The UK has plenty to be proud of.
“Brand Britain” has weathered numerous macro-economic storms, adapted to a shifting industrial landscape, and emerged as a beacon of global relevance. A recent report supported by the British Chamber of Commerce found that the British brand is still highly efficacious in 2024 and a core asset businesses utilise. This despite an increasingly competitive global landscape for startups and established firms alike.
Adding to the optimism, the UK tech sector has grown into a global heavyweight, consistently punching above its weight category in Europe and on the global stage. Known as a market where good ideas not only survive, but thrive, it has seen consistently high levels of venture capital flow into its borders year on year. Suffice it to say, the UK has successfully positioned itself as a leader in the digital revolution.
Yet, despite its world-class education system which produces top-tier graduates, one challenge looms large: a chronic shortage of talent.
This problem is especially glaring in emerging tech industries, with high-growth digital native companies in particular struggling to secure the skilled professionals they need to innovate and grow at the pace they need.
So let’s dive deeper into what makes Britain unique and what unique problem it’s trying to solve.
The British Brand: Traditional, Enduring, and Witty
“Brand Britain” isn’t just about tea, castles, and the royal family – it’s a powerful economic driver.
According to the Be Distinctive Britain report by global brand agency JKR, 52% of British exporters cite their UK identity as helping them boost sales and as a key driver of growth.
The impact also extends to their domestic consumer market. In fact, one in three British consumers actively seek out homegrown brands over often cheaper international alternatives—a testament to the appeal of Britain as a brand unto itself.
The startup ecosystem reflects this strength. Britain consistently ranks as one of the best places in the world to invest, with the market noted for its ability to foster innovation and develop groundbreaking products. This makes sense when you learn that the country lays claim to 142 Nobel Prizes. And these findings align with deal data from even this year, which showcases Britain’s impressive startup and investment activity.
It’s not just existing brands that are benefitting, but the future crop of tech leaders.
A Global Tech Powerhouse
For a nation with a population four times smaller than the US and twenty times smaller than China, Britain’s tech achievements are impressive.
This year (2024), the UK cemented its position as Europe’s top destination for venture capital investment, with British start-ups and scale-ups raising £7.4 billion in the first half of the year alone. To put this in perspective, that’s more than Germany and France combined, and represents a third of total European venture funding.
A key factor propping up this success is early national investment in the digital age, with the private sector and the government in tandem placing a keen focus on digital transformation since the turn of the millennium. This ethos has carried right through to Industry 4.0.
Education has also played a key role. With four of the world’s top 10 universities located in the UK, the country produces a steady stream of talent. Despite the island nation’s humble size, it also remains the second most popular destination for international students, many of whom choose to stay post-graduation and contribute to an internationally diverse and creative workforce.
Entrepreneurs have diverse appetites as well, likely fuelled by the dynamic nature of the British economy. When it comes to tech, British startups really run the gamut, touching industries from edtech to agtech, from climatetech to fintech.
Consider fintech as a standout example: challenger bank hero Revolut, and payment giants Wise and Checkout.com all call London home, the latter holding the enviable title of Europe’s most valuable fintech company.
London’s tech ecosystem has also attracted major global players. Google DeepMind is a well known example whose HQ sits in the heart of the capital city. But investment continues today, with Microsoft AI recently establishing a new hub in London, making it a hotbed for emergent tech solutions.
With so much going for it, you’d be forgiven for assuming everything is smooth sailing. But beneath the surface, a talent crisis threatens the UK’s future resilience.
The Talent Crunch: Britain’s Achilles’ Heel
Talent shortages are a universal challenge, but the UK faces one of the most severe in Europe. This despite its world-class higher education system still pumping out skilled graduates into the market.
In 2023, a staggering 80% of UK employers reported struggling to find candidates with the right skills. This becomes even more worrisome when you see that this is up from just 19% five years ago. This has had significant consequences: according to a June 2024 survey, one-third of businesses have scaled back their growth and investment plans due to talent gaps, with some even revising profitability targets or reducing output.
