Zachary Spiro is a policy fellow at Onward, and a consultant at Flint Global. He writes in a personal capacity.
For science and technology, the UK is lucky: many of our problems aren’t that hard. That’s not to say that there are silver bullets, just that a good number of issues are relatively easy to fix. The abundance of these low-hanging fruit should be a gift for policy-makers, but the difficulty is in overcoming what’s getting in the way of seizing them.
For example, the UK is already in a fantastic position for scientific growth. We’re home to world-class universities with genuine clusters of expertise in cutting edge research. We have a stable, internationally-admired legal system, one of the world’s leading financial centres and, what’s more, ambitious scientists from overseas often voluntarily learn our language, instead of the other way around.
These assets are incredibly hard to build from scratch, meaning that the UK is already in a leading position over most of the competition. As a result we’re incredibly well-placed to capitalise on the next decade of scientific discovery and commercialisation, if only the blockers – whose solutions already exist – could be removed.
The recent speech by Michael Gove was another example. The sludge of the UK’s planning system doesn’t just choke off house construction, but also companies seeking to expand. Tech businesses publicly talk about how difficulty securing permission for new laboratories or manufacturing centres is holding them back.
Yet so far Gove has only committed to a ‘Cambridge Delivery Group’, which may not have the powers it needs to force development through. In addition, he is only making limited changes to the National Planning Policy Framework – a formal policy document that is several steps removed from actual planning decisions, and will therefore take years to have an effect, and even then only indirectly.
As with funding, planning is a problem that other countries have solved. While Cambridge’s councillors and ex-MPs fight against building more R&D space, Singapore is steaming ahead with building new labs and advanced manufacturing facilities. The difference is unlikely to be that Singaporeans are temperamentally more pro-growth than the British, but rather that the Singaporean land-use system doesn’t have as many veto points as the UK’s, nor as many requirements for public consultation.
Furthermore, decisions aren’t made by locally elected councillors, but by national politicians. The result is a steady supply of new space, and rental prices a fraction of what you see across the UK.
If ministers were willing to overcome the political difficulties, a similar – or at least far more permissive – system could be crafted for the UK. Although more details of Gove’s plans may emerge, it is more likely that the limited legislative time remaining means any work would be left until after the next election.
This approach is mirrored across other areas for science and industrial strategy. The private sector’s persistent under-funding of the UK’s science and tech ecosystem has been on the Treasury’s radar since at least 2016, when then-Chancellor Philip Hammond launched the Patient Capital Review. After nearly seven years of consideration, the highlight of Jeremy Hunt’s recent Mansion House was a voluntary agreement between nine private pension firms to collectively increase their investments in fast-growing companies to five percent of their total assets.
Across the world, many pensions funds grow the savings they’ve been given by careful investment in smaller firms. These firms use that money to expand and launch new products, and savers benefit because the value of their investments has gone up. This is a key part of the tech life-cycle, as scaling companies that run out of cash can’t grow, can’t employ people and can’t build new facilities. While Mansion House is undoubtedly a step in the right direction (and will be transformative for any firms who receive funding that otherwise wouldn’t have), more can be done.
Although five per cent is higher than the status quo, it’s still low by international standards. It’s less than half of what the New York Police Pension Fund allocates to similar firms, and only one sixth of the Canadian Pension Plan – their equivalent of the state pension. In fact, Hunt also announced in his speech that ten per cent of the cash sitting in the some public sector pension schemes would be invested in fast-growing companies (which is twice as much as the commitment by private pensions, for those keeping score). If five per cent is too low for Canada’s elderly, Manhattan’s police and Devon’s social workers, it isn’t clear why the UK’s private savers should be left out.
As mentioned earlier, the problem of under-investment in UK tech firms was identified almost a decade ago. Hunt is the fourth Chancellor on whose desk it has landed, and the first to have delivered industry agreement. This is despite the diagnosis existing for some time: an institutional unwillingness to invest by some pension firms, as well as too much fragmentation in the industry meaning much money is simply inaccessible to investors. Moreover, the question is not one that other countries haven’t been able to answer. As shown above, the US and Canada have well-capitalised and consolidated pension markets, which are more than willing to hand money over to innovative companies.
What’s missing are the long-term reforms that would overcome resistance by the pension sector to investing in science and technology. The question for this Government is whether it will use the limited time remaining in the Parliament to finally fix these problems – even if that means starting a fight with the pension industry – or potentially pass it on to Chancellor number five or even six.
Our tax regime is another target for improvement. While the temporary introduction of full expensing – which is critical for capital-intensive science and tech firms as it provides immediate, generous tax deductions – is welcome, it should be put on permanent footing. The Government knows that the UK’s capital investment regime is insufficiently internationally competitive: that’s part of why the pandemic-era super-deduction was created. But given the dire state of the public finances, any extra money risks being spent on eye-catching personal tax cuts or public services.
While there isn’t a magic wand for growth for any government to wave, tackling these problems is well within reach. A demand to ‘unleash the UK’s potential’ is normally a tired trope for time-pressed speechwriters. But in this case, and with the global technology race well-underway, it isn’t a cliché.
