Digital Economy Monitor Q1 2022 results
techUK has released the first-quarter 2022 results of the Digital Economy Monitor, a survey that measures and tracks operational changes, business performance and prospects for the UK economy among the tech sector.
This version of the survey is set in a context in which, following a strong economic rebound in 2021, growth estimates for 2022-2024 indicate the UK economy will enter a period of flat growth. With increasing inflation resulting from supply chain distributions and a difficult energy market, this presents a challenge of how to inject greater economic dynamism that will allow the UK to break free of this slowdown and deliver on the Government’s important long-term goals of Net Zero, Global Britain and Levelling-up.
Doing so means accelerating tech-led growth. The findings of the Digital Economy Monitor show that while the impact of the COVID-19 pandemic sparked a dramatic shift in British companies seeking to adopt digital technologies this desire for digital transformation has become embedded.
techUK members are seeing demand for their services being sustained even as social and economic restrictions have been lifted. Boosting confidence. However, concerns about rising energy prices, shortages of skills and talent, supply chain constraints and the projected slowdown of the UK economy have put a dampener on this optimism. The results of the Digital Economy Monitor survey as well as our latest Deep Dive on R&D and Innovation can be found below.
Responding to these results techUK and our members have put forward recommendations for accelerating tech-led growth to inject greater economic dynamism in the UK economy at this uncertain time. Seizing the opportunity to increase digital adoption and boost productivity offers the UK an opportunity to break free of its projected economic slowdown.
You can find techUK’s recommendations for Seizing the opportunity for tech led growth in 2022 here.
Commenting on the results Neil Ross, Associate Director of Policy at techUK said:
“The UK saw strong growth in 2021, however, our economic rebound has begun to slow. With disruption resulting from supply chain problems, inflation, and a difficult energy market we face a challenge of how to inject the economic dynamism we need to break free of this slow down and deliver on long-term goals of Net Zero and Levelling-up.
Against this backdrop techUK members remain positive and are continuing to invest in the UK, helping to drive the wider digital transformation of the economy that will boost productivity and growth. Leveraging the UK’s digital sector will be vital to improving the wider economic outlook.
To achieve this, we must act to build the right incentives not only for digitally savvy companies to continue to grow but also to support businesses across the economy to complete their digital transformation journeys. This means, encouraging businesses to continue investing in productivity-boosting capital and machinery, not penalising businesses for going digital through an Online Sales Tax and creating partnerships between Government and industry on regulation, emerging technologies and digital skills.”
Digital Economy Monitor Q1 2022 results:
Sales performance: When asked if their sales had increased from the previous year to this date, 71% of survey respondents said they had, with 17% saying they had increased "significantly". However, 19% of respondents reported that their sales had not changed from the previous year, and 10% reported a decrease in sales.
Investment plans: techUK members expressed optimism about their plans to invest in the UK, with 70% reporting that their investment plans have increased, 30% of members reported that their investment plans had not changed in the last year, and no member stated that their investing plans in the UK have been reduced, demonstrating that the sector is committed to supporting the UK's economic recovery.
Headcount projections: While the sector has expressed a great desire to increase their headcount in the UK, some companies have experienced significant obstacles to fulfilling the goal of creating more jobs in the UK. 60% of techUK members plan to expand their headcount in the UK, more than a third of respondents (35%) stated that they plan to keep the headcount in the UK roughly the same as it is, and a small fraction of respondents (5%) stated that they aim to decrease their headcount in the UK.
Economic outlook and priorities for tech companies in the next 12 months
When asked how the sector will look in the next 12 months, members were positive about the sector's ability to generate growth, with 79% expecting that the outlook for businesses in the tech sector will improve, however, most members believe this improvement will be only "moderate" (56%). Only 2% expect that the sector's outlook will worsen, while 19% expect that it will remain roughly the same.
Members who are less positive about the sector's prospects in the next 12 months believe that a general slowdown in the UK's economic performance and changes in consumer behaviour will slow the sector down in the coming months. These are in addition to the challenges that members have continually raised: skills and talent shortages, the implications of Brexit, and the consequences of Covid-19, particularly in terms of supply chain constrains.
When asked about their priorities for the next 12 months, the majority of members indicated that they will prioritise to engage with customers/prospective customers (77%), and introduce new products or services into the market (51%). This demonstrates that techUK members have set their sights on customers, striving to create new and innovative products and services, and reaching new unexplored markets, all which support the economic growth of the UK economy.
