Does not compute: UK's 'Silicon Roundabout' hit by lack of brain power

Skills shortage is hampering the hub of Britain's internet companies

Britain's "Tech City" of digital media companies has burgeoned to more than 3,000 firms but its future progress is threatened by a severe skills shortage, according a new report.

The biggest study yet of the east London cluster of internet ventures, which are a key part of the Government's economic strategy, also questions whether Tech City has the potential to grow eastwards to the new Olympic Park at Stratford, as had been hoped.

A detailed report by Centre for London for the think tank Demos, seen by The Independent, found that the number of digital economy firms in the inner east London area has doubled since 1997 to 3,289.

The previous largest estimate of firms in the cluster, sometimes referred to as "Silicon Roundabout" after the Old Street traffic junction, was 1,153. The area provides 48,000 digital economy jobs, more than double the number of 15 years ago at the time of the dot.com boom. But the authors found that "overall job growth has flattened".

The findings come after news this week that the Tech City chief executive Eric Van der Kleij is to step down from his role after the Olympics, after two years in the post.

In its report, to be published on Monday, Centre for London highlighted a series of concerns over the future of Tech City, most notably in relation to recruitment of specialist workers. "Many [firms] are worried by the problems of finding skilled staff. Some claim there is an under-supply of skilled developers and specialist staff in the UK."

Technology firms told the researchers the British education system was partly at fault. "They blame ill-designed university syllabuses and a lack of understanding at all levels of the education system." Firms also complained of difficulties in recruiting specialist staff from outside Europe.

Among other problems that need to be addressed are the Square Mile's "apparent lack of understanding of the digital sector", and the lack of ambition of some of Britain's digital businesses. "We found surprisingly little appetite for developing firms into global players," said the authors.

Tech City is home to a number of highly successful British digital businesses including MindCandy (makers of the Moshi Monsters brand), advertising business Unruly Media, and the music companies Songkick and Last.fm, all of which have an international reach. The digital cluster has captured the imagination of Government leaders and the report states that "the Prime Minister and Chancellor are right to be excited" by this "important hotspot".

But the authors question the idea, popular with the Government, that Tech City has the capacity to expand and incorporate some of the facilities around the Olympic Park.

The report compared Tech City with other areas around the world including Silicon Valley in California, Silicon Wadi in Israel, Silicon Alley in New York, and Cap Digital in Paris. It warned policy makers that "clusters…are not to be made artificially" and recommended that London's digital centre should be modelled more closely on New York's rather than Silicon Valley.

The Tech City Investment Organisation said. "We are not trying to create or even follow a formula: the cluster of tech, digital and creative companies was growing organically in East London and will continue to do so. Our role is to provide help and support where we can."

Case study: We are missing out on people with experience

Gavin Starks, chairman and founder of AMEE.com, a Silicon Roundabout web tech company that aggregates environmental data

We have struggled to find the right people in the past. I've run web tech companies for the past 13 years and it's always been the case that finding good talent is an issue. What is the root cause? There are plenty of talented people around the country but we have far fewer successful start-ups than the US and therefore far fewer people who have experience. The best people are those who are both good developers and have also worked in a start-up and understand the need to focus on product and customer. I would also encourage greater interaction between the academic community and start-up companies so we can mentor the people coming up. If you're trying to recruit someone with experience, the majority of your candidates will be from the USA. In the past we have missed out on the right candidate because of visa issues.

Case study: Small firms just cannot get the staff

Rob Bowley, head of development at 7digital, a Silicon Roundabout digital media delivery company

One of the main problems is the decline in people going through the education system studying computer sciences, which is hard to understand because the high-tech sector is bucking the downward economic trend.

There are also problems in the academic world. Universities need to be more integrated with tech businesses. Most courses give people a deep understanding of the science but when it comes to developing software they're not so effective.

The other problem is that corporations like Accenture suck up all the best people straight out of university. Small companies are crying out for the talent but can't get the staff.

We've started our own technical academy to teach people what they don't learn at university."