APPG for Entrepreneurship Digest: July 2023

If you cast your mind back to the Autumn Statement last November, you’ll probably remember it as an exercise of utmost restraint. Each sentence of Jeremy Hunt’s speech was carefully crafted to reassure markets following the ill-fated ‘mini-Budget’ his predecessor had given two months prior. Stability and humility were the orders of the day – yet even here, the Chancellor couldn’t resist a little exuberance.

“I want to combine our technology and science brilliance with our formidable financial services to turn Britain into the world’s next Silicon Valley,” Hunt proclaimed. As the breeding ground of some of the most consequential technologies and companies in human history, one certainly couldn’t criticise the Chancellor of setting the bar on his ambitions too low.

At this point, it’s worth reflecting on how the Californian tech hub came to be such a powerhouse of innovation in the first place. While it’d be foolish to ascribe its success to any one single factor, a handful certainly stand out – from the world-class nearby universities which offered a healthy supply of inquisitive graduates, to the emergence of venture capital firms which meant money was readily available to fuel their ideas, to an experienced legal industry which enabled these ideas to be properly patented. A classic clustering effect ensued, with this virtuous circle perpetuating itself over time – drawing in ever more talent and finance, and pouring out ever more innovation.

So, if that’s the scale of the challenge, how equipped is the UK to tackle it? From the off, there are reasons for optimism. Britain is already home to several top tier universities, and its financial and legal industries are globally renowned. It has just about as good a foundation as any other place outside of the Bay Area to credibly claim to be able to emulate Silicon Valley. But what’s more, Hunt and his colleagues in Government can meaningfully point to a handful of recent measures which ought to make delivering on the lofty ambition all the easier.

Not long after the Autumn Statement, Hunt unveiled the Edinburgh Reforms – a wide-ranging policy package designed to give the financial services industry more freedom, which should improve access to finance for startups. Then, in his Mansion House speech this Monday, the Chancellor went further, announcing the ‘Mansion House Compact’. This will see many of the largest defined contribution pension schemes allocate more capital towards unlisted equities – up to five per cent by 2030, which could unlock an estimated £50 billion of investment for high-growth firms. (Hunt’s opposite number Rachel Reeves might point out, however, this is something Labour have long been calling, having endorsed a similar idea in their Start-Up, Scale-Up review last year.)

The day before Hunt’s address to the City of London’s great and good, the Sunday Times broke the news that his constituency neighbour and Levelling Up Secretary, Michael Gove is eyeing up plans to add as many as 250,000 homes to Cambridge while turbocharging investment into transport and lab infrastructure in the surrounding area. If innovators are to cluster, they need homes, offices and labs to physically cluster in – so it’s satisfying to see this idea in the works, given it aligns with calls many entrepreneurship campaigners have been making for years, not least our Secretariat The Entrepreneurs Network. Again, on this point, Labour would be keen to draw attention to their recent endeavour to rebrand as the party of the “builders, not the blockers” as proof that they understand the problem too.

These are just two of the most recent developments that one could point to as evidence that the Government’s aspiration to recreate Silicon Valley here in Britain is more than just a pipedream. But – and there’s always a but – let’s not get carried away.

Silicon Valley wasn’t built in a day. It required careful nurturing, and has had to remain attractive to entrepreneurs and investors year after year, decade after decade. Wise decisions from policymakers, such as banking reforms which spurred the VC industry in the 1970s, have proved critical in this endeavour. This will be no different this side of the pond.

Even so, innovation policy seems to be resembling a rare case of rousing rhetoric being matched by pragmatic policymaking. It also, pleasingly, enjoys cross-party consensus – something which will be of utmost importance given the often long timescales involved in getting innovation policy right. Whether Hunt succeeds in reshaping the UK as the next Silicon Valley won’t become clear for many years to come – but if recent news is anything to go by, Britain is certainly pointing in a decent direction.

Adviser Update

Beauhurst teamed up with Barclays Eagle Labs to produce a report on the UK’s high-growth quantum technology companies. Read it here.

Two opportunities from Global Entrepreneurship Network UK: the first is the chance to become an official Global Entrepreneurship Week (13-19 November) event organiser; the second is to join the Global Entrepreneurship Congress in Melbourne (19-22 September). Contact Elaine Gold for more information.

In Parliament

During a debate on the Online Safety Bill in the House of Lords, Baroness Harding asserted that “risk matters more than size” and noted that the rise of Threads shows how “small becomes big very quickly.” She further added: “I would argue one of the most important culture changes is that any bright, young tech entrepreneur has to start by thinking about the risks and therefore the safety procedures they need to put in place as they build their tech business from the ground up and not once they have reached some artificial size threshold.”

Labour’s Darren Jones MP, Chair of the House of Commons Business and Trade Select Committee, argued that the UK Government needs “to be more involved in the technology revolution” to curb its possible downsides. He emphasised that the “risks” could create “a country where technology is put upon people, instead of being developed with them, and where productivity gains result in economic growth and higher profits, but leave workers behind with reduced hours or no job at all. It is a world in which the pace of innovation races ahead of society, creatively destroying the livelihoods of many millions of people, and where other countries leap ahead of our own, as we struggle to seize the economic opportunities of the technology revolution.” During the same Commons debate on AI, Conservative Matt Warman MP claimed that “the Government’s White Paper [on AI] promotes both innovation and regulation. It does so in the context of Britain being the most advanced nation outside America and China for AI research, development and, potentially, regulation.”

Speaking about the All Party Parliamentary Group for Crypto & Digital Assets’ recent report, Dr Lisa Cameron MP of the Scottish National Party highlighted that “to be a hub of cryptocurrency” the UK needs to ease digital assets firms’ access to basic financial services: “The inquiry heard that firms were struggling to secure access to UK banking services. A high proportion of banks have refused to provide bank accounts to digital assets firms, even when those firms are regulated and licensed to operate in the UK. In addition, just in recent months, a number of major banks have also announced limits on transactions, making it more difficult rather than less.”

Paul Bristow MP reported that local officials in Peterborough and the Anglia Ruskin University want to establish a new research institute on sustainable energy, with the help and investment of energy conglomerates. The Conservative MP believes that this investment can “transform the local economy” and may bring “technology-focused foreign direct investment in the UK to drive growth in the green economy.”

In a sitting on Digital Markets, Competition and Consumers Bill, Max von Thun, the Europe Director at the Open Markets Institute, claimed that the debated legislation will bring more competition to the digital market which will be “very good for tech start-ups.”

While presenting a report on defence policy by the International Relations and Defence Committee, Baroness Anelay claimed that the Ministry of Defence is an unreliable partner for start-ups in the national security field, which are “the most innovative firms” in the industry. She called on the MoD to “consider changing fundamentally its approach to smaller high-tech and start-up companies” since the UK needs to invest “sufficiently and effectively” in innovative security capabilities.

During a debate on enhancing innovation in the NHS, the Parliamentary Under-Secretary of State for the Department of Health and Social Care Lord Markham said that the scale of the NHS creates a daunting challenge for startups in implementing and scaling their products or services across the public health agency.

Discussing the development of two new freeports in Wales, Dr James Davies MP said that the “freeports will help to level up north-west and south-west Wales and bring new high-skilled jobs to successful areas. They will become drivers of growth and employment in their areas, acting as hubs for regeneration, innovation and global trade.”

During a session on immigration, Tim Loughton MP argued that China’s political system will see more people from Hong Kong settle in the United Kingdom over time, who are “easily assimilated through existing links – family links and others – they tend to be very entrepreneurial, setting up businesses after studying here, and they really add to the economic prospects of this country.”

Debating the Financial Services and Markets Bill, Baroness Lawlor pointed out that the UK’s financial services industry is ahead of EU countries’ and criticised the EU regulations for making competition difficult for challenger entrepreneurial firms against the big players: “My main concern is that this diverse sector, which has flourished in the UK under UK law, remains under an opaque legislative system. EU regulation is unpredictable and the EU’s system, with the precautionary approach, seems to cover every eventuality but in practice, it can fall short. It often favours big players over small and nimble entrepreneurs and the challengers. There is little certainty about transactions in advance, and little predictability as to how the regulators will judge.”