Zachary Spiro is a policy fellow at Onward, and a consultant at Flint Global. He writes in a personal capacity.
For science and technology, the UK is lucky: many of our problems aren’t that hard. That’s not to say that there are silver bullets, just that a good number of issues are relatively easy to fix. The abundance of these low-hanging fruit should be a gift for policy-makers, but the difficulty is in overcoming what’s getting in the way of seizing them.
For example, the UK is already in a fantastic position for scientific growth. We’re home to world-class universities with genuine clusters of expertise in cutting edge research. We have a stable, internationally-admired legal system, one of the world’s leading financial centres and, what’s more, ambitious scientists from overseas often voluntarily learn our language, instead of the other way around.
These assets are incredibly hard to build from scratch, meaning that the UK is already in a leading position over most of the competition. As a result we’re incredibly well-placed to capitalise on the next decade of scientific discovery and commercialisation, if only the blockers – whose solutions already exist – could be removed.
The recent speech by Michael Gove was another example. The sludge of the UK’s planning system doesn’t just choke off house construction, but also companies seeking to expand. Tech businesses publicly talk about how difficulty securing permission for new laboratories or manufacturing centres is holding them back.
Yet so far Gove has only committed to a ‘Cambridge Delivery Group’, which may not have the powers it needs to force development through. In addition, he is only making limited changes to the National Planning Policy Framework – a formal policy document that is several steps removed from actual planning decisions, and will therefore take years to have an effect, and even then only indirectly.
As with funding, planning is a problem that other countries have solved. While Cambridge’s councillors and ex-MPs fight against building more R&D space, Singapore is steaming ahead with building new labs and advanced manufacturing facilities. The difference is unlikely to be that Singaporeans are temperamentally more pro-growth than the British, but rather that the Singaporean land-use system doesn’t have as many veto points as the UK’s, nor as many requirements for public consultation.
Furthermore, decisions aren’t made by locally elected councillors, but by national politicians. The result is a steady supply of new space, and rental prices a fraction of what you see across the UK.
If ministers were willing to overcome the political difficulties, a similar – or at least far more permissive – system could be crafted for the UK. Although more details of Gove’s plans may emerge, it is more likely that the limited legislative time remaining means any work would be left until after the next election.
This approach is mirrored across other areas for science and industrial strategy. The private sector’s persistent under-funding of the UK’s science and tech ecosystem has been on the Treasury’s radar since at least 2016, when then-Chancellor Philip Hammond launched the Patient Capital Review. After nearly seven years of consideration, the highlight of Jeremy Hunt’s recent Mansion House was a voluntary agreement between nine private pension firms to collectively increase their investments in fast-growing companies to five percent of their total assets.
Across the world, many pensions funds grow the savings they’ve been given by careful investment in smaller firms. These firms use that money to expand and launch new products, and savers benefit because the value of their investments has gone up. This is a key part of the tech life-cycle, as scaling companies that run out of cash can’t grow, can’t employ people and can’t build new facilities. While Mansion House is undoubtedly a step in the right direction (and will be transformative for any firms who receive funding that otherwise wouldn’t have), more can be done.
Although five per cent is higher than the status quo, it’s still low by international standards. It’s less than half of what the New York Police Pension Fund allocates to similar firms, and only one sixth of the Canadian Pension Plan – their equivalent of the state pension. In fact, Hunt also announced in his speech that ten per cent of the cash sitting in the some public sector pension schemes would be invested in fast-growing companies (which is twice as much as the commitment by private pensions, for those keeping score). If five per cent is too low for Canada’s elderly, Manhattan’s police and Devon’s social workers, it isn’t clear why the UK’s private savers should be left out.
As mentioned earlier, the problem of under-investment in UK tech firms was identified almost a decade ago. Hunt is the fourth Chancellor on whose desk it has landed, and the first to have delivered industry agreement. This is despite the diagnosis existing for some time: an institutional unwillingness to invest by some pension firms, as well as too much fragmentation in the industry meaning much money is simply inaccessible to investors. Moreover, the question is not one that other countries haven’t been able to answer. As shown above, the US and Canada have well-capitalised and consolidated pension markets, which are more than willing to hand money over to innovative companies.
What’s missing are the long-term reforms that would overcome resistance by the pension sector to investing in science and technology. The question for this Government is whether it will use the limited time remaining in the Parliament to finally fix these problems – even if that means starting a fight with the pension industry – or potentially pass it on to Chancellor number five or even six.
Our tax regime is another target for improvement. While the temporary introduction of full expensing – which is critical for capital-intensive science and tech firms as it provides immediate, generous tax deductions – is welcome, it should be put on permanent footing. The Government knows that the UK’s capital investment regime is insufficiently internationally competitive: that’s part of why the pandemic-era super-deduction was created. But given the dire state of the public finances, any extra money risks being spent on eye-catching personal tax cuts or public services.
While there isn’t a magic wand for growth for any government to wave, tackling these problems is well within reach. A demand to ‘unleash the UK’s potential’ is normally a tired trope for time-pressed speechwriters. But in this case, and with the global technology race well-underway, it isn’t a cliché.