Clashes over Tory plan to seed the UK’s next Apple with state aid

Boris Johnson wants the freedom to pump hundreds of millions of pounds into tech startups with a view to promoting businesses that can emulate Apple, Facebook or Alibaba – China’s answer to eBay.

Why Boris Johnson’s tech vision lacks the support of investors

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The prime minister has accused the EU of using the withdrawal agreement signed last year to block this strategic shift in Britain’s usually laissez-faire attitude to investment by placing limits on his ability to use state aid for emerging industries.

After months of wrangling, it has become a major stumbling block in the Brexit talks, along with the long-running dispute over fishing rights and the level of access to EU markets accorded to the City’s banks and insurers. Such is the importance given to the issue of state aid, it could even wreck the talks and scupper the chances of a Brexit trade deal.

Johnson’s chief adviser, Dominic Cummings, has long held the view that the government should nurture science and innovation through strategic investments determined by a new breed of civil servant.

Using the latest research into social trends and algorithms that can spot the early adoption of new technologies, these civil servants will sanction public sector cash being used to support innovation at every stage.

No 10 is convinced that the EU will use the withdrawal agreement to impose state aid rules on the UK, and these rules will be interpreted in a draconian fashion to stymie major investments funded by the British government.

At stake is the nation’s ability to invest in its future, and in particular its technology sector, without the interference of any other country.

Cummings is not alone in believing that the state can provide the launchpad for a new generation of technology companies, mimicking the success of the US’s Advanced Research Projects Agency (Arpa).

Civil servants picking winners is anathema to Tories who believe the private sector should be driving the economy

Put together by the Eisenhower administration in the 1950s, Arpa was a force in many technology breakthroughs, including drones, the mouse and the internet.

Cummings has written extensively that a British version of Arpa should be a key part of a post-Brexit strategy for the UK, making it “the best place in the world to invent the future”.

Other supporters of Arpa – though not Brexit – include the University College London economist Mariana Mazzucato, who has made a name promoting the idea that entrepreneurs, far from being buccaneering, are more likely to piggyback on inventions paid for and developed using public funds.

Some Conservative MPs are uneasy with the idea, believing it to have its foundations in a socialistic, state-knows-best way of thinking. Civil servants picking winners, no matter how many algorithms they use, is anathema to a Tory party ethic that still believes the private sector should be in the driving seat of the economy.

The scheme has also been criticised by those who believe most of the inventions that underpin today’s US tech companies in fact followed the huge increases in defence funding during the 1970s that led to Arpa’s reinvention as Darpa – the Defense Advanced Research Projects Agency.

But critics of state intervention have few answers to the persistent problem in the UK tech industry of short-termism. For decades, inventors and entrepreneurs have sold their fledgling companies to global technology giants, meaning the UK cannot claim to have any of the world’s major firms based on its shores.

The FTSE 100 index of top companies counts Sage as its biggest tech firm. Based in Newcastle, it is an innovative company, but its accounting software is not going to be the foundation stone for the fourth industrial revolution.

Ocado has a solid internet retail business, and the mobile phone chip maker Arm Holdings is world-beating. Yet these luminaries of the UK tech industry are vulnerable to outside influence. Arm is about to be sold by its Japanese owner to a US graphics card maker, Nvidia, while there is always market chatter about a possible buyout of Ocado.

Tech industry representatives do not want to be seen criticising government efforts to invest in startups. Extra cash is always welcome, especially when it bridges funding gaps and gives private investors the comfort they need to get involved.

However, like most of the UK’s export-focused industries, tech firms want unfettered access to European markets and foreign expertise as much as they want government backing. That means Brexit and a bureaucratic visa system are as much a barrier to a healthy tech industry as the absence of a UK Arpa.