From an employee management perspective, this has had a predictable knock-on effect, increasing average workloads amongst existing employees and negatively impacting employee satisfaction.
The issue spans industries but is particularly acute in specialised roles. Employers desperately need more talent in fields such as data science, engineering, logistics, and product development, to name a few.
However, the chasm between employer needs and employee skills is widest in nascent tech roles, with AI experts in especially short supply for example. 35% of British businesses expect to ramp their investment into AI tools this year, yet only 43% feel they’re equipped to implement these new technologies.
This is also not an issue that ever stays stationary, with recent political changes in the country affecting hiring policies.
An Evolving Landscape
New immigration policies have added another layer of complexity to the talent shortage.
Changes to the UK Skilled Worker Visa in April 2024 have raised the minimum salary threshold from £26,200 to £38,700—a dramatic increase, even accounting for inflation.
However, this isn’t the full story – as when any new legislation is implemented, the devil is in the details.
This is a base minimum across the industry, but there are specific thresholds depending on the role, with many technical positions demanding higher minimum salaries. For software engineers for example, the threshold sits at £49,500 ($62,500 USD). This has been compounded with an increase on visa fees for employers, with additional mandatory employer contributions rising in tandem.
This has had a material impact on firms of every size, there’s no doubt. However, it’s hit SMEs, startups and high-growth digital natives the hardest, many of whom never had the biggest talent budget to start with, and who often find themselves outflanked when it comes to recruitment by their larger competitors.
Increasing red-tape following the UK’s exit from the European Union may also be having an effect on recruiting high-skilled foreign workers. While there has been an increase in foreign applications for UK-based roles, most of them are for low-paying jobs in low-paying industries. Indeed just released data that revealed a meagre one in five “foreign clicks” on its UK website are from non-domestic workers seeking high-skilled positions. This puts it at odds with France and the Netherlands for example, who have a click rate of 36% and 31%, respectively.
For high-growth startups, who readily rely on specialised talent to turn ambitious goals into a concrete reality, it’s become more and more of a struggle to bridge the talent gap without breaking the bank.
Can Britain Solve Its Talent Shortage?
In a word, yes.
Britain’s strong global brand, tech prowess, and world-class education system are undeniable advantages. But the talent shortage is a serious threat to its ambitious goals.
VC backed British startups in particular won’t solve the problem by continuing to fish in the same talent pool looking for scarce skills. A mindset shift is required for those who still believe a traditional approach to recruitment is viable in the contemporary talent environment. Focusing on skills-based hiring rather than traditional factors such as background or even education is a good start.
In positive news, there is a real push to nurture talent from the ground-up amongst UK SMEs, with the latest addition of the government’s Skill’s Horizon Report finding 69% of British startups are investing in young talent.
There are also major structural plans being put in place to help bridge the skills gap. A new government body named “Skills England” was launched earlier this year, bringing together civil servants and private actors to develop and modernise the secondary education system. While Coding Bootcamps definitely serve a purpose, equipping children with the necessary technical skills they need at a national level will pay huge dividends over the next few decades
Accessing the global talent pool is also a surefire way to access specialised candidates while concurrently reducing the economic burden for SMEs. The age of the EOR has come to fruition, so even problems caused by changing legislative agendas can be overcome, enabling companies to recruit without borders without the headache (and cost) of creating regional legal entities.
This approach doesn’t just facilitate smooth entries to new markets either, but offers a flexible option that is perfect for agile startups. With a majority of British workers (63%) working remotely at least some of the time, most companies should already have the infrastructure to onboard international hires confidently.
All of this is to say that the pulse in the UK market remains strong and vibrant.
Robust support from the domestic tech ecosystem on upskilling initiatives is crucial. Concurrently, more individual companies need to start taking advantage of the global talent pool at scale.
After all, a brand is only as strong as the people behind it.