UK Software Industry

Bridget Phillipson Excerpts

Wednesday 10th November 2010 Westminster Hall

[Bridget Phillipson (Houghton and Sunderland South) (Lab)]

It is a pleasure to serve under your chairmanship for the first time, Mr Weir. I am grateful for the opportunity to hold the debate. I take a keen interest in the UK software industry, and I am proud that Sunderland Software City, which is a centre of excellence, covers my constituency.

I thank the Minister for coming to the Chamber to put the case for the Government—I am sure that we are all eager to hear what he has to say. I would like to extend to him and his colleagues an invitation to meet me after the debate to address any points that we might be unable fully to thrash out in the time available to us.

The UK software sector has compound growth of 5.6% and is now worth £100 billion to the UK economy—almost as much as the financial services sector. The industry benefits from low capital costs, and its products are instantly exportable. Its technology can also make non-software companies more efficient, further adding to its worth to our economy. Figures from the UK’s Technology Strategy Board show that 29% of the $3.4 trillion of worldwide spending on information and communications technology in 2007 was spent on ICT software. Such spending is expected to reach some £2.6 trillion in 2011. I am sure we can all agree that Britain needs to be at the heart of that new wave of ICT innovation and investment.

The US is currently the world’s largest software market. We are all familiar with some of its major exports. We all use Microsoft operating systems and office software in our parliamentary offices, and I am sure that we all know of the success of Apple’s iPhone and iPad. However, I am proud that behind that American muscle is British innovation. Specifically, the technology of Britain’s chip maker ARM Holdings—including firmware, which is a subset of software—is in 95% of the world’s mobile handsets, including products such as the iPhone and BlackBerry, and in more than a quarter of all electronic devices.

The Labour Government left Britain in a good position to become the world’s leading exporter of ICT software and services. From the story of ARM, it is clear that Britain has what it takes to compete in the global market, as long as the Government provide the tools and support that the industry requires.

According to “Resilience amid turmoil: Benchmarking IT industry competitiveness 2009”, the Economist Intelligence Unit’s third annual study into information technology sector competitiveness, Britain was ranked third for human capital in the world, and fourth for support for the IT industry as a whole. However, I want Britain to do even better. The report found that access to broadband networks, investment in skills and business support, and an adequate legal framework that strikes the right balance between promoting technology and allowing market forces to work were vital for the industry to prosper.

It was the Labour Government who developed the framework that pushed Britain to become the fifth largest ICT market behind the United States, Japan, China and Germany. However, I fear that the actions of the coalition Government since the election will jeopardise that. I hope that the Minister can alleviate some of my fears in his reply.

Let us consider the record of the coalition Government so far. Labour promised universal access to broadband by 2012, but the coalition has scrapped that pledge. A joint report by the Boston Consulting Group and Google showed that the internet economy in the UK represented 7.2% of our gross domestic product, and that we led the world in e-commerce, exporting nearly £3 for every £1 imported. The report also found that 250,000 jobs were dependent on the internet. The future of the software industry in Sunderland will rely on the ability to communicate digitally, and a strong broadband network is at the heart of that. It is estimated that it would cost more than £500 million to bring superfast broadband to the north-east. Without it, creative industries could move their business elsewhere. Will the Minister tell me his plans for broadband, particularly in the north-east?

The coalition has announced a review of our intellectual property laws with the aim of relaxing the rules, but that could leave Britain’s intellectual property exposed and unprotected. What assurances can the Minister give me, as well as UK software and new media industries, that that will not happen?

The Tories and Liberal Democrats previously committed to providing tax breaks to the computer games sector. I know that many of my colleagues have spoken about that in this Chamber and on the Floor of the House on many occasions, and that there are strong feelings about it. I support their views on the need for tax breaks for the industry. The industry body states that, without them, the UK will be at a disadvantage compared with foreign competitors. What is the coalition’s justification for reneging on that promise?

On education and training, instead of incentivising software development as a viable career, the coalition will increase tuition fees for students taking mathematics and ICT-related degrees, despite pledges to the contrary from some of coalition Members before the election. It has even cut the body tasked with buying computer equipment for schools. Will the Minister tell me how children in this country can be expected to use ICT in the school environment and go on to become a future Steve Jobs, Paul Callaghan or Chris Curry without any co-ordinated approach on ICT provision?

Support for the software industry is about not just investment in business and education, but a whole package of measures. Another consideration of businesses that I wish to draw to the Minister’s attention is the availability of conventional transportation: road and rail. He might not be aware that two large capital transport projects in Sunderland—the central route and the strategic transport corridor—are in jeopardy. The success of those projects is vital for the north-east to access the rest of the UK, but also for the UK to access the north-east. Does the Minister agree that if we make the north-east as interconnected to the rest of the UK as possible, we will have a more balanced economy?

I wish to dedicate the concluding part of my speech to a success story: Sunderland’s developing software industry. Thanks to some remarkable people, Sunderland has more tech start-ups than any other region in the UK, with the exception of London. Almost 50 software companies operate in Sunderland, and almost 300 across the north-east, and the number grows every week. One North East estimates that the annual size of the north-east’s new media, games and software industry is more than £250 million. Sunderland city council’s business team has opened the e-volve centre in my constituency, which provides start-ups with vital tools for their development such as office and server space, and a bespoke package of advice and support. It also works with Sunderland university to offer internships to ICT students. It is vital that the region can offer highly skilled jobs to graduates, particularly to allow our young people to remain in the area rather than feel that they have to move elsewhere, often after they have studied at our world-renowned universities.

The software industry provides an ideal opportunity for growth to provide the highly skilled jobs that the north-east needs to continue to attract investment and develop. However, that potential for growth and development faces significant challenges. The coalition has cut One North East, the region’s hugely successful development agency, but let me tell the Minister what One North East achieved for the UK software sector and the region.

