Government urged to act as cracks in London's Tech City threaten continued growth of the £125bn UK industry

Key areas: Recommendations from the Deloitte report

Addressing the skills gap and simplifying access to funding for tech startups is needed from government to ensure the continued growth of London's tech hub, according to head of futures at Arena Mark Holden, following the release of a report highlighting the sector's £125bn annual economic contribution to the country.

The London: Enabling a World Leading Digital Hub report from Deloitte estimated the technology, media and telecoms (TMT) sector generates eight per cent of GDP each year, with London pinpointed as the "economic engine" contributing £26bn directly, £23bn indirectly.

The report revealed one in every 10 jobs in the UK is in the TMT sector and 28 per cent of total TMT employment is in greater London. However, amid the country's tech and digital boom, the report warned of stumbling blocks which could set London backwards and threaten its global position.

Four key areas for improvement were given prominence: the need to nurture skills, close funding gaps, drive collaboration between business, universities and institutions, and provide fast connectivity.

Holden warned UK startups were looking outside of the UK to meet funding demands and the government needed to underline its commitment to the industry with action.

"The government is making the right noises, but there is a sense that it's just that - noise. With some justification the government has been accused of building Tech City as more of a PR exercise than anything else," he said.

"The real investment in Tech City is driven by established tech companies and government-backed VC [venture capitalist] investment is still dwarfed by funds available to companies in the US, which is why many local startups end up applying for funding across the pond."

Holden added that while initiatives such as the Enterprise Investment Scheme, the MMC London Fund and GrowthAccelerator were a good start, startups cited problems with bureaucracy and complicated application processes as a further obstacle.

According to the Deloitte report, the scale of the task to strengthen the London hub "should not be underestimated" and was "intensified" by efforts in other cities to build digital hubs, such as New York and Berlin, often with enthusiastic public authority backing.

However, Tech City deputy CEO Benjamin Southworth said the UK tech sector was an attractive prospect for business.

"Access to government is unprecedented and Tech City has flourished thanks in part to this government being so engaged and willing to listen to the business community's needs and advice," Southworth countered.

"The UK now offers one of the world's most ambitious packages of policies, business incentives, tax credits, tax rate reductions and visa support, helping make this country the first choice for entrepreneurs and investors."

Concerns have been raised throughout the industry about the lack of a skilled workforce to grow the tech sector. The UK currently ranks 16th in student performance in science, behind countries including Canada, Australia, New Zealand, Japan and China and the need to integrate tech teaching and development into the countries educational establishments is pressing, while Holden argues immigration changes have also been unhelpful.

"Part of the inherent flaw in the Tech City approach is that it doesn't address the problems that truly drive growth of the tech sector," he said. "Skills are often cited - 77 per cent of startups in Tech City say skills shortages actively restrict growth, and shortages of coders, designers and UX experts are most acute.

"This is partly down to the lack of any structured, symbiotic relationship between our most promising feeder universities and Tech City, and partly down to the clampdown on immigration, which makes it harder to import these skills quickly from abroad."

Co-founder and managing director at mobile agency Fetch, James Connelly, praised the creation of the Tech City organisation - set up to support the growth of the tech cluster in East London - as one of the "right steps" the city was taking. With businesses in both London and San Francisco, he said making comparisons between the two was interesting.

"Shoreditch is more creative and has bundles of enthusiasm and entrepreneurialism but it lacks the technology backbone that San Francisco/The Valley has. This needs to change," he said.

"London's Tech City is growing up; five years ago people moved to Shoreditch because it was cheap. Now it's because it's where the innovation is happening.

"But Tech City still has a way to go in order to attract larger scale businesses and investors to the area, which would create a more formidable epicentre, putting London firmly on the map for VC money. The reality today is that people feel they have to go to The Valley if they want to raise big money."

Connelly agreed that the lack of joined up thinking with education authorities was a significant factor in need of tackling.

"The major challenge we have in the UK is the lack of people studying computer science. That means we don't have enough developers, which makes developing things in the UK more costly and harder to do," he added.

While the cracks have begun to show amid the rapid growth of the tech sector, the news has been better for the marketing industry in London, according to Holden.

"The proof is in the pudding," he said. "Though Tech City has grown from 15 companies in 2007 to 1,340 in 2013, only 137 of these are genuine tech startups; the majority are marketing and PR services, design agencies, cafes, boutiques, pubs or charities. Clearly this is good for the marketing industry, but pure-play tech companies need more support."

However, Holden added that government efforts to establish Tech City in East London had attracted some good results for the city with the arrival of investment from Google, Intel, Vodafone, Amazon and Cisco to develop services and infrastructure for a startup community. Home-grown tech startups such as Geckoboards, Last.fm, Tweetdeck, Zoopla and Huddle were something to be proud of, he said, adding that the outlook in the industry was generally positive.

While the government puts the London digital hub on an economic pedestal, the pressure is on to ensure it has the adequate infrastructure to live up to the hype.

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