London's insatiable demand for IT staff is draining the rest of the UK, a report revealed last week. The shortage of technical skills and entrepreneurs could hold back the emergence of new economy sectors outside the South East.
The report, from the research and strategy consultancy The Local Futures Group, says that the uneven development of the UK's information economy has profound implications for local and regional competitiveness strategies.
Enabling the regions to take advantage of Internet technology is at the centre of the Government's economic policy. Its recently published White Paper on enterprise, skills and innovation says that well-paid, skilled jobs must be created across the country to replace low-cost, low value-added businesses which are being left behind in the fast moving world economy.
London is the European hub of the global information economy and acts as a magnet for new economy firms offering top rates of pay to IT workers.
The information economy already accounts for three quarters of jobs in the City and between a third and a half in several outer London boroughs and in Cambridge and Oxfordshire. Progress is also being made in a handful of cities, particularly Leeds, Manchester, Birmingham and Bristol.
In contrast, in parts of Wales, the East Midlands and Scotland technology-related positions accounts for less than 6% of jobs.
The Local Futures Group report says the tendency for the most skilled professionals to head for London has produced a "brain drain" of information and communication technology specialists. "Future knowledge workers - graduates from universities in the north of England or Wales, for example - fuel London's high-wage, high-value information economy," it says.
Certainly the evidence appears to be compelling. Areas where high proportions of the workforce have no qualifications are invariably those with few jobs in the information economy.
Regional differences are startling - 40% of people living in the former mining community of Blaenau, Wales, have no qualifications compared with 6% in Wokingham in the high-tech M4 corridor.
The Government intends to expand the regions' skilled workforces by establishing university innovation centres and new technology institutes to train 10,000 people a year in ICT skills and to "move" 15,000 unemployed people into ICT jobs over the next three years.
But without jobs in the regions many of these people are likely to head to London to find work.
The East Midlands Development Agency is aware that a shortage of skilled IT staff has had an impact in the decisions of some firms not to relocate to the regions, although the area has started to see the arrival of call centres, computer games companies and new media enterprises.
Philippa Ryan, a business growth manager with the agency, says that the area has a "weak knowledge economy" which may be due to its poorly-qualified workforce.
But she believes that workers can be trained with the basic ICT skills needed for most computer-related jobs, while the region's eight universities and its colleges churn out the analysts and programmers.
But skilled staff will not stay in an area which cannot offer jobs in computers, while major IT centres will not move to regions which do not have a skilled workforce.
Simon Mingay, vice-president research director at Gartner, believes that the clustering of technology companies, and therefore IT staff, is a natural consequence of the desire for new businesses to be near their suppliers and partners and be able to recruit a workforce from other companies.
Although many ICT workers - especially the older, more experienced staff - probably dream of a better lifestyle and cheaper housing in the regions, most cannot resist the temptation of the higher salaries offered in London and the South-East, Mingay said.
At the Nottingham headquarters of Capital One Bank, IT director Peter Knight has built up a team of more than 330 IT staff over the past four years. About 70% are from the local area and the company's recruitment evenings attract up to 500 people, resulting in about 100 applications and 15 to 20 jobs.
"People's requirements in London are more extreme, in terms of salary, but up here there is more concern for the total package, the compensation, the lifestyle and the opportunities," said Knight. "We do not just consider applicants who have exactly the skills we need as we have a commitment to developing people."
Newcastle City Council is attempting to brand the area "the e-city of the north" and the north-east of England is desperate to keep hold of the brightest graduates from the region's five universities.
Small business and e-business agencies are supporting a new programme to help graduates develop their own technology and Internet businesses. The programme includes a part-time course at Durham University's Foundation for Small and Medium Enterprises followed by support which includes an 18-month rent relief grant on an e-business incubator in the region.
Newcastle-based accounting software firm Sage employs 500 IT staff in the city and intends to recruit a further 400 IT and customer care staff over the next two years. A spokeswoman admitted that the company had had difficulty recruiting skilled IT staff and many of its recruits were people who had either lived studied in the area.
"IT recruitment is a problem across the country. In the south the issue is salaries and here it is actually finding the skills we need," said the spokeswoman. "But I think we are more willing to recruit people and then to help them widen their skills than companies in the south, which makes us attractive."
Philip Virgo, strategic advisor to the Institute for the Management of Information Systems, said the problem in recruiting skilled workers is not the main cause for the uneven distribution of the information economy.
Availability of broadband access to the Internet and the location of international airports have a far greater influence, he claims. Broadband access is required to provide the speed needed in the new economy and the airports are vital to provide access to the relatively few highly skilled globetrotters needed for "high value" work on systems.
"If you are going to have social inclusion then you have got to have 2mbps going to every high street and village," said Virgo. "The reason Leeds is ahead of Manchester in the information economy is because it has a much better infrastructure. You only need high-level skills to develop products and services. You do not need qualifications to use a properly engineered system."
Andrew Milroy, a director at the market intelligence firm IDC, said the financial community is responsible for the growth of the new economy in London and Leeds, while businesses in the old economy in the regions have been slower to accept changes.
Short-term supply-side solutions include increasing the mobility of IT staff from within the UK and importing the skills that we need from abroad. "Eventually, like any other shortage, the shortage of skilled staff will be addressed on the demand side," said Milroy. "Companies which are having trouble finding these skills will just find less labour-intensive systems."