too, there are pitfalls for politicians trying to rally public support: at best, plans to adjust pension fund investment allocations are unlikely to excite voters. At worst, support for technology companies, which are often concentrated in cities like London, Oxford and Cambridge, could alienate some voters. “Being pro-tech could be seen as being pro-London,” Jefferies says.
All of this perhaps explains why the manifestos of vote-winning political parties barely contain any discussion of the growth of the tech sector. But that doesn’t mean the major parties aren’t thinking about it. I asked a few people who work in the sector what they would like to see in a new government.
Henrik Grimm is founder and CEO of payments company Mimo. He advocates for increased financial support. “Funding is essential to enable the growth and scalability of UK start-ups and technology companies,” he says. “Expanding grant programs, tax incentives and government-backed loans designed specifically for tech start-ups would be helpful, as would a review of private equity tax rules to encourage and attract long-term investment.”
Additionally, Grimm said tech entrepreneurs will benefit from enhanced and simplified stock option programs, which will help companies attract and retain talent.
Richard Anton, co-founder and general partner at venture capital firm Ox, says for the UK tech industry to emulate the capabilities of its US tech counterpart, pension funds need to be encouraged to allocate capital to the innovation economy.
Scaling across borders
Additionally, he supports measures to encourage cross-border expansion and free the movement of talent: “Implement policies to reduce market fragmentation between the UK and the EU and make it easier for software companies to expand across borders, including by simplifying the visa regime for recruiting overseas talent to the UK,” he urges.
Carmen Palacios Beraquer, founder and CEO of Cambridge University spinout company Nu Quantum, was more specific in her demands of the government. Put simply, she wants the new administration to maintain its current stance on supporting quantum technology. ““The risk from the new administration is that this progress will stagnate and there will be a funding shortfall – or, worse, the promises of the quantum strategy published in March 2023 (to commit £2.5bn to five quantum missions over the next decade) may not be met,” she says. “We can create the next Microsoft or NVIDIA of quantum, but we need to ensure we have sufficient public funding and the right policies to maintain our leading position, and to ensure we can bring in the right amount of international private funding for the industry.”
But let’s stop and think for a moment. All of the above makes perfect sense, but for policymakers there are always trade-offs about where to spend money. The government is under pressure to revive England’s town centres, support manufacturing, maintain the National Health Service and improve education standards. So where does support for the innovation economy fit into that mix? And how do you sell it to the general public, come election time, when public spending is constrained?
As Richard Anton points out, perhaps the key to a thriving innovation sector is a healthy economy: “I would like to see a clear economic policy framework from the government that leads to a solid economy with low inflation and predictable interest rates, taxes and regulations. Such an environment will encourage growth in domestic demand, including for technology sector products,” he says.
It’s important to note that party manifestos are not the end goal of government ambitions. If there are winners in the elections, we’ll likely hear more about the growth of startups. But for now, the discussion is elsewhere.
