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From competition to cost of living: Why the UK’s tech hub map could be redrawn

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Shu Wu, director at Indeed Prime, explains how more tech hubs will drive competition and broader economic growth in the UK.

Few are in the tourist guidebooks yet, but tech clusters have been sprouting across the UK in recent years.

Many cities now regard having a hub of tech companies not just as a badge of honour, but also as a vital engine for broader economic growth.

Balderton Capital: Brexit could diminish UK’s position as a leading tech hub

Local authorities have offered a range of incentives to lure both tech startups and established tech businesses, and there are now more than 30 recognised technology clusters up and down the country.

The UK tech city map 1.0

London and Cambridge set the pace early on. The capital’s melting pot of entrepreneurs, deep-pocketed VCs and large pool of tech professionals quickly made it a front-runner.

Meanwhile, Cambridge University was busy emulating Silicon Valley’s successful fusion of academic and scientific firepower with business investment.

Long before the first hipster set foot in Shoreditch, tech and biotech companies were setting up shop in a windswept science park north of Cambridge, in what was inevitably dubbed Silicon Fen.

Edinburgh soon got in on the act too, attracting the travel search engine Skyscanner, which set up its headquarters in the city in 2004. As Scotland’s largest tech company, Skyscanner was this year valued at more than £1bn.

More than just filling the gaps

The flurry of new tech clusters that followed started small but grew rapidly, and several have shrugged off the ‘regional’ tag to compete directly with London.

It’s a war being fought on two fronts, as the young pretenders seek to foster tech startups of their own, and to tempt existing firms – and their employees – into relocating from the longer-standing tech cities.

For the new wave of tech cities, the trump card is often affordability. Business rents are invariably much lower than those in London, and many local authorities also offer subsidies or other incentives to attract star tech brands.

The gulf in business costs is starkly illustrated by the latest edition of KPMG’s “Competitive Alternatives” report, which ranked 10 European cities by the cost of doing business. Manchester emerged as the cheapest, while London was ranked as the most expensive – costlier than Paris, Berlin and Frankfurt.

Gravitational pull

But if London-based business-owners are tempted by how much further their money would go in a newer tech city, so too are their employees.

Earlier this month Indeed analysed the salaries offered by thousands of tech sector job listings, and calculated the average earnings of tech professionals in seven of the UK’s largest tech cities.

Unsurprisingly, average salaries in London were the highest. But what was surprising was how close behind were the salaries in several other tech cities.

We found that the combined average salary for software developers, IT managers and data scientists working in London was £51,070. Yet the average for similar jobs in Edinburgh was 85% of the London figure, and 83% in Birmingham.

Yet this relatively modest gap in earnings is dwarfed by a gulf in the cost of living. When we factored in the cost of an average flat in each of the seven cities, we discovered a huge discrepancy in tech professionals’ buying power.

We found the average flat in London cost £433,000, or eight and half times the average tech sector salary in the capital. Meanwhile in Birmingham the average flat cost £121,000, barely a quarter of the price of a similar home in London – and less than three times the average Birmingham tech sector salary.

Put simply, tech salaries buy vastly more in the newer tech cities – a thought Londoners often reflect on as they rattle home on a packed tube to a shoe-box sized flat in zone 6.

This trend is clearly not just limited to the UK’s regions: just take Silicon Valley. Today’s hyper-connected digital economy means that tech workers are in huge demand on a global scale.

As a result, salaries in this sector are high, with firms in the major tech hubs of Silicon Valley and Seattle frequently offering six-figure sums to individuals with high-value skillsets. But we must ask, how far do these salaries go in high-cost cities?

Burning brightest

Nevertheless, for all the blossoming of tech cities elsewhere on the UK’s tech hub map, the sheer size and momentum of London’s tech sector means it continues to set the pace.

With more tech sector jobs available in the capital than anywhere else, London still draws in talented and ambitious people from around Britain and the world.

But it remains a jobseeker’s market, and many employers are engaged in a full-blown battle for talent – hiking wages and trying to recruit in new ways.

In October, nearly one in five data scientist roles posted on Indeed had been listed for more than 60 days – highlighting the nationwide skills shortage that makes it hard for tech firms to fill specialist roles.

It’s still unclear to what extent Brexit will limit the flow of European tech professionals into the UK. Yet it’s very clear that movement within Britain will reshape the industry.

Rocketing property prices in Cambridge and London were fuelled in part by their tech booms. But as both cities become ever more unaffordable, they risk becoming victims of their own success – prompting both employers and employees to consider relocating to somewhere the tech pound goes further.

Britain’s tech city map is overlaid with two crucial factors – the affordability gap between London and the new arrivals, and pockets of acute skill shortages.

It’s the interplay of these two factors that could ultimately redraw a map that is becoming more complex – and competitive – every year.

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