MPs report challenges Government to deliver post Brexit Digital Strategy

Extracts from and reaction to The Digital Economy report form the House of Commons Business, Innovation and Skills Committee

Report Intro

Technology is going to revolutionise, or is already revolutionising, business, transforming virtually all aspects of the economy and society. Through the course of our inquiry, we have received evidence about various aspects of the digital economy, including: digital aspects of disruptive technology, an innovation that disrupts an existing market; the sharing economy, a model that relies on the sharing of goods, intellectual resources, labour, and property using a digital platform: and flourishing digital sectors, including Fintech (financial services whose business model relies on software and an algorithmbased approach to assessing risk) and the gaming industry.

The United Kingdom is one of the leading digital nations in the world, and its economy has the highest percentage of GDP involved in the digital economy of all European nations.3 UK digital industries grew two and a half times as fast as the whole economy between 2003 and 2013 and comprised 7.5%, or £113 billion of the UK’s gross value added (GVA) as of 2013.4 The estimated turnover of digital tech industries in 2014 was £161 billion, and there are 1.56 million jobs in the digital tech economy, of which 41% are in traditionally non-digital industries. Furthermore, the average advertised salary in digital jobs is just under £50,000, 36% higher than the national average.

Where the digital economy is growing

The Department for Culture Media and Sports (DCMS) supports Tech City UK, set up in 2010, which helps to increase the growth of digital businesses across the United Kingdom, focussing on digital skills, capital investment, international development and leadership.6 The DCMS also supports Tech North, which runs programmes for digital entrepreneurs and investment in the North of England7 . The Department for Business Innovation and Skills sponsors Innovate UK, a non-departmental public body, which supports small high-growth potential businesses to grow domestically and internationally.8 7. The United Kingdom is successful in digital terms, not only in London, but in other parts of the country, including Bristol and Bath, Manchester, Reading, Leeds, Newcastle and Gateshead, and the Government supports digital start-ups through growth hubs (local public/private sector partnerships, led by the Local Enterprise Partnerships (LEPs)). At the last spending review, the Government also invested about £11 million in three technology clusters in Sheffield, Leeds and Manchester, and has previously encouraged tech clusters—a group of tech start-ups geographically close to one another—in Rotherham, Hull, Liverpool, Liverpool, Newcastle, Durham, and Sunderland.

Measuring the digital economy

The digital economy is not a conventionally marketed economic activity, and GDP figures do not take account of economic benefits of the digital economy, such as time saved, increased choice, and lower cost of products. The Standard Industrial Classification (SIC) Codes also omit companies in business and domestic software, architectural activities, engineering, and engineering-related scientific and technical consulting.9 The Office for National Statistics said that “development and innovations in the digital arena mean more and more businesses are finding ways to become digital, and this in turn makes measuring the digital economy problematic”.

Finding real data on the digital economy

Good policy making, tax policy and the allocation of resources require high-quality data. This does not exist at present in the digital economy, and policy making cannot therefore be reliably expected to support as much as possible the digital economy, one of the UK’s key drivers of improved productivity. The Government’s Digital Strategy should be informed by, and policy measures should be driven by, reliable data. We recognise the difficulty of measuring the digital economy, but the Government should look to the work of the Office of National Statistics, and explore ways of collecting real-time data in the digital economy, and ensure that established Standard Industrial Classification (SIC) codes are agreed and used, in different parts of the digital economy.

Comment 1: Charlotte Holloway, Policy Director at techUK:

“techUK welcomes this wide-ranging and timely report on the UK digital economy. The Committee is right to highlight that the forthcoming Digital Strategy from UK Government needs to be refocused in light of the vote to leave the European Union. Whether it be access to the Digital Single Market, data rules, a welcoming environment for skilled digital workers, and more, one of the first tasks for newly-appointed Digital Economy minister Matt Hancock MP will be to work closely with industry on these areas. The UK’s huge potential in digital must be matched by clear prioritisation of the tech sector’s needs in forward approaches to renegotiation. We must now pull out all the stops to make the UK the most attractive place in the world to locate and grow a tech company.”

“The Committee is right to question whether the apprenticeship levy works for strategically-important high-growth tech business. Tech companies have serious and ongoing concerns on how the implementation of the levy will support their sustained growth. Scaling businesses made the difference between recession and recovery after 2008, and it’s now more important than ever that policies such as the levy help rather than hinder our ability to boost the UK’s digital workforce to 2020 and beyond.”

See next page for how the MPs are challenging the Government to deliver its digital strategy and how it plans to engage with the Digital Single Market following the referendum decision to leave the EU.