Dominic Cummings wants to build trillion-dollar tech companies in the UK. It’s a noble ambition - but how best to get there?
Companies like Apple and Google (worth $2 trillion and $1 trillion respectively) have hardly grown up overnight.
They have taken decades to construct, powered by brilliant innovation, visionary leadership, shrewd marketing and, most of all, countless billions of dollars of investment in new technology.
While UK expertise and talent have played a key role in the growth of these and many other of Silicon Valley’s giants, Britain itself has a long way to go.
Its biggest listed technology company is currently Aveva, the software company whose market value of £7.9bn ($10.1bn) is worth about 1pc of Google.
Cambridge chip company Arm, which was acquired by SoftBank of Japan in 2016, is about to fall into the hands of America’s Nvidia for $40bn. Even that falls far short.
And Apple became worth more than the entire FTSE 100 index of companies earlier this month when it hit £1.65 trillion in value.
If Britain wants to emulate the success of the big beasts of global tech, there are two steps that are essential.
UK must upscale R&D spending
First, the UK needs to invest far more in research and development (R&D) than it does currently and create better and stronger tax incentives for companies to do so.
In 2018, the UK spent about £37.1 billion ($47bn) on R&D or about 1.7pc of GDP.
That is up marginally from 1.67pc in 2017, but remains well below the US’s 2.7pc or the EU (EU-28) average of 2.12pc.
Indeed, the Nordic countries - Finland, Norway, Sweden and Denmark - spent about the same amount collectively as the UK - despite having a combined population of 27m people or less than half of Britain’s 66m.
Sweden, which provides tax relief through a 10pc exemption on employer’s social security contributions for their research staff, spends 3.3pc of its GDP on R&D.
Although making a direct link would be risky, it may be no coincidence that some of Europe’s most successful new technology companies - Spotify and Klarna for example - grew up in Stockholm.
International comparisons with the UK’s R&D budget are unflattering too when you consider the amount lavished by the US tech giants on research.
In 2019, Amazon and Google forked out $36bn and $26bn respectively on R&D. Together their collective spend of $62bn is nearly a third higher than the UK’s annual total.
One possible remedy would be to double the tax credits available to UK SMEs for research spending from about £3bn currently to £6bn. That figure would still pale in comparison to the cost of the furlough scheme. It would probably have a more positive long-term impact on growth too.
Another is to slash some of the red tape around research in specific fields - autonomous vehicles, drones or AI - to make the UK more competitive in other ways.
But a cultural change is probably necessary too. With a few notable exceptions like Dyson, British companies often simply don’t prioritise R&D as a core activity in the same way as in some other business cultures.
That's despite healthy growth in UK tech sectors such as fintech and cybersecurity.
Of course, it’s not just about raw spending power.
Effectively commercialising innovation and then defending it from being snapped up by overseas rivals are vital too.
Historically, this is an area where the UK could have performed better.
From Arm to Deep Mind, the AI firm acquired by Google, and Imagination Technologies, the chip group acquired by China’s Canyon Bridge, there is a long list of cutting edge UK technology companies which have been taken over before they have had the chance to emerge as national champions.
Again, it’s hard to know how much of this may be cultural. Are UK entrepreneurs happier to sell out and enjoy the fruits of their labours at an earlier stage than their hungrier and more red-blooded peers in Silicon Valley?
UK must refuse to sanction sales of tech stars
While Elon Musk wants to colonise Mars, British business owners often seem happy enough to cash out for a Porsche and a nice country house.
But the relaxed attitude of policymakers - who have generally been content to stand by and watch as UK tech companies get gobbled up by US or Chinese predators - is an additional factor.
In this, Britain could certainly learn some lessons from overseas.
Maintaining an open, free market economy while defending your brightest and most innovative young companies from being snapped up before their time - potentially to your long-term economic detriment - is a difficult line to tread.
But America’s Committee for Foreign Investment in the US (CFIUS), which vets overseas takeovers, seems as good a model as any to protect national interests and valuable intellectual property from potentially hostile predators.
Chaired by the US Treasury Secretary, it effectively gives the government a veto over any deal deemed undesirable and enjoys considerable discretion to act as and where it sees fit.
More than anything it serves as a powerful deterrent, giving the US government a seat at the table in all transactions involving a foreign buyer.
It also enables US tech giants to grow in value as they snap up lesser companies.
In contrast, Britain’s enterprise act does give the Government powers to intervene in mergers where they raise concerns about national security, financial stability and media plurality - but these are much more narrowly defined.
Moreover, in practice they are rarely used - a stance which sends out a simple message: British companies are available - and for sale at the right price.
The good news is that the UK technology scene remains vibrant and is growing in expertise and experience all the time.
A cluster of seasoned executives, founders and investors now exists with experience of building businesses, feeding a virtuous circle of entrepreneurship.
While it is still a long way short of Silicon Valley, there is real grounds for optimism about the future.