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The UK has the opportunity to lead the growing global GovTech market, which could be worth more than £20bn in the UK by 2025, according to a report.
As the adoption of new technologies is changing the way government delivers services, there is huge potential for startups and small and medium-sized enterprises (SMEs) to grow their business by focusing on improving public services, said the report by newly founded investment firm Public.
“The advancement in the digital transformation of UK public services, which began in earnest in 2009, is now entering a new phase as technological capability improves,” the report said.
“These technological improvements, combined with the existing digital talent pool in the UK and the access to capital, should create a golden opportunity for the UK to become the GovTech centre of the world.”
Public has launched the first cohort of companies that will be part of its GovStart programme, which aims to help technology startups transform public services.
Daniel Korski, CEO and co-founder of Public, said the chosen companies offer “smarter, more efficient technology solutions to government, with the potential to deliver significant benefits for both citizens and the state”.
“What is more, they show that technology isn’t just about cool hipsters in Shoreditch, but about life-improving support for carers, smarter transport systems and new ways of training young people,” he added.
Public estimates that the UK GovTech market will be worth £20bn by 2025 as a result of renewals of large IT contracts, “a shift towards procurement from SMEs, investment into emerging technologies applied to public needs, and by the rise of companies whose products enhance not only the lives of the individual, but also have impacts that more generally permeate society”.
The investment firm said that new technological developments, an existing digital talent pool and access to capital investment “should create a golden opportunity for the UK to become the GovTech centre of the world” in a market that is estimated to be worth $400bn globally.
Last year, the UK government launched its supplier standard principles – a collaborative set of guidelines created by the Cabinet Office with help from trade body TechUK, in a move to improve the relationship between government and its suppliers, particularly engagement with SMEs. But small companies continue to find it hard to win business in the public sector.
A TechUK survey found that SMEs cited procurement processes and contract terms and conditions as key barriers to gaining entry to the market, despite the government’s efforts to make access easier and a commitment to increasing SME spend to 33%, or £1 in every £3, by 2020. However, a Public Accounts Committe report, published in May last year, found that five IT suppliers received 51% of all central government IT spending,
Public’s report said that many investors and innovatiors “still shun the GovTech market for fear of long purchase cycles”, pointing out that, in reality, it is much better than many realise.
“Years of sub-optimal outcomes, and a reliance on large vendors who overcharge and struggle to innovate, have prompted many government departments, both centrally and locally, to devote more energy to improving the procurement process,” its report said.
Based on conversations Public has had with a number companies that have sold to government, the sales cycle can take any time between two and 18 months.
“We have identified three recurring themes that have helped successful bidders to overcome hurdles and succeed in the GovTech space, including compliance, route to market, and ‘missionism’,” the report said.
“Our evidence suggests that it is possible to shorten government sales cycles to as little as three months depending on the size of contract and procuring governmental entity.”
Brexit brings opportunities and risk
“If Brexit leads to a larger rethink of governmental systems, from rural payments to customs arrangements and identification, then it must inevitably drive a significant adoption of new technologies and new suppliers,” it said, adding that a “rethink” in procurement policies and regulation, with a preference given to UK firms, will give the sector a short-term boost.
However, Brexit could also make it harder for UK startups to enter the EU market and affect access to European capital. “Access to European talent is crucial to the UK GovTech market,” the report said.
“The drive to build the skills of young people in the UK is welcome, but will not yield results in the timeframe required for the UK to ensure that it becomes the world’s GovTech hub. So any impact on the access to skills, whether because of quotas, bureaucratic obstacles or even just the tone of public discourse, will be detrimental to the UK’s GovTech market.”
Public added that policy-makers must support the industry in order to take advantage of the opportunities Brexit brings.
“That means finding ways to incentivise the adoption of new technologies within the public sector and proactively thinking about easing the procurement process for startups,” it said.
“It also means helping GovTech firms export and ensuring that, post-Brexit, GovTech companies can continue to access talent, investment and overseas markets.”