The Sunday Times 21/01/18 Business Section
https://www.thetimes.co.uk/edition/business/tech-on-the-tyne-is-all-mine-hp9z8dfbr

Tech on the Tyne is all mine
Northeast England is blazing a trail in luring digital start-ups

Gilbert Corrales moved to Newcastle because it reminded him of Costa Rica. The entrepreneur has not discovered a tropical rainforest on the Tyne: he’s talking about the economy. For Corrales, the city is poised to emulate a technology-led revolution that has transformed his home country.

The 35-year-old and three co-founders brought their music-streaming start-up, Leaf, from Costa Rica to Britain in 2014, tempted by a government incentive scheme offering help with visas and partnerships with local tech incubators. They chose northeast England over London’s more established tech hub.

Today, the company — whose app rivals the likes of Spotify and Apple Music in the download charts in some Latin American countries — has 16 staff in its offices in a stylish city centre loft.

The area offered everything the entrepreneur wanted: five universities churning out talented programmers and developers, and a modest cluster of IT companies around the homegrown FTSE 100 software giant Sage. Crucially, the cost of living was cheap enough to allow Corrales and his colleagues — including his wife, Helga Alvarez, who is Leaf’s head of engineering — to pump any spare cash into Leaf’s marketing budget.

“In Costa Rica we went from banana republic to silicon chips; the transformation took only 10 years,” said Corrales. “It may sound strange, but many of the ingredients we had in Costa Rica, I see in Newcastle.”


Corrales is not alone in sensing the stirrings of a tech boom — not just on Tyneside, but across northern England. The economist Douglas McWilliams studied the growth of the digital economy in America and identified three factors crucial to success: a highly skilled workforce, cheap housing and a sense of cultural buzz.

The Centre for Economics and Business Research (CEBR), founded by McWilliams, has ranked every region in Britain according to these factors. Newcastle upon Tyne came first, making it Britain’s equivalent of Nashville — the fastest-growing tech hub in the US, measured by the growth in jobs over the past five years, according to the CEBR.

Hot on its heels were a number of other northern cities (Manchester in second, Liverpool fourth) leaving London’s start-up strongholds in the boroughs of Hackney and Islington trailing in their wake.

The CEBR expects 70% of the growth over the next five years in the digital and media sector — christened the Flat White Economy by McWilliams in his 2015 book of the same name — to be outside London, with much of it in the north. By 2022, McWilliams predicts, the sector will employ more than 600,000 people in the Northern Powerhouse area, roughly double today’s figure and 50% higher than the total for London.

Looking at Tyneside, he has a point. The northeast saw the sharpest regional increase in the number of digital tech businesses in 2011-15, according to a separate study by Tech City UK, the government-backed industry body.

“The north of England is going to become the jobs centre of the digital economy,” said McWilliams.

The free-market economist, once an adviser to George Osborne, believes the digital revolution has the potential to do what decades of government policy has conspicuously failed to do: “rebalance” the country’s growth away from the southeast and towards the former industrial heartlands of the north.

Other prominent economists agree that the digital revolution could provide an opportunity to help tip the scales back towards the regions.

“When you look at a lot of internet companies, they don’t have to be based anywhere in particular,” said Lord (Jim) O’Neill, the former Goldman Sachs chief economist who championed the Northern Powerhouse project while a Treasury minister. “Why would they want to pay London rents?”

While there is a continuing policy focus on helping other locations fight back against the dominance of London and the southeast, there is no particular government planning behind the internet-based regional boom. As O’Neill suggests, the reason for it lies mostly in market forces.

London’s property prices have spiralled out of reach of most first-time buyers, giving graduates and young workers a reason to leave the capital — or not to go there in the first place. Alongside that, online businesses are less dependent on physical proximity to their customers, as O’Neill pointed out.

“These days, we are as close to London as to New York or San Francisco,” said David Harrison, the founder and managing partner of True Potential, a technology-driven investment firm that has its head office in Newcastle.

He said his company, which manages more than £7bn of clients’ money, is able to pay about 40% less to attract staff than in London. “We certainly have the talent in the northeast, and it’s available at the right price,” added Harrison, who has 300 employees.

Highly skilled workers are willing to accept lower wages partly because the cost of living is much cheaper. After finishing a PhD in artificial intelligence at Durham University, Jamie Godwin turned down six-figure job offers from the City to stay in his native northeast, where he earns about £60,000 a year as True Potential’s lead data scientist.

“Every one of my friends from university went to London,” said Godwin, 28. “I often wonder, ‘Am I the mug in this situation?’ ” Nonetheless, he has no regrets about his decision to stay in his home town of Darlington, from where he commutes every day.

“Everything is so much cheaper. I actually have a chance of buying a house, and there are places in Darlington where it’s still £1 a pint. What’s not to like?”

Last year, the average price of a home in the Co Durham town was £149,632 compared with £616,954 in the capital, according to the online estate agent Rightmove.

Another draw in the regions is a more relaxed lifestyle. “I live on the coast, I can go surfing before work, hop on the Metro and I’m at my desk by 9am,” said Tristan Watson, chief executive of Ignite Accelerator, a Newcastle tech incubator.

So can this growing tribe of flat-white-sipping techies turn around the north’s economic fortunes?

For some entrepreneurs, the digital economy is a natural successor to the heavy industry that formerly employed millions.

“What sets the Newcastle area apart is the five universities and their strength in computer science,” said Alex Butcher, co-founder of the gambling software developer Bede Gaming, based close to Sage’s headquarters on the outskirts of the city.

“There’s a culture round here that computer science is a proper subject; none of that humanities rubbish.”

Butcher said about 60% of Bede’s 170 employees come from the city or neighbouring Sunderland. The digital economy has a long way to go, however, before it can meaningfully fill the void left by the decline of industries such as coal mining and shipbuilding.

In 2016 — the most recent year for which figures are available — northeast England was the slowest-growing region in the UK, expanding just 1.2%, according to the Office for National Statistics (ONS). So far, the state has picked up where heavy manufacturing left off: in the northeast, 20% of jobs are in the public sector, more than anywhere else in England and higher than the UK average of 17%, ONS figures show.

“There are some good things going on, but it’s not powerful enough yet to be transformational,” said O’Neill. Even so, he is optimistic that the tech sector will be at the centre of a northern revival.

Companies such as Sky Bet in Leeds and Liverpool’s cluster of computer games developers are creating significant numbers of well-paid jobs, which will feed into the local economy, according to the Goldman Sachs alumnus.

If McWilliams’s forecasts are right, the northern tech boom will soon start showing up in the official economic statistics. The stakes are high, he argues: even a dramatic renaissance in the manufacturing sector would be likely to create more work for robots than human beings.

“Modern factories are fairly job-free,” McWilliams said. “If you want to create jobs on a reasonable scale and address some of the regional imbalances, the Flat White Economy is a much better bet.”

1 comment: May the force move the football team