A digital economy needs more than startups - government must address UK's lack of IT investment

It would be churlish not to applaud the government’s pre-Budget commitments to the tech sector – an increase in funding to support tech startups and expanding visa availability for bringing in top overseas talent.

More would have been nice – the new visa places will only amount to a few hundred extra people, for example – but with the IT industry gripped by Brexit uncertainty, it should take what it can get for now.

However, the government continues to be fixated on tech startups as the way to boost the UK’s digital economy. They are important, of course – let’s not understate the benefits of building an even stronger base of innovative new companies. But to truly become a global digital leader, there’s a lot more to be done, and a lot more government can do.

One of the biggest economic problems the UK faces is its poor productivity – German workers could go home on a Thursday afternoon and still be more productive than British workers completing a five-day week. Despite efforts to address the issue, UK productivity decreased by 0.1% between April and June 2017, having fallen 0.5% in the first three months of the year.

A successful digital economy needs a thriving base of digital startups, but more importantly it needs established companies to become more digital. Research by the Confederation for British Industry (CBI) shows that poor technology adoption by businesses is at the heart of the UK’s productivity gap.

This isn’t about firms being leading-edge adopters of new technologies such as artificial intelligence or internet of things, it’s about investing more in well-proven, established technologies such as mobile, cloud and e-procurement.

Shockingly, the CBI’s report said that UK take-up of enterprise resource planning (ERP) and customer relationship management (CRM) – two of the most basic, fundamental software building blocks for any modern organisation – is lower than it was in Denmark in 2009.

At the recent CBI conference, prime minister Theresa May challenged UK businesses to “embrace technological change”. In response, CBI director general Carolyn Fairbairn said government has a responsibility to “create the right backdrop for firms to invest”. Both are correct.

Outside of a relatively small number of innovative UK companies, there is an enduring technophobia that holds back British business and our digital economy. CEOs might have come to love their iPhones, but they are still reluctant to invest in the systems and skills needed to make their companies into digital exemplars. And post-Brexit, we really will need to be a country of digital exemplars.

The UK tax regime is still biased towards investment in goods and machinery – the heartland of a 20th century manufacturing base. There are fewer incentives to encourage spend on software and IT skills – the core of a 21st century digital world.

It will be great for Britain to be a global leader in tech startups. It will be even better for our global competitiveness if we can incentivise all businesses to become leaders in technology adoption.

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