Sage CEO: Don't Build Data Centres in UK

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1:29We hear about what it's like to run businesses every day. We speak in depth to leaders who are shaping the world we live in. And I've been chatting to Steve Hare, who is chief executive of Sage, one of the UK's biggest tech companies, the biggest on the FTSE 100 stock market, a company best known for accounting, payroll, financial management software. But when you get beneath that, advances of artificial intelligence and how that fits into the wider conversation we'll have about the future of humanity and all that's been discussed of late. He had some very interesting things to say about data centres in the UK.

2:06Should we be going all in on them or not? So lots to chat about. He's been through one tech bubble in the past when he was working in the industry in the late 90s. He told us a little bit about what it might be like working in another one again right now. So here is Steve Hare, Chief Executive of Sage.

2:30Steve, welcome to Big Boss Interview. It's a pleasure to be here. I mean, what a time anyway to talk to a tech boss about the advancements going on in people's worlds and how that's impacting their jobs and how they run their businesses. But does it feel to you like in the last few weeks, you know, you've often talked about how artificial intelligence playing a role in much of what you do. Has the conversation gone up another notch lately? Yeah, I think it has. Not just over the last few weeks, but really over the last few months. And I think the reason it's gone up a notch is there's just a lot of incoming new news.

3:07So the news has been very dominated by the sort of big US players. But I think over the last few weeks, what you're starting to get is there's just a lot more going on in terms of open source models, you know, different companies, both in the US, but also across the world, really starting to lean in and figure out how they can leverage AI, you know, to do great things for their customers. So there's a lot going on. And, you know, it can feel hard to keep up sometimes. Do some of those conversations get reflected in your world where, you know, you're all about the accountancy software and helping businesses manage that sort of side of their business?

3:52Do there start to be that, you know, that some developers who work for you or with you start to almost warn you of some of the consequences of the models that they're creating in your world? Yeah, I think in our world, you know, trust is everything. We're selling to millions of SMBs, finance software, payroll, that we're nearly right, it's not good enough. So what we need to do is we need to harness the tremendous efficiency gains that you can get from AI. so we need our developers to be both using AI which they are to develop product but also embedding it then within the solutions that we're selling to our customers and then showing our customers why it is that they can trust those solutions from Sage because again it's a lot for them to navigate.

4:43You know I speak to small businesses all the time and I've said this before the one thing they don't have the luxury of is lots of free time. I mean they're working incredibly hard so they're not sat at home sort of exploring the pros and cons of all the different AI models. They need someone to do that for them. And the truth is that AI in industries like ours and in industries where safety and accuracy is important, it doesn't take you 100 % of the way. And the second thing is our customers need to see audit trails. Finance people will not, we did a survey, 70 % of CFOs said even if something was 100 % accurate, if they couldn't see the workings, they wouldn't trust it.

5:23It's an absolute implicit part of how our industry works you need to be able to check the workings that's why we have audits the the the power as i say comes from combining these things together so we use all these large language models we use you know lots and lots of models not just the big most well-known models to do lots of things internally to produce great outcomes for our customers. When you talk about the variety of models that you use, do you use models from China? Because it's been a hot topic on a lot of shows about the sort of efficiencies, the cheaper uses of some of those models that come from China compared to some of the big American tech companies that get the headlines.

6:08There's a lot of open source models, which basically allow you to you know take the intelligence if you like put guard wells around it and then create solutions for your customers and we take we take a what i would call a cautious and guarded approach to all models so it doesn't matter whether it comes from the us it doesn't matter whether it comes from china or europe or wherever it comes from we evaluate all models and then we figure out whether we can harness that intelligence, but in a contained way that allows us to use it for a very specific task. So when you hear all the horror stories of AI agents going and, you know, hacking and so on, it's always where they have been given the freedom to effectively develop, explore and come up with new solutions.

7:05That is not how we use AI. We use AI within solutions that have been designed by humans, but we use it to accelerate the ability to get to an outcome. I think the bigger thing, which again is the subject of a lot of debate in the industry, is people are adopting their own agents, which they are then using to do tasks for them. So there is also the issue of we provide software solutions, finance solutions, which historically have been consumed only by a human. But now humans want to use agents to interact with that product. So without getting too technical, and you can sort of come in as a human with your password credentials etc and then we have interfaces which in the traditional software world were called apis where machines can come in and interact with your environment so they can extract data to do analysis etc etc and then in in the new architecture with there are other ways in including something called an mcp server where machines can basically talk to each other.

8:21The security around that of how machines talk to each other and how you accept instructions from a machine rather than a human, that is a very big topic. And that is a topic where we take a very cautious approach. So we are quite restrictive in terms of how we allow those agents to come into our product. But over the next year or two, I think you're going to find that's going to be one of the biggest topics because there will be millions of machines talking to each other and they can't do that in an uncontrolled fashion. I hear from so many bosses, from people working and playing around with tools themselves, this is what it's all about.

