Thursday 02 March 2017 4:30 am

The cost of talent and housing threaten London’s digital crown

The government yesterday unveiled its digital strategy – an action plan for growing the digital economy and making the UK the best place in the world to start and grow a digital business.

This ambition is undoubtedly very welcome. London is already the best place in Europe for digital startups and scaleups, boasting excellent access to finance, the most developed venture capital industry in Europe and a booming alternative finance sector – not to mention a mature support system that includes numerous accelerators and coworking spaces.

One area where London compares less favourably with other places is in its digital infrastructure, such as rather limp broadband, so it is great to see further commitment to the “next generation infrastructure” promised in the Autumn Statement. This could help the UK close the gap with Eastern European cities such as Bucharest and Riga, which already benefit from ultra-fast fibre internet. London’s is distinctly creaky in comparison.

However, startups face more substantial constraints in the capital: principally, the cost of talent and the cost of accommodation.

The UK’s world-class universities provide a steady stream of skilled graduates, but it is inadequate; many digital firms still report access to talent – particularly, data science skills – as one of their largest bottlenecks.

The government’s move to provide digital training (and retraining) to millions, in conjunction with big businesses like Barclays and Lloyds, stands to reap rewards for the sector and wider economy. It’s also a pragmatic acknowledgement that government can’t tackle this all by itself.

But that is a longer-term solution to a current problem. In the face of a hard Brexit, businesses and policy-makers must work together to ensure that London’s burgeoning digital sector can access the right skills from across the world. In fact, research from Nesta and Tech City UK has identified that non-EU nationals make up a higher share of the UK’s tech sector than those from the rest of the EU, which should be kept in mind when designing schemes for highly-skilled migrants.

The matter of accommodation is much more difficult for the digital strategy to address. The international attractiveness of London has proven to be something of an Achilles’ heel, causing property prices and office rental costs to soar skywards. West London now contains some of the most expensive real estate in the world.

This isn’t a problem unique to London – even tech workers in Silicon Valley earning seven-figure salaries report prices there spiralling beyond their reach – but failing to address affordability for the entrepreneurs and workers that flock to London could mean that competitor cities become more attractive to tech startups.

Certainly, many European cities are trying hard to lure young firms away from London, and the fact that businesses could save two-thirds of their accommodation costs by moving to cities like Berlin or Lisbon is an obvious temptation.

London is already leading the charge when it comes to attracting new digital businesses and helping them grow. The new digital strategy should strengthen the resolve of such firms, despite the unknowns of Brexit.

However, what the sector will be hoping to see in next week’s Budget are actions which reinforce the digital strategy, as well as the recent industrial strategy – such as a review of the tax environment for R&D that encourages businesses to invest in digital innovation to boost productivity, that doesn’t detract from existing investor incentives, and promotes corporate-startup collaboration as a mechanism for achieving scale. Anything which can tackle the capital’s cost of living would also be hugely welcome.