Fifth Generation Technologies, an Indian company that produces business intelligence tools for companies, came to Sunderland thanks to One North East. Codeworks, a centre for digital innovation based in the north-east, and DigitalCity, a successful and self-sustaining digital media, digital technology and creative supercluster based on Teesside, are what they are today thanks to One North East.

The best example of the success of One North East, however, is Sunderland Software City. This innovation was developed in partnership with Sunderland city council, the university of Sunderland and private sector partners. It inspires and supports the growth of the software industry across the north-east, and makes the region the location of choice for software businesses.

From a single, easily accessible point that local companies have found invaluable, Software City provides local companies of all sizes, from the smallest start-up to firms with multimillion pound turnovers, with the support that they need to succeed. It helps companies to raise capital and find investors and customers, provides one-to-one business and technical support, and helps with access to foreign markets such as India, China and the US. More than 80% of participants in its student placement scheme have gone on to permanent jobs with the companies to which they were assigned. Since Software City started in 2008, it has helped almost 200 companies, including Test Factory, Raise a Tree, and Guroo, which has managed to get almost 500 clients in just two years.

I shall conclude by offering the Minister an opportunity to recognise the software industry and to invest in the north-east. Software City was made possible by One North East, but its £6.5 million grant will run out in March 2011. I welcomed the Government’s announcement last week of a £200 million fund to invest in high-tech hubs. Will he support the use of part of that fund to secure funding for Software City up to and including 2015?

--- Later in debate ---

[Mr Vaizey]

The hon. Gentleman shakes his head. We all know the Labour party’s record on talking about immigration, and we have been only too interested to see the leaflets that it was putting out during the election. Our policy takes a slightly more sober and reasonable approach to what can sometimes be an emotive issue.

[Bridget Phillipson]

The Minister may be aware that the Select Committee on Home Affairs, of which I am a member, gave careful consideration to the immigration cap. Some of the concerns that were raised, particularly from ICT companies, were about how it would work and whether it would be a deterrent for business investment, particularly in relation to highly skilled jobs such as those in scientific industries. I know that the Minister is making a party political point, but there are serious issues for the Government to consider about the working of the cap and the impact that it may have on the UK software industry.

[Mr Vaizey]

I should love the hon. Lady to point out what party political point I made. I was simply setting out our policy and the fact that we responded to the concerns in question with an entrepreneur visa. I noted that the hon. Member for Wrexham was shaking his head. Clearly, he simply opposes the policy for the sake of it, rather than considering what it does.

The blueprint also announces a review of the intellectual property framework, to ensure that its design will support the growth of both new and existing businesses. That review is incredibly important, because it will focus on the needs of small and medium-sized enterprises. We want to give our full backing to the high-growth, innovative companies of the future, whether they specialise in software or other disciplines. Part of preparing for the future is looking critically at the frameworks that we have in place to protect innovators. The review will focus on identifying and dismantling barriers to growth in the IP system, and will look at how the IP framework could better support new business models as they develop.

The third important element of our blueprint is the framework for supporting future technological innovation in software and other disciplines. We are now pledged to establish a network of elite technology and innovation centres, based on the model proposed by Hermann Hauser and James Dyson, to commercialise new and emerging technologies in areas where there are large global market opportunities and a critical mass of existing UK capability. The recent comprehensive spending review has provided £200 million of funding for the technology centres over the next four years. The network will be overseen—in answer to the questions of the hon. Member for Wrexham—by the Technology Strategy Board. Individual centres will operate with a high degree of autonomy, to give them the flexibility to respond to business needs and emerging opportunities, but the board will provide the overarching framework.

Our vision for technology and innovation centres is that they should help industry sectors to exploit new and emerging technologies, and bridge the gap between original research and technology commercialisation, reducing some of the attendant risks to business. I am aware of the issue from my constituency where there are several high-tech companies that can benefit from spin-off research. Each idea appears to me to be potentially world-changing, but the struggle they have to take that research to market and commercialise it cannot be underestimated. The centres will support projects that businesses and universities often cannot undertake, or that they do not have sufficient incentive to undertake on their own. They will help new technologies get to investment readiness so that they are a viable proposition for venture capital or other forms of investment, and will help, we hope, to accelerate their journey to market.

We want to get the network up and running as soon as possible, so the Technology Strategy Board will work closely with industry, stakeholders, and the Government to identify the priority sectors, the scale of initial investment required and the governance structure for the network of centres by April 2011. I urge the hon. Member for Houghton and Sunderland South and any other hon. Members who are interested in the issue to contact the board to discuss it.

The Technology Strategy Board plays an important role in supporting the software sector. It already supports innovation among software-intensive firms in a number of ways, either through sector-specific programmes or through cross-sector projects designed to deal with a particular challenge, such as low carbon. It also backs the software sector via initiatives such as knowledge transfer partnerships. Several of the Technology Strategy Board’s programmes routinely invest in initiatives where more than 90% of the business activities are software-related. That is true of its information technology programme, as well as its creative industries, intelligent transport and network security programmes. In addition, the board has identified its recently formed digital programme as one of its five strategic priorities in the period ahead. In total, over the past year the board has launched 13 software-intensive competitions for projects with a combined value of around £100 million, including £50 million of private investment.

Some other issues were raised, including broadband. Again, some myths were propagated by the Opposition. I think that we all agree that superfast broadband and that kind of infrastructure is essential to the future of the economy. However, I find it odd that the Opposition seem to believe that we have reneged on a promise, or that we do not share their view of its importance. The previous Government had a very poor ambition, which was simply to get universal broadband of 2 megabits at the end of 2012. They proposed to pay for that with a telephone tax that would have hit some of the poorest in society, as well as being a disincentive.