Whitehall is ignoring the UK’s most important sector

Five years ago the paperback edition of my book, The Flat White Economy, was published by Duckworth.

The key point I made was that this tech-enabled sector (which includes computer programming, arts and entertainment, scientific research and development, as well as advertising, market research and telecommunications) was at least as important to the UK economy as the tech production sector. My second point was that the critical factor driving the growth of the sector was migration. Skilled young people come to the UK for fun as well as jobs and end up stimulating the creativity of everyone else working with them.

The most important thing that has happened since is that the sector’s share of the UK economy has continued to rise. With digital technologies permeating into an ever-increasing share of economic activities, the boundaries between tech and non-tech sectors are starting to blur. On some definitions, the Flat White Economy could now be most of GDP. On our traditional, industry-based definition the sector has risen from about 10.5 per cent of GDP in the first half of the decade to 12 per cent in early 2020. Meanwhile manufacturing has fallen from about level pegging with the Flat White Economy to about 9 per cent of GDP over the same period. Obviously not all tech-using sectors are included in our definition – fintech for example is still considered a part of finance. But it doesn’t look silly to think that about 15 per cent of UK GDP currently is heavily based on tech. Even on the very narrow definition that the sector is only those working in IT and telecoms, it is now over 7 per cent of GDP. Meanwhile Covid-19, by making cities less fun, has struck at the heart of this economy by reducing the incentive to move to them.

The Flat White Economy has never been much loved in Whitehall, despite its economic importance. Partly this is because Whitehall has had little to do with it coming on stream and cannot get the credit. By sprawling across departmental boundaries, no department can claim responsibility for its success. And it doesn’t produce flashy pictures of politicians opening factories or infrastructure wearing a hard hat and hi viz. None of this is helped by the tech sector being notoriously anti-Conservative. The Flat White Economy has been conspicuously ignored in the fancy government plans for a new R&D-based economy. Although to some extent, the sector benefits from government neglect – sectors too close to government have rarely done well in the UK.

But it is important that the essential ingredients of superfast broadband, 5G and successor technologies and relatively low capital gains tax rates remain. The sector will need a more user-friendly immigration policy. Although it doesn’t provide flashy photo ops, the health of the Flat White Economy is critical for jobs growth and for the GDP growth that generates tax receipts. Without it, we would be in a mess.