Lord C-J on Startups: Financing getting better but major skills gaps

Here is what I said in the Queen’s Speech Debate about Start Ups in  the Creative and Tech Industries and how we can partner with Chinese creative industries.

In many respects the Queen’s Speech is to be welcomed, precisely for the fact that it does not contain a huge amount of new legislation. None the less, I welcome the carryover of the Consumer Rights Bill and the Deregulation Bill. Curiously, I note for the aspiring statesmen among us that it will, among other things, make statues easier to erect. I do not know whether your Lordships noticed that.

In particular, I welcome the introduction of the Small Business and Enterprise Bill outlined by my noble friend Lord Livingston because today, among other issues, I want to deal with the key question of start-ups in the tech and creative sector and what we need to do to ensure their success. I enjoyed the digital speech of the noble Lord, Lord Mitchell. According to official figures, the creative sector grew by almost 10% in 2012 and outperformed all other sectors of UK industry. It accounted for 1.6 million jobs in 2012. However, this underestimates the contribution of the creative industries. Many would say that they employ at least 2 million, so I welcome the Government’s intention to reclassify their contribution to GDP to bring back in software. We should not forget, too, the key role that arts and culture perform in providing the creative industries with talent. The approach to their funding needs reappraising, particularly in the light of the CEBR report on their contribution to the economy.

A crucial factor in one area of growth has been the tax treatment of film production, followed by high-end television and animation. In April, video games relief was cleared by the EU, which was excellent news. The new theatre production tax relief and patent box will have a major impact too. From a recent presentation at the Google Campus in Tech City to the Communications Committee, it is clear that we have come a long way since Silicon Roundabout morphed into Tech City. The noble Lord, Lord Mitchell, gave some very interesting figures. There have been more than 15,000 start-ups there in each of the past two years.

More widely, Trip Hawkins, who founded Electronic Arts in 1982, recently said that Britain is the most creative country in the world and can lure top technology businesses away from Silicon Valley. However, to fulfil that promise, we need to ensure they have access to the skills and finance they need to grow. It seems they now have good access to early-stage finance with a variety of angel investors through the Government’s enterprise investment schemes. Indeed, these schemes in the UK are now said to be among the best in the world. Tech companies have also benefited from the business growth fund, enterprise capital funds and the enterprise finance guarantee. Crowdfunding is beginning to have a real impact. Exceptionally among the banks, Santander has introduced its imaginative breakthrough programme for fast-growing start-ups. The important thing now, as the Creative Industries Council has identified, is promotion of these schemes.

However, we were told that it is in the later stages, where hundreds of million of pounds are required for investment or a venture capital exit is needed, where we are behind the US. Are UK financial institutions too risk-averse? If so, there is a danger of business moving to the US at this funding stage. None the less, US institutions are now moving here which understand the potential of tech and creative start-ups. There is also good evidence from recent listings on the Stock Exchange that we are making progress. The creation of the new High Growth Segment to encourage companies to list here is having an impact.

The talent available, however, is far below what we need. Start-ups in Tech City need a mixture of technical and creative skills to develop their new digital services. Knowledge of digital technologies is particularly crucial. We need 1 million tech jobs to be filled by 2020 to keep up with demand. So I welcome the inclusion in the curriculum of coding, or computer science, from this September for five to 16 year-olds. But even if the pipeline from schools and universities is there, finding the right talent can be tough. Training and proper apprenticeships are hugely important.

Even if we fill the gap in the long term, we will in the short term still be reliant on overseas undergraduates and postgraduates. I welcome the developments with the exceptional talent visas, which show some increased flexibility, but as Policy Exchange’s recently published Technology Manifesto makes clear, we must ensure our visa regime is fast and user-friendly, to attract them into both employment and our higher education institutions.

If we get it right the prize is very great. Policy Exchange says that the internet economy will be 16% of GDP by 2016. We are already the highest net exporter of computer and information services among the G7 countries. Already our online retail surplus is larger than that of Germany and the US combined. This also means that we need to break down the barriers to e-commerce across the EU to create a genuine European digital single market.

Clusters, or hubs, are of huge importance to the tech and creative industries and, as Policy Exchange says, there are many more than just those in London. In terms of innovation, creativity, finance, promotion and skills, clustering is now the name of the game. But this raises the whole question of whether our cities operate on the right scale, especially when compared with cities in emerging markets, and whether they have the necessary powers and control over their own finances. After all, more than 90% of tax is collected by central government.

I was at the opening of the International Festival for Business in Liverpool yesterday, and a great showcase it was for both Britain and Liverpool. We had contributions that demonstrated real commitment to the creative sector from the Prime Minister, my noble friend the Trade Minister and the Culture Secretary. I was also delighted that my noble friend acknowledged the value of professional services, but it reminded me of the words of the noble Lord, Lord Heseltine, in the paper No Stone Unturned: In Pursuit of Growth, which he wrote in 2012 about cities and regeneration. He said:

“What Liverpool forced me to confront was the extent to which these conditioning qualities had been driven from municipal England. The dynamism that had built the city was gone”.

There is a major RSA project under way, the City Growth Commission, chaired by Jim O’Neill, which will report in October this year. As the commission says, too many of the UK’s urban areas outside London are failing to achieve their growth potential. How can we make our cities competitive in the global economy? How can we strengthen our clusters? How can we tie in our universities as incubators? It is vital that we build on initiatives such as the LEPs, city deals and the regional growth fund.

As the Lords Select Committee recently concluded, our creative industries are increasingly part of Britain’s soft power. They are a vital aspect of our international trade and investment. A few days ago I took part in the third Technology Innovators Forum—TIF-IN—in Qingdao, opened by the Secretary of State for Business, which reflects that with the growth of digital platforms and applications there is a symbiotic relationship between the tech sector and creative content, as well as the need to promote our UK creative industries in emerging markets, especially China.

At TIF-IN, my right honourable friend launched the Global Digital Media and Entertainment Alliance with China, which will promote long-term relationships in the digital media and entertainment sectors. I am optimistic that it will greatly benefit the UK’s creative industries. We have a terrific team of UKTI people in China, with increasing sector specialisms. They have done an excellent job post-Olympics in developing Britain through the GREAT campaign. The FCO is very supportive. We now have an expert IP attaché in Beijing and other major markets.

However, UK companies, particularly SMEs, need persuading to be bolder. We need to demonstrate the benefits of trade and investment with emerging markets more effectively, and we need a much longer pipeline of SMEs lining up to do business in emerging markets. That means more UKTI resource in the UK, especially in the English regions.

Finally, as I cannot take part in Thursday’s debate, I want to mention the tourism sector. In that context I very much welcome the announcement last week at the British Hospitality Association summit of the creation of a new tourism council along the lines of the successful model of the Creative Industries Council. I hope that this will lead rapidly to a range of measures that will ensure the competitiveness of our tourism industry compared to other European destinations. That is also a vital part of our soft power.