VyperCore, a promising British semiconductor startup, aims to reduce the growing energy consumption of data centers. The company has developed a bolt-on to existing processors which offers a 5x processing speed-up with no change in energy consumption. No changes to existing software are required, so that all investment in programming can be preserved. VyperCore secured £4m in funding last year and is now doubling the size of its team.

Although dynamic startups such as VyperCore make the UK home to Europe’s leading tech ecosystem, with a market value of $1 trillion, the sector remains fragile, squeezed between the US, EU, and China. To maintain its place and grow, UK tech needs government support. Instead of deepening ties with China, it should engage with the US–and above all, the EU.

The UK boasts 171 home-grown tech unicorns–startups with a market value of over a billion pounds–of which 16 are semiconductor unicorns. Semiconductors underpin future technologies such as AI, quantum, and 6G. Despite its small size, the UK’s semiconductor industry has produced several world-leading semiconductor companies. During the 1970s, the pioneering semiconductor company Arm spawned a tech cluster around the city of Cambridge known as the Silicon Fen. The Cambridge-Bristol axis forms the spine of British semiconductor innovation. Bristol startups such as Icera, Graphcore, and now VyperCore set up offices in Cambridge to capture expertise. US fabless semiconductor giants Broadcom, Qualcomm, and Nvidia made their most high-profile European acquisitions in both cities.

But the UK’s semiconductor industry now faces an uphill battle. The country’s semiconductor policy is unclear. Access to venture capital and a skilled workforce–key ingredients for Britain’s flourishing tech sector–are no longer guaranteed. In 2023, Arm–the “crown jewel” of the UK’s tech sector–listed its stock in New York, not London.

I have witnessed these changes first-hand, working for two early semiconductor unicorns, TTPCom and Alphamosaic. The startup Inmos employed me in the late 80s. It created a long-lasting semiconductor ecosystem around the western English city of Bristol.

Today, the UK semiconductor sector has shrunk. As VyperCore CEO Russell Haggar told me at a recent conference, only around a dozen significant semiconductor companies exist across Bristol and Cambridge now, compared to more than a hundred in the heady 1990s. Top UK brains and capital go to pharma and life sciences, and Silicon Fen is fading from memory.

New initiatives are required. Under former Prime Minister Rishi Sunak, the UK committed to investing £1 billion to strengthen its semiconductor sector–and many argued that this was not enough. Under the new Labour government, this support now looks shaky. Big subsidies are not the answer, however. Rather, a stronger framework geared towards semiconductor innovation and strategic autonomy is needed.

Here are some suggestions.

The UK should eschew Chinese “investment” and “joint ventures.” These are trojan horses for transferring know-how to China and increasing dependency on their regime. Just look at what happened to Foxconn and Arm China. As the UK’s national semiconductor strategy points out, semiconductors are “critical to the UK’s economic and national security and to the strategic advantage we will secure on the global stage.”

The UK should instead aim to strengthen collaboration on tech with the EU. The recent re-joining of the Chips Joint Undertaking Programme represents a positive step to reverse some of the damage caused by Brexit. Gaining full membership of the EU Chips Act in the future is a worthy goal.

Post-Brexit skills shortages need addressing. Any industry is dependent on its human capital. Companies should redouble efforts to attract the best people by emphasizing the attractiveness of Cambridge and Bristol. The government should remove work visa restrictions on qualified European engineers – with a reciprocal arrangement for British engineers working in the EU. Students should be encouraged to pursue electronic engineering and semiconductor entrepreneurship: successful school initiatives in the past include the BBC Computer Literacy Project which indirectly gave rise to Arm.

Funding for semiconductor startups and scale-ups should be improved to prevent companies from moving overseas. The government can compensate for the recent hike in capital gains tax from 20% to 24% by extending existing tax breaks for investors in semiconductor startups. The Enterprise Investment Scheme and Seed Enterprise Investment Scheme have successfully drawn small investors into startups by reducing the risk. The threshold for semiconductor startups could be increased. A fund for semiconductor scale-ups should be set up. Profitable but non-innovative British companies such as BAE Systems and Rolls-Royce should be encouraged to contribute to the fund with tax breaks.

In addition, collaboration between the startup semiconductor ecosystem and the defense industry should be strengthened. At the moment they are poles apart. The “Defence and Security Accelerator” has made great strides in recent years but more could be done to kick-start semiconductor R&D for British and European defense applications. Revising the UK Semiconductor Strategy to emphasize defense electronics supply chains and reducing vulnerability to China would be a good start.

VyperCore and other startups demonstrate the promise of Tech UK. They should be nurtured. But the UK is not large or rich enough to go it alone in tech. It needs to work with democratic allies.

Christopher Cytera CEng MIET is a Non-Resident Senior Fellow with the Digital Innovation Initiative at the Center for European Policy Analysis. He is a technology business executive with over 30 years of experience in semiconductors, electronics, communications, video, and imaging.

Bandwidth is CEPA’s online journal dedicated to advancing transatlantic cooperation on tech policy. All opinions are those of the author and do not necessarily represent the position or views of the institutions they represent or the Center for European Policy Analysis.

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