UK Tech Talent Shortages & Redundancies

It seems contradictory that the UK tech sector is reportedly experiencing redundancies and a talent shortage at the same time. To provide some insight into what’s really happening in the market, we’ve analysed our data on UK equity investment by the sectors that are securing investment and the purpose of these fundraisings. Our findings illustrate likely employment patterns within the tech, non-tech, and business and professional services industries. Read on for the full analysis.

Investment in tech job creation

According to our data, in 2021, 17.5% of total equity investment announced by high-growth UK tech companies was intended for hiring or job creation. Whilst not exceeding the record 18.9% seen in 2018, it was a record year in terms of absolute value of deals—equity fundraisings for the purpose of job creation accounted for £3.4b of the total £19.7b secured in 2021. Given the finite number of tech workers in the UK, this dramatic surge in demand was always going to create talent shortages, particularly for the most mission-critical positions.

Meanwhile, in July, it was reported by the BBC that there were 2m+ tech vacancies in 2021, while as many as 12m UK workers lacked the necessary digital skills. Technology industry body Tech Nation warned that such a shortage could stifle growth in the sector. This warning is reflected in our data; namely that there’s been increased demand for tech workers, due to a significant overall surge in investment during 2021, with a high proportion of this funding going towards job creation.

Even more remarkably, our data shows that 33.5% of the equity investment announced in H1 2022 was intended for hiring or job creation. This accounted for £4.1b of the £12.1b secured. Having already exceeded the total value of investment for job creation seen in 2021, it will be instructive to see where this figure lands at the close of the year.

Given the record amounts being raised for hiring in 2022, how can we explain the redundancies at top tech startups and scaleups that have featured so prominently in the news? While there are few data points available, a unifying theme for technology businesses that are now struggling is that they may have been overly adapted to the COVID-19 pandemic and lockdown restrictions. 

Consider virtual events platform Hopin which, in February, laid off 12% of its workforce. As more people returned to offices throughout 2022, its business model has proved less resilient than those of tech companies not accelerated by the pandemic. 

Similarly, many on-demand grocery delivery startups (that sought to address the rise in working from home and consumer reticence to visit public places) are now in trouble or have folded completely. Last week, the Financial Times reported that more than half of rapid delivery apps founded during the pandemic have since ceased operations. 

So it seems many high-profile rounds of redundancies or outright startup failures may be linked to pandemic-era business models, and thus not representative of the broader tech labour market in the UK.

Investment in non-tech job creation

What about equity investment into high-growth UK companies not operating in the technology sector? In 2020, non-tech companies put a smaller proportion of funds raised (7.54%) towards hiring and job creation. This is most likely a result of the pandemic impacting non-tech sectors on a larger scale.

As COVID-19 restrictions eased, in 2021, the proportion of announced equity investment intended for hiring in non-tech companies increased to 20.6%. But whilst a greater proportion of investment was put towards hiring and job creation in non-tech businesses last year, this amounted to just £723m, compared to £3.4b in the technology sector.

In the first half of 2022, an even greater proportion (23.1%) of equity investment into non-tech companies was raised for the purpose of job creation. Worth £487m in total, however, this pales in comparison to the £4.1b announced by tech companies during the same period. The dramatic difference in the amount raised by these two groups of high-growth companies helps to explain why talent shortages are being felt more acutely within the tech sector.

Investment in business and professional services

Business and professional services companies often look for similar skills in prospective candidates to tech companies, and so are more likely to be competing with them for talent (particularly among recent graduates) than non-tech businesses. Indeed, our data indicates that business and professional services companies had a similar push toward job creation in 2021, with £2.4b of the equity investment announced (17.3%) intended for hiring—a very similar proportion to tech companies. In terms of the total value of investment, however, technology companies raised £1b more.

Demand for employees in the business and professional services sector has continued to grow this year. During H1 2022, high-growth companies operating in this space raised £2b for hiring and job creation, although this makes up less than half the total raised by tech companies during the same period. 

Considering these trends, it’s unsurprising there’s a talent shortage in the high-growth technology sector. Both the business and professional services and technology industries are investing record amounts of capital for the purposes of job hiring or creation right now. This creates a supply and demand mismatch, as there are more vacancies than skilled people to fill them. Due to increased competition, candidates are more likely to find themselves in a position where they have greater control over who they work for and the benefits they receive.

Macroeconomic conditions may start to reduce some of this competition, as companies slow their hiring; but the UK’s monthly unemployment rate is at its lowest point since 1973, which suggests shortages will continue, particularly among high-skilled workers.

What does this all mean for the high-growth economy?

We’re seeing increased demand for talent within all three of these industries, but predominantly within tech and business and professional services. Non-tech companies have only raised a fifth of the investment secured by tech companies for job creation—so while a surge of funding in 2021 and H1 2022 may be partially responsible for shortages across the UK’s high-growth ecosystem, tech companies will be feeling it more acutely.

With record amounts of money being put towards hiring new employees, and only a finite number of tech workers to go around, the resulting shortage is inevitable. Worsening economic conditions may change the demand side of the equation in time, but supply-side issues are likely to continue as more companies embrace the benefits of a workforce rich in tech skills.