9:07Is this what the future of work is going to be? Some people might hear what you've just said there and go, you know, techie stuff, not going to impact me. Is it fair to say it will? Well, I think it'll impact everyone. And I think the positive thing is what this does is I think this will make it easier to set up a business. So for people with ideas who want to run their own business, a digital economy with all of this technology makes it easier for you to run a business. but what you have to do is as we have always had to do as humans you have to make sure that the human remains in control of what it is they want to do what they're doing is they're using this intelligence to automate their admin to make it easier for them so they don't have to spend hours and hours and hours you know figuring out you know their taxes or chasing overdue invoices because you can use technology to do that.

10:10And my CEO is always saying to me, you need to spend more time giving me forward looking signals, helping me run the business, helping me grow the business. And if you bring it back to the UK, you know, the biggest challenge we have in the UK is growth. Over half the economy is small, midsize businesses. So we need those small, midsize businesses to grow faster. And we've just done some surveys. And what we found in those surveys is that actually profitability is increasing. It's up by about 5 % across the sample size in the UK. But revenue is only up by about 1.5%. So people are not investing for that growth because they're cautious, they're sitting on their hands instead of investing.

10:58And so I think we've got two things here. We've got to use AI to create more capacity to drive more growth. And then those business owners need to have the confidence to invest behind it to also drive growth. Because in the end, whether you're in the UK or anywhere else in the world, if your economy isn't growing fast, your options are limited. Why are they cautious in the UK? I think there's a few things. I think – and I talk to SMBs every single week. And there is a bit of a theme of – which isn't just restricted to the UK. But there is a bit of a theme of there's a lot of uncertainty in the world.

11:41There's a lot going on. And if I'm going to kind of take a bit more risk, invest for the future, there seems to be a lot of variables. and so what people tend to do is they take a bit longer to decide. They're a bit more cautious. They sit on cash in the bank. They don't go out and take the funding. They wait. And so, you know, as I say, it's not just – this is not just a thing in the UK but whenever you have these moments and we have one at the moment waiting for the budget where people are like, well, what's going to happen? What's going to happen? And so until they know, until there's a sort of what they see as a relatively stable environment, it tends to make them cautious.

12:30And it feels like many people in positions like yours have been saying that for quite a few years now about the budget and these months and weeks before. Yeah, I think – I mean I have – where I've had an opportunity to speak to the various politicians of all parties, the theme I've always said to them is the UK used to have this fantastic reputation for stability. The number of investors – big investors I've heard say the great thing about the UK is you've got an independent judiciary. You've got a constant rule of law. You're not constantly changing things. So it doesn't really matter whether I like every aspect of it.

13:12At least it's stable and I know what I'm investing into. And I think over recent years, we've lost some of that stability. So, you know, I think the new prime minister has a real opportunity, you know, to give a kind of pro-business, pro-stability look. You know, I really want people, you know, the UK remains an attractive place to invest. What does pro-stability look like, though? Every prime minister is not thinking I'm going to leave in a year or every chancellor is not thinking I'm going in a few months. So what are pro-stability? Yeah, you need two things. You need fiscal stability and you need legal stability.

13:53So if you keep changing the legal framework, so anything to do with rules, regulations, etc., you create uncertainty. Every time you have speculation as to how you're going to make the books add up, then people worry about where are you going to increase taxes or how are you going to make the books add up. Now, that's a political question and it doesn't matter. You know, people can criticize the current government, but the conservative government had exactly the same problem. You know, it was the conservative government that started putting up taxes, not the Labour government. So I don't envy politicians.

14:34However, you can't keep changing your mind. You have to figure out how you're going to balance the books. You have to figure out what legal framework and regulatory framework you want and then you need to stick to it. Do you think tax rises are inevitable in this budget? Well, that's for politicians to decide. I mean, as an accountant, no, it's not inevitable. I mean, it's not complex, is it? You have to make your receipts and your payments and your borrowings add up. So you either think you're going to get more income or you need to spend less money. And that's for politicians to decide which of those two they want to do.

15:12Do tax rises to balance the books, to use that sort of phrase, do tax rises provide that stability? I think what you can't do is make a change, say that that's what you're going to do and then keep fine-tuning it. So successive governments have put taxes up. They've put corporation tax up and they've put income tax up. You know, there's a lot of speculation about capital gains tax. Well, capital gains tax is a very important part of an entrepreneur's decision as to where they set up and scale their business. So speculating that maybe capital gains tax is going to change cannot be good for people who are scaling up their businesses and deciding whether the UK is a good place to go because they don't know what their end tax bill is going to be.

16:10So this speculation is just very, very damaging. Do you see evidence of that? Yeah. I mean, you know, these are anecdotal stories. But, you know, I've spoken to over the last six months or so. I've spoken to half a dozen entrepreneurs, relatively young entrepreneurs, actually, who have grown businesses and are now on their second business. So they've already successfully exited one business. and they have made a decision not to do their second business in the UK. So they've moved overseas. Now, these are small sample sizes, okay, and you will always get them to some degree. But my point is that we're all in competition.

16:56As a country, we're in competition. I'm incredibly pro-UK. I think it's a great place to live and work. But we are in competition. So we have to set out our stall, whether it's versