The UK government has a long and proud history of attracting top scientific and innovative talent, not just through liberal immigration rules for skilled workers, but through proactively identifying and persuading them to settle in the country – a policy of promigration.
In the late sixteenth century, for example, it hired hundreds of German metallurgical experts, giving denizenship rights to them and their families, in order to start Britain’s copper and brass industries, which soon became world-beating. It poached France’s textile workers and engineers, and in the seventeenth century proactively acquired civil engineering talent from the Netherlands. In the eighteenth century, the government was so keenly aware of the importance of talented individuals to innovation, that it banned the emigration of skilled workers (we don’t advise this), and spent vast sums ensuring that those who had already emigrated to France could be persuaded to return.
If it had not been for the government’s proactive approach, then Isambard Kingdom Brunel may never have become a British engineer. His father, the prominent civil engineer Marc Isambard Brunel, was an immigrant from France who was even bailed out of debtors’ prison by the British government on the condition that he remain in the country and not emigrate to Russia.
In this briefing, we identify four policies that will enable Britain to rediscover its tradition of actively seeking to draw in the world’s brightest innovators, scientists, and entrepreneurs.
1. Attract scientists to the UK by replicating low-bureaucracy grant funding systems such as the Howard Hughes Medical Institute.
By some estimates, researchers spend half of their time writing and applying for grant-funding. However, some of the most successful research funding initiatives have focused on identifying promising individuals, as opposed to evaluating each individual project proposed and regularly monitoring the researcher’s progress. For instance, Yale’s Institute for Advanced Studies (IAS), responsible for two-thirds of Fields Medalists and 34 Nobel Prize winners, famously gives researchers no teaching responsibilities, and research is not directed or contracted. It was instrumental in the transfer of scientists from Europe to the US.
The UK could learn from the IAS and other institutes, which prioritise funding individuals over projects, and draw in high-impact scientists by limiting their administrative workload and allowing them to work on the research projects they are most interested in.
Research from Azoulay et al. suggests that this low-bureaucracy approach can lead to higher researcher productivity. They studied the Howard Hughes Medical Institute, which supports more than 300 researchers for at least 5 years based on their personal qualifications – not what the project they are working on. The researchers receive limited oversight once approved. HHMI grantees wrote 50% more papers in the top 1% of their field (as measured by citations), when compared with similarly qualified researchers who went through standard project-based grant funding.
The UK should consider developing a similar individual-based funding programme for early career researchers, and make strenuous efforts to promote the scheme overseas.
2. Reform the under-utilised Startup and Innovator Visa by allowing endorsing bodies to charge for applications.
While just 14% of UK residents are foreign-born, 49% of the UK’s 100 fastest-growing startups and 11 out of the UK’s 16 startup unicorns (pre-IPO startups with a valuation of over $1bn) have at least one foreign-born co-founder.
To attract international entrepreneurial talent, the government created the Innovator and Start Up visas, which aim to give incubators, accelerators, and venture capital firms a key role as external endorsing bodies. These organisations should be well placed to identify top talent, but serious flaws in their implementation have made it even harder for entrepreneurs to come to the UK than through the much-criticised scheme it replaced. In the first quarter since the Innovator visa route opened, just two applications were successful, and at least four of the initial 30 endorsing bodies have already dropped out.
The new visa routes have been blighted by poor consultation, communication, and unclear guidance. Most critically, not allowing endorsing bodies to charge immigration fees has meant the schemes are underpromoted by legitimate organisations and have been partially hijacked by a few organisations that charge thousands for supplementary services through the back door.
The system could be fixed by allowing endorsing bodies to charge fees to applicants for the visa (which could be capped, if deemed necessary). A significant number of more credible organisations would apply to become endorsing bodies, who would have an incentive to actively promote their scheme through their networks – including internationally. These are the incentives we see functioning in the Government Authorised Exchange (GAE) visa (Tier 5) scheme, for which endorsing bodies charge reasonable fees due to their being enough of them to create a competitive market.
In addition, allowing endorsing bodies to charge fees would diversify away from the accelerator model, a few of whom have an incentive in endorsing entrepreneurs through this route because they’re taking equity in the companies they invest in. While accelerators can be beneficial for some, a lot of entrepreneurs don’t see them as useful for their business, for example, serial entrepreneurs who have already received Venture Capital investment, and don’t want to give away equity unnecessarily.
3. Expand the Enterprise Management Incentive (EMI) scheme, where stock options are taxed as capital gains (not income), to businesses with 250 to 500 employees and £100m in assets to attract in-demand product managers to the UK.
Due to the relative immaturity of the UK’s tech sector, at least compared to Silicon Valley, there are relatively few senior product managers and domain experts who have scaled startups from 10 to 10,000 people. As a result, most UK unicorns and scale-ups will seek to hire managers from Silicon Valley.
The salaries of such managers are typically very high, as British startups must compete with Silicon Valley wages to draw talent to the UK. They can, however, attract talent by also paying workers with stock options for the chance of a large payout down the line. The UK’s tax treatment of stock options, through the Enterprise Management Incentive is attractive, with stock options taxed as capital gains (not income) and qualifying for Entrepreneurs’ Relief. The EMI scheme may also stimulate VC activity, as there is solid econometric evidence that countries with lower rates of taxes on stock options see increased venture capital activity.
But other nations, such as France, are now developing similarly attractive ways of taxing stock options. And UK scaleups face a further problem. To qualify for EMI, they must have under 250 employees and £30m in assets. Many startups believe this requirement, set in 2000, is out of date. In fact, three quarters of startups have cited a ‘brain drain’ of talent to large tech firms over the last 5 years because their growth and success has unintentionally locked them out of the EMI scheme.
To prevent this brain drain overseas and allow scale-ups to compete for the highly sought-after product managers, the government should increase the current limits of EMI from a £30M asset capitalisation to £100M, and from 250 to 500 employees.
4. The UK isn’t properly promoted abroad and the visa system is too slow and complex.
The UK government doesn’t adequately promote itself abroad to leading innovators and scientists. Due to mid-stream changes to the criteria of the Highly Skilled Migrant Migrant Programme, the scheme was accused of false advertising. But the wrong lesson was learned from this episode. Instead of redoubling efforts, we are now failing to promote the UK’s competitive visa system, as well as its other significant advantages.
To attract the very best and the brightest, we need to properly promote the UK abroad, such as the ease of access to capital, its universities, other talent, and tax breaks, as well as the relevant visa routes. The UK’s forward-looking approach to regulation, through such innovations as regulatory sandboxes, should be especially highlighted. Such promotion should be done centrally but delivered locally, by every relevant arm of government (e.g. the Global Entrepreneur Programme, embassies etc.) in concert with the private sector (e.g. universities with foreign campuses, and UK business organisations with an international reach).
To aid in these efforts, the government also needs to offer more clarity and certainty on the timeframe for visas – it is often a deciding factor in people’s choices to immigrate. Top talent is being dissuaded from the Global Talent visa (formally the Exceptional Talent visa), Innovator visa, and Investor visa due to their complexity and the time it takes to process applications.
In addition, the complex rules associated with keeping your visa (e.g. Start Up and Innovator visas) and for moving between different routes, put off many people from applying. Many entrepreneurs understandably don’t want to take on the added risk of not knowing how or whether they can stay in the country. For example, a startup founder who used to work at Entrepreneur First told us: “The number of people we were offering who were on Tier 4s or Tier 2s, who couldn't switch to a Tier 1 without going back to their home country was painfully low”.
Additionally, many leading innovators may need to look after their parent(s) at some point and we risk losing them to emigration (or them never coming in anticipation of this). The current system requires too much bureaucracy for close relatives to prove that they are a dependent, with very few able to move to the UK. The government should consider relaxing the rules on dependency provided funds are available for support, with an additional NHS surcharge applied to cover the cost to the government.