Photographer: Chris Ratcliffe/Bloomberg

U.K. Government Rewards Technology Sector in Autumn Statement

  • Money for R&D, startups and faster broadband proposed
  • Tech community wary of new government-run investment funds

The U.K. government has distributed a number of gifts to the country’s technology sector.

In his first Autumn Statement Wednesday, Chancellor of the Exchequer Philip Hammond confirmed the U.K. government would invest an additional 2 billion pounds ($2.48 billion) into technology research and development by the end of the current Parliament in 2020. Some of this money will be allocated to a new Industrial Strategy Challenge Fund that will direct it to priority technologies, including robotics and artificial intelligence.

Hammond also flagged further investment into the development of autonomous vehicles, and announced plans to invest 400 million pounds into venture capital via the British Business Bank, in order to stem the sale of promising U.K. startups to foreign buyers.

”I am taking a first step to tackle the longstanding problem of our fastest growing technology firms being snapped up by bigger companies, rather than growing to scale,” said Hammond.

The government earlier announced a 1 billion pound investment in bringing high-speed fiber-optic broadband to 2 million British households and a 400 million pound Digital Infrastructure Investment Fund that will help back emerging fiber broadband providers.

Startup Focus

With the U.K. technology sector concerned about a lack of skills following the country’s exit from the European Union, the startup community has received particular attention. Prime Minister Theresa May announced a number of initiatives in a speech before the Confederation of British Industry, the U.K.’s largest business trade association, Monday.

The government said it will step up its procurement from small businesses, particularly in the technology sector, and its Small Business Research Initiative would report back with recommendations next year.

The Treasury will also review what financial barriers were still preventing many U.K. startups from becoming larger, fast growing businesses. An expert panel headed by Damon Buffini, governor of the biomedical charity The Wellcome Trust and former head of private equity firm Permira, is to assist the Treasury with the review.

Companies that have sold major foreign acquirers in recent years include artificial intelligence company DeepMind, which was sold to Google for 400 million pounds in 2014, Magic Pony, the video compression startup Twitter Inc. bought for $150 million this year, and Swiftkey, the smartphone keyboard software firm Microsoft Corp. bought this year for a reported $250 million.

Mixed Response

The moves were greeted with a mixture of praise and wariness by those in British tech, who are worried about the effects Brexit will have on the sector, and who have been apprehensive that Prime Minister Theresa May’s emphasis on “an industrial policy” would favor traditional manufacturing industries over software and internet-focused businesses.

“This was first concrete positive step we’ve seen from this government,” Russ Shaw, founder of Tech London Advocates, a group that promotes London’s as a tech hub, said. He said it showed the government “rightly values the role innovation plays in the U.K.’s economy, and the leadership that technology companies show in driving our economy through the current period of uncertainty.”

Hussein Kanji, partner at London-based venture capital firm Hoxton Ventures, also said the further money for research and development was “good news” especially since many feared such funding would decline sharply with Brexit, since most U.K. universities get substantial European Union grants.

But Kanji said he was skeptical of the new Industrial Strategy Challenge Fund.
“The fund is vague in scope,” he said, and he thought U.K. Research and Innovation, the collection of government research councils tasked with running the new fund, lacked venture capital expertise and experience commercializing technology. “Venture investing is a highly specialized field,” he said, noting “most government funds typically underperform relative to private funds.”

Shaw said immigration concerns remain paramount for British technology firms, and he would have liked to have seen May’s government make clearer guarantees around the sector’s ability to hire highly-skilled workers. 

”A budget for R&D without clarity on whether people from overseas and Europe in particular can apply for jobs is meaningless,” said Alex Caccia, co-founder of engineering company Animal Dynamics Limited, ”as the bulk of that budget will be spent on people who have the skills to undertake research and development, and frankly today there are more people outside England with talent than in the U.K.”

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