According to data from Beauhurst, 2021 saw a record in terms of the absolute value of deals conducted in high-growth UK tech companies. With £3.4b being spent directly on job creation out of the total £19.7b, 2021’s 17.5% investment of their total equity threatened to eclipse the previous record of 18.9% set pre-pandemic.

It might seem counter-intuitive, then, that in the same year, the BBC reported a significant tech talent shortage, with over 2 million job vacancies across the sector in the UK. Furthermore, the report referenced a significant technology skills gap, showing that around 12 million workers within the tech industry lack essential digital capabilities. This led former Education Secretary Michelle Donelan to claim that “employers both large and small are crying out for more people to be trained in digital skills.”

So why is it that, following a year that saw record investment in job creation across the tech sector, the industry is going through one of its worst tech talent shortages ever? In this article, we’re going to explore the reasons behind the skills shortages from the economy to tech trends and the lasting impact of the COVID-19 pandemic.

A Fall in Investment

One of the most glaring reasons behind development churn and tech talent shortages is, to quote James Carville, the economy, stupid! While 2021 saw record sums invested in high-growth tech companies, which often include startups and scaleups, this came to an abrupt end in 2022. Following the backfire of the Government’s 2022 Growth Plan, investment both by and in companies dropped significantly across all sectors, and the tech industry was no exception.

UK Tech estimated that technology investment dropped by 22% by the final quarter of 2022, with general spending falling from the record £36bn in 2021 to only £27.9bn in 2022. This resulted in France overtaking the UK as the third largest listed tech nation, with Simon Bumfrey of Silicon Valley Bank UK saying that the “severe headwinds” faced by the economy had led to “uncertainty across every life-stage and sector in the innovation and technology ecosystem.” Across any market and industry, economic instability disproportionately impacts startups and scaleups, and the tech sector is no different.

The Startup Situation

In addition to the unstable economic situation, over-adapting to COVID-19 operational models may likely be responsible for some of the development churn now seen across the industry. Take, for example, the virtual events platform Hopin. Designed to host online events, conferences and meetings, this startup was initially lauded for its rapid-scale growth throughout the pandemic and raised capital at close to $8bn in August 2021.

However, as with many startups, it proved unable to maintain this high level of success in the post-pandemic world. Between April and July 2022, Hopin laid off 29% of its total staff, citing a goal of sustainable growth amid the changing market. Hopin founder Johnny Boufarhat claimed that the layoffs were part of the decision to “scale down some parts of the business” to become “cash flow positive.” Representative of broader trends showing readjusting to pre-COVID conditions may be tricky for startups, Hopin’s layoffs came months before the effects of the UK’s Growth Plan in September, so they cannot be attributed to the instability that followed.

Closure of the Digitech Visa

Anyone working in the UK technology industry over the last few years will be familiar with or at least aware of the Global Talent Visa. Run by Tech Nation, a government-backed non-profit organisation designed to scale up the UK’s tech ecosystem, the Global Talent or ‘Digitech’ Visa was designed to attract skilled employees to the UK’s tech market.

However, following a statement from Tech Nation in January, it became clear that all operations of the Digitech Visa would cease by the end of March 2023 due to the withdrawal of crucial government funding. This means that, from April 1 2023, Tech Nation will no longer be able to endorse applications for Global Talen Visas.

This news came as a shock to the UK digital sector, as Tech Nation supported the growth of numerous tech-dependant businesses such as Deliveroo, Depop and Ocado.

It’s also worth noting the possibility that the withdrawal of government investment in the tech sector may be indicative of a culture shift among spending plans in future budgets. With investment reductions falling across numerous industries as part of the Spring Budget, the tech sector was hit with cuts to the R&D tax credit relief, and no mention of the long-awaited semi-conductor strategy materialised.

While this may not seem to impact development churn directly, combined with the funding withdrawal on Tech Nation and their Digitech Visa, it may display a culture shift within spending priorities that could have a lasting impact on the UK tech sector.

The Ebbs and Flows of a High-Demand Workforce

The reality of the high demand and low numbers in the tech industry does, at present at least, render development churn a natural symptom. The structure of a high-demand talent pool, such as development and tech, means that access to skilled employees must necessarily occur in peaks and troughs.

Often a wave of talent may enter the prospective recruitment market due to other businesses letting developers go, or through independent research organisations launching education programs. However, due to the highly competitive nature of the industry and existing tech talent shortages, such talent is picked up quickly, leaving the market once again in short supply of top-level developers.

This problem then exacerbates itself as employees become overworked and suffer burnout due to smaller teams, resulting in the threat of erosion of team culture and staff absences.

Stable Delivery Models with One Beyond

The tech market can sometimes seem unstable or erratic, with trends often fluctuating and seemingly unpredictable. That’s why at OneBeyond, we value the predictable and precise delivery of our products and services above anything else.

Using an agile, team-based approach, we can support your business to modernise, gain a competitive edge and overcome your operational challenges by crafting bespoke software solutions that deliver tangible business value and growth.

Find out more about the services we offer here, or feel free to get in touch with any queries.