Moving beyond the mediocre levels of economic expansion since the Global Financial Crisis is the only way to increase wealth for the nation as a whole. Innovative companies and the science and technology sector in particularly present a compelling economic opportunity for the UK in its quest to raise productivity and create well paid jobs.
There are signs of a recovery in venture capital funding, and we know from our own research in Cambridge that the expansion of innovative companies will follow in its wake, particularly university spin outs. The knock-on effects for UK real estate from this will likely be seen in increases in requirements for labs and offices in science and tech clusters across the country.
Chancellor Rachel Reeves’ budget move to implement a consultation on the last leg of the East West Rail network to Cambridge is a positive development for these companies’ growth potential. If completed, the network will dramatically boost connectivity across The Oxford Cambridge Arc – home to the UK’s, and indeed Europe’s, most mature science and technology markets. This was a welcome announcement within a budget that otherwise loaded costs on businesses.
However, to fully harness the UK’s most high-potential industries, much more must be done in two key areas –access to pension fund capital and housing.
As such, it was a shame that pensions reform only received a brief mention in the Chancellor’s Autumn statement. The £2.5tn of assets that are currently tied up in a fragmented and overly risk-averse system represent an untapped resource through which we can significantly boost productivity by supporting Britain’s most innovative industries.
Rachel Reeves will make her Mansion House address on Thursday, where the Chancellor could significantly enhance the country’s growth prospects by announcing an overhaul of the way in which Local Government Pension Schemes are pooled.
A Canadian-style model could see around £400bn worth of investment firepower pooled together in one pot, which would increase efficiency and potentially enable increased investment volumes into private markets. Reeves could announce measures to incentivise defined contribution schemes to invest more into UK equities specifically, a process that was set into motion as part of Jeremy Hunt’s Masion House address last year.
Currently, just 0.5% of defined contribution pensions are allocated to unlisted UK equities, and the science and technology industries – given their potential to deliver outsized returns – are among those that stand to benefit most from improved access to funding. This could be particularly pertinent for companies at series B or C funding rounds and would go some way towards encouraging these businesses to stay in the UK and potentially list on the London Stock Exchange.
But this will rely upon how effectively the country can accommodate these jobs, particularly in regard to how the country addresses its chronic housing shortage. The government’s target to build 1.5 million homes in England by the end of Parliament is a welcome step in the right direction, but more needs to be done to ensure they are built in the right places to support areas of the country with the highest economic growth potential.
The Oxford to Cambridge region provides an illustrative case study. In both cities, the average house price is 12x the average income compared with a national average of 8x and the average monthly rent for a two-bed flat is £1,400, against a national average of £900. The lack of housing makes it difficult for businesses to scale quickly and to attract and retain highly skilled workers who are internationally mobile. It also puts serious financial pressure on other less highly paid staff in science and tech – around half of workers in UK life sciences do not have a degree - and on key workers in other sectors who are critical to the continued growth of the Oxford to Cambridge region.
Alongside infrastructure and investment, then, we need to ensure that productivity growth can be accommodated through increased provision of housing supply. The commitment to East West Rail delivery is a welcome step, but to truly unleash the potential of the UK’s innovation economies, we must ensure that access to capital and housing are also addressed.