Members will also make strong efforts to keep up with the increased interest in their areas of operation, investing to increase efficiency and closing productivity gaps, with 26% saying they will evaluate operations and business efficiency and 16% saying they will prioritise investing in technology and digitisation within the organisation in the coming year.
How can the government aid the tech sector in achieving their ambitious goals?
The government has a significant role to play in supporting the tech sector in achieving its goals. When asked what would improve the outlook of tech businesses, for the second time in a row, members highlighted that increasing support for R&D and innovation (56%) would help the industry continue to expand.
Members also raised that the sector's progress has been hindered by the lack of access to skills and talent. For example, 30% of members said that better training and skills support would improve the tech sector's outlook, while 21% said that they need better access to overseas talent to support the sector continue thriving. Members also raised the importance of implementing some regulatory changes (19%) and investing in adequate infrastructure (19%).
In addition to the recommendations raised above, when members were asked to be more specific in answer to an open question about whether the government could do one thing to help your business, they responded:
Public Procurement: Members emphasised the need of the government playing a bigger role in fostering innovation through public procurement. It will be key identifying and removing barriers that prevent government from adopting technology and becoming a customer of tech, particularly for emerging technologies and SMEs. This does not necessarily mean increase public spending, but rather improve processes and culture.
Tax deduction for capital expenditure: Members raised the need of keeping a tax incentive like the Super Deduction in place to boost private investment and economic growth. This tax deduction will help companies continue to invest in the plant and machinery they need to grow and innovate.
Support the adoption of technologies: Members underlined the role of the government continuing to promote the adoption of technology, which has a strong potential to boost productivity across the economy. The Help to Grow: Digital scheme is a good first step in the right direction, however government should consider broadening the scope in future waves of the scheme.
Address labour shortages and help mitigate the impacts of Brexit: Members want the government to do more to alleviate HGV and workforce labour shortages, such as improving the talent and skills pool, establishing a more favourable climate for hi-tech professionals to return to the UK, and providing grants for recruiting more people.
Regulatory certainty: Members pointed out that regulatory certainty is a key driver of demand and stability, and that contradictory regulations or differing approaches may occasionally frustrate growth plans.
Deep Dive: R&D and Innovation
techUK members place a high value on R&D and consider it a fundamental piece of their business models. When asked how important it is for their businesses to conduct R&D activities in the UK, 76% said it is either important (45%) or extremely important (31%).
However, members highlighted several barriers that are hindering businesses from meeting their R&D objectives. Among these are difficulties in finding the relevant skills and talent to conduct R&D in the UK (37%), lack of options for financing R&D activities (24%), and lack of government support such as R&D tax reliefs or R&D subsidies (22%). Members also highlighted the attractiveness of foreign markets for conducting R&D, particularly in terms of costs.
Members stated that the government must play a key role in promoting R&D and innovation. When asked what measures the government could take to encourage their business to allocate more R&D in the UK, members raised the need for expanding or increasing the government's R&D tax incentives (49%), making more support available to finance R&D activities (49%), providing support to train existing employees or other talent already located in the UK (32%), lowering regulatory barriers to innovation and the deployment of new technologies and products (29%), making it easier to hire talent from abroad (24%), and investing in new infrastructure to support R&D activities (20%).
The DEM is a techUK survey of members and companies in the tech sector. In this round of the survey, 55 companies from the industry participated. 48% of respondents were large firms and 52% SMEs. The data was collected from February 1st to March 4th, 2022.
Note: It is important to note that these results do not reflect the impacts of the Ukrainian crisis, which might have a significant impact on businesses due to lower sales, higher energy prices, and further supply chain bottlenecks, among other impacts.
Pablo Derpich
Pablo Derpich is the Policy Manager for Economy and Innovation at techUK.
Neil Ross
As Associate Director for Policy Neil leads techUK's domestic policy development in the UK. In this role he regularly engages with UK and Devolved Government Ministers, senior civil servants and members of the UK’s Parliaments with the aim of supporting government and industry to work together to make the UK the best place to start, scale and develop technology companies. Neil also acts as a spokersperson for techUK on UK policy in the media and at Parliamentary Committees.
