Opinion It was ironic that this month’s crowing Tech Nation report, which wrongly claimed the UK digital sector “was growing 32 per cent faster than the rest of the economy,” almost coincided with the total collapse of one of the sector’s biggest – and loudest – stars, Powa Technologies.
Compiled by Tech City and NESTA, an innovation “charity” famed for producing endless streams of reports no one reads, the Tech Nation report makes some bold claims for itself. But when those claims are scrutinised they are shown to be riddled with error and exaggeration.
Far from providing proof that digital media is growing, there is overwhelming evidence that some digital sub-sectors are in decline – notably, the large number utterly dependent on public sector cash, such as councils, schools and arts organisations, some of whose budgets have been halved in the past five years.
First, Tech Nation claims to be the “most comprehensive analysis of the UK’s digital industries to date,” with “1,800 responses logged from a potential 1.56 million businesses.”
From my experience based on talking to 60,000-SME community this is an obvious fallacy – or an incredibly low email return rate.
Secondly, key individuals behind the report display a deep, yet sincere lack of knowledge about the UK’s core IT geography. Not surprisingly, as Tech City leaders all seem to hail from overseas. One might remind them of the forensically comprehensive sector surveys carried out by all Regional Development Agencies, not to mention the DTI’s surveys, in the Noughties – long before the Tech Nation authors had left school.
The Tech Nation report erroneously said digital job growth “will outperform all other occupation categories by 2020”. This is an obvious nonsense. At least one sector, food and drink, a £76bn turnover industry, is racing ahead of digital industries in terms of the number of genuinely new companies, additional employment, training of skilled and unskilled workers and, above all, in levels of investment. The total figure given for London’s digital jobs – just 328,223 – is well below those employed in retail, finance and even medical services.
Tech Nation says the average digital salary is “£50,000, or 36 per cent higher than the national average”. What this actually shows is how little training of junior staff it undertakes, or employs, and how excessively overpaid are many senior staff.
The scale of investment in food and drink – premises, equipment, and stock – is staggering. Farm shops alone cost an average of £250,000 to start. With 30,000 plus operating and thousands more on the way, they are now the third biggest distributors of food after Tesco and Sainsbury’s. Most of this investment is private, doesn’t involve City bankers or any investment house – and therefore goes unlogged by UK government agencies. By comparison, starting a digital business costs little.
Next, the failure rate among digital media firms is very high. As everyone in IT knows, thousands of "old" website design firms of the 1990s and Noughties were re-born in this decade as "digital media" suppliers. A new company name may be recorded at Companies House and gleefully listed by Tech Nation, but certainly not a new business, contrary to the latter’s misleading claims. However, the report does state that “half of all new companies began after 2008” – backing up the rebirth concept.
In addition, hundreds of thousands of digital “companies” are not solid trading companies in the traditional sense but mere accounting entities for one man, home-based software developers.
Sadly the quarterly stats of the Government’s Insolvency Service do not break down failures by sector. Yet our SME data shows many an embarrassment – and not just Powa Technologies this month. Staffordshire-based Instar Digital went into liquidation in 2015 owing £670,000. It left 20 colleges and schools without an IT service. In January 2016, the aptly named The Black Hole also went of out business in Leeds.
Earlier, Labour MP Simon Danczuk’s company, Vision Twentyone, went bust, owing £220,000 to creditors. Most of its income came from the public sector, and Mr Danczuk admitted that “75 per cent of its income ‘disappeared’ in only six months.” At one time it had employed Ruth Turner, a close colleague of former Prime Minister Tony Blair, and, ironically, former representative of NESTA in the north of England.
Tech Nation’s definition of “digital” is also awry – but, nevertheless, is all-encompassing. Anything involving a PC is digital. It includes “marketing” and “design”, sectors normally included in business services, as well as games and social research, though its researchers omit to highlight the UK’s often world-leading expertise in building, construction and integration software, such as BIW Technologies, based in Woking, Surrey.
Worse still, telecoms and networking – classified by everyone else as part of electronics or engineering - are included, forming “8.5 per cent of the digital landscape".
Where the report completely abandons reality is when it claims that digital tech businesses now make up significant proportions of “traditional industries” – 36 per cent of aerospace and defence, and 32 per cent of electronics industries.
Tech Nation proudly lists the UK’s 27 digital clusters – mostly on the basis of information from its cosy club of incubators, nearly all state-funded. It claims “the UK’s fastest growing tech clusters in terms of new digital companies formed since 2010 include Belfast, Bournemouth, Bristol and Bath.”
One might expect the researchers at Tech City to get its national review of clusters correct. But, No. Bournemouth – known for its “cheap labour” call centres of near-zero digital significance – is once again highlighted, even though this year it has fallen from first to fourth place as the “fastest growing” city in digital economy.
Then absurdity piles on absurdity. Two of the biggest and most important clusters get no mention at all. First, North Hampshire, noted for its application firms such as CompSoft and airline-related software firms such as Damarel Systems, is one of the UK’s most important, least known clusters.
Furthermore the active defence and electronics software cluster around Portsmouth fails to shine. Perhaps Tech Nation has not heard that IBM UK headquarters – where epic volumes of software are written - is based there?
Of course, while there is much to applaud among the UK’s innovative firms involved in the digital world, there is also much to fear. The collapse of Powa Technologies, once valued at $2.7bn, is an omen. London payments firm Transferwise, another "unicorn" worth more than $1bn, is profiled in the report. According to the latest reports filed with Companies House, it continues to make losses, as does company information firm Duedil.
The next Tech Nation report should look at the terrain more soberly - without the hype, the errors and the exaggeration. Then, and only then, should we take it seriously. ®