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As we build a tech and science economy, we must not leave people behind

As we build a tech and science economy, we must not leave people behind

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Legal & General

7 min read Partner content

At L&G, we are using digital transformation to drive inclusivity. Our vision of the UK as a science superpower, of structured support and investment from university to market, can be a driver of the UK’s future prosperity.

The UK has world-beating leads in many scientific and creative sectors and we need to build on this base to create a science superpower.

We need to work together with the government to overcome some deep-rooted economic challenges. By market capitalisation, the US is home to 11 of the top 20 tech companies, with China on nine.

The UK doesn’t have one entry in the top 20. The pace of twenty-first century change requires winning economies to be able to build globally-impactful tech companies, alongside workforces with the skillset for tech.

Our vision is an economy with an ambition superhighway, so that great ideas created in our universities have as smooth a route as possible from startup to scaleup.

L&G has its own balance sheet to invest, £80 billion of annuities, as well as LGIM’s assets under management of more than £1 trillion. With such scale comes responsibility, we are using it to knock down barriers and build pathways to growth.

Making the most of ‘Global Britain’, over the next decade means that we have to address the challenges holding our economy back.

Scaling-up great commercial propositions from universities, labs and start-ups is crucial to boosting the UK’s productivity and delivering decarbonization and we want to ensure that our support reaches world-changing organizations rather than funding the gaps created during the difficulties of 2020.

Building up the science base

Let’s start with the foundations. The UK has universities that are global leaders and it is here we are starting to lay the foundations of a science and tech revolution. 

L&G invested in a £4bn partnership with the University of Oxford in June 2019, forming Oxford University Development (OUD) in order to provide thousands of new homes for staff and students, as well a number of innovation facilities.

By building out a network of high-quality research and innovation facilities, the partnership will seek to retain talent in the city, boost the economy and support spin-out and scale-up businesses.

In October, L&G announced £200m funding for the Oxford University innovation centre for Life and Mind sciences.

The new facility will be the largest building project ever undertaken on behalf of the University, and its largest teaching and research facility, significantly improving the way that psychological and biological tuition is undertaken in Oxford and helping scientists to solve some of our major global challenges.

When an idea leaves the lab, the companies formed to commercialise the idea need specialist, dedicated resources to make the next step of the journey.

In the past five years, L&G and Bruntwood have worked in partnership to deliver the UK’s largest property platform dedicated to driving science and technology growth in the UK’s regional cities. Bruntwood SciTech’s locations are now collectively home to over 500 knowledge and innovation intensive businesses from start-ups to global HQ’s.

Companies gain unrivalled access to a comprehensive programme of bespoke, specialist business support designed to help companies form, grow and scale including access to finance, talent, markets, mentorship and an extensive clinical, academic and public partner network.

Digital infrastructure

The Built Environment has its modern counterpart in the Digital Environment. The development of digital infrastructure is critical to the UK economy to ensure high speed connectivity to consumers and businesses.

Fibre deployment should be a key priority for the future-proofing of UK digital infrastructure.

With fewer than ten per cent of homes covered by full-fibre networks, the UK is materially behind other Western European countries such as Spain and Portugal, where more than 90% of homes have full fibre access.

At L&G we are using digital transformation to drive inclusivity.

As technology continues to evolve and our future cities become more connected, we see fibre networks and data centres as critical infrastructure of national importance.

Risks around consumer uptake, competition and pricing currently mean this sector has limited access to the cheapest forms of institutional investor capital which is readily available where these risks are mitigated. We note that different models, including PPPs, have been deployed in other jurisdictions to provide a more robust investment framework for a new asset class such as full fibre.

Further opportunities in the digital space include the roll out of a 5G network (and its criticality for digital rail and autonomous vehicles, for example), and the increasing need for data centres given the exponential growth in data usage and storage requirements.

Case study: Investing in Kao Data

The Kao Data Campus is a state-of-the-art data centre development servicing the London to Cambridge corridor. In Feb 2019, Legal and General Capital invested £230m in Kao Data.

Kao was named in honour of Nobel Prize winning physicist Sir Charles Kao, who pioneered the use of fibre optics at the site of Kao’s first data campus development.

From its first 35.2MW data campus in the London to Cambridge corridor, Kao serves hyperscalers and enterprise customers across the largest data centre market and technology cluster in Europe.

Creating the UK’s leading platform for SMEs

After the foundations have been built, the third part of the plan is to ensure that smaller companies can access the capital they need to grow.

L&G has created its ‘incubate, invest and innovate’, platform for the UK’s SMEs.

L&G has already established a network of direct investment businesses that align to our strategic growth drivers.

The enterprise value of these investments, including Current Health (developer of wearable monitoring technology to help people stay in their home while being monitored for health events) and Kensa Heat Pumps (which our housebuilder Cala can use in their builds) is estimated at £10 billion. L&G has also made 300 equity investments with partners such as Cambridge Innovation Capital and OSI. Thirdly, L&G is a partner in Pemberton, a €7 billion debt fund investing in SMEs across the EU.

Studies have shown that extending traditional financial services to low-income households and small businesses goes hand in hand with increasing economic growth and decreasing income inequality

The final aspect of financing is a work in progress. By 2026 total Defined Contribution (DC) pension scheme assets will grow to near £1tn, a so-called ‘wall of cash’.

We would like to see a viable solution for our DC clients which democratises access to this important asset class. The ‘VC into DC’ pathway requires some regulatory change around the fee arrangements and the DC charge cap is under currently review at DWP.

Digital inclusion and skills

A long-term strategic focus on building up our tech and science economy must not leave people behind.

To get this right we have to have the right level of skills in the workforce and we have to ensure that, as more and more services move to become digital-led or digital-only, we do not create a cohort of digitally excluded people.

At L&G we are using digital transformation to drive inclusivity.

Studies have shown that extending traditional financial services to low-income households and small businesses goes hand in hand with increasing economic growth and decreasing income inequality, yet it’s not uncommon for these demographics to miss out on access to traditional financial institutions altogether.

Legal & General is already backing companies using digital technology to solve some of peoples’ regular financial challenges. For example, L&G invested in Salary Finance in 2017, providing an alternative to expensive payday lending.

Final word

Making the most of ‘Global Britain’, over the next decade means that we have to address the challenges holding our economy back.

L&G’s vision of the UK as a science superpower, of structured support and investment from university to market, can be a driver of the UK’s future prosperity.

If we get this right, we will start to see some British companies in that top 20.

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