The flat white economy is forecast to come to the boil

Coffee, flat white

A senior economist who has studied the US sees major growth in the digital economy for England’s North East

By Mike Cowley

A former Chief Economist in the UK for IBM is the man primarily responsible for ensuring US tech companies increasingly have the North East of England on their radar as an option to London when considering where to locate British outposts.

Doug McWilliams
Doug McWilliams’ rankings highlight a skilled workforce, cheap housing and a cultural buzz

Doug McWilliams, once Chief Economic Adviser to the Confederation of British Industry – who also had the ear of ex-Chancellor turned influential editor George Osborne – is Executive Chairman of the Centre for Economics and Business Research, one of the UK’s leading specialist economics consultancies, and one of the most highly respected sources of business advice and research.

He began to champion the North East in general and the City of Newcastle – at the heart of the region – in particular after studying the growth of the digital economy in the US and identifying three factors crucial to success: a highly skilled workforce, cheap housing and a sense of cultural buzz.

McWilliams then ranked every region in Britain according to these factors. Newcastle upon Tyne came first, making it Britain’s equivalent of Nashville — the fastest-growing tech hub in the US, measured by the growth in jobs over the past five years, according to the CEBR.

Hot on its heels were a number of other northern cities (Manchester in second, Liverpool fourth) leaving London’s start-up strongholds in the boroughs of Hackney and Islington trailing in their wake.

The CEBR expects 70% of the growth over the next five years in the digital and media sector — christened the Flat White Economy by McWilliams in his book of the same name — to be outside London, with much of it in the north.

By 2022, McWilliams predicts, the sector will employ more than 600,000 people in the north of England, roughly double today’s figure and 50% higher than the total for London.

It was the North East which saw the sharpest regional increase in the number of digital tech businesses in 2011-15 in the finding of a separate study by Tech City UK, the government-backed industry body.

“The North of England is going to become the jobs centre of the digital economy,” said McWilliams “with the North East at the very heart of it.”

The free-market economist insists the digital revolution has achieved what UK government policy has conspicuously failed to do: “rebalance” the country’s growth away from the southeast and towards the former industrial heartlands of the north.

Meanwhile McWilliams research in the UK has revealed a number of underlying factors as to why it is proving such fertile ground in which tech clusters can develop. One is the creativity that has always played a key role in the country. Another is availability of cheap property.

He says that it was the combination of these that led to the UK’s first tech cluster springing up in Shoreditch in London, an area once famous for its high density of artists, many of whom who were drawn there by the low cost of accommodation.

However, whereas a tech cluster can still be found there, property prices have skyrocketed almost as fast as the cost of the diminishing supply of talent.

McWilliams also unusually cites the UK’s adoption of on-line retail as being a driving force for digital across the country. “It is an odd thing about Britain in that the Flat White Economy has been driven by fact that the country has embraced on-line retail much more than any other country world, with 20% of the business now on-line”, he claims.

“So you now have a huge digital marketing business in a country which was exporting 50% of its advertising products even before it went digital. So the creative sector and the digital sector have got together and produced the Flat White Economy. And being built around web site marketing is what makes it different from digitally driven economies in Silicon Valley.” Whereas there are differences in what drives the digital economies in both countries,, it is the similarities which offer the main appeal to US companies in terms of inward investment.

Apart from the obvious advantage of speaking the same language (well almost), the US and UK are the two most advanced economies in the world offering deregulated labour markets.

“This is a major bonus in that a feature of the digital world is companies expand and contract quite rapidly,” explains the economist. “In the UK, like the US but unlike in Europe, there is a lot of labour flexibility, no tough employment laws which means you can hire people and, if it doesn’t work out you can let them go.

“The only other place where you find this is in the emerging economies and they cannot compare with the UK at least as yet.”

Meanwhile expansion rather than contraction is the main problem which faces the burgeoning tech clusters in the UK. And once again, the North East offers a distinct advantage over London where the overheated sector sees a constant merry go round of tech talent poaching.

“This is not only because there is a constant flow from the well-established North east universities but historically this is an area where jobs have not been easy to find so people tend to stay put.”

UK winning the European talent battle

Brexit appears to be no longer the elephant in the room for tech clusters in the UK – outside of London that is.

According to the Tech Nation 2017 report this is because companies in the regions – in particular the North East – have relied less heavily on overseas talent to fill job vacancies.

In general, it appears tech communities are ‘highly optimistic’ about the growth prospects for digital tech companies in their local area, both in terms of scale and number of businesses.

And UK entrepreneurs are overwhelmingly optimistic about the future of the UK’s digital tech sector – with more than 70% of respondents to a Tech Nation survey believing the number of digital tech businesses in their local area will rise over the next 12 months.

The report quotes Roland Emmans, head of Technology Sector for HSBC, saying: “Tech firms are refusing to be distracted by Brexit. While technology was one of the most anti-Brexit sectors in the run-up to the EU referendum, our tech customers are now taking a ‘que será, será’ attitude. Rather than getting caught up in the uncertainty they’re focusing their growth plans on the areas they can influence.

While concerns remain around areas such as hiring European talent, the fact is that UK tech companies attracted more investment last year than their counterparts in Germany and France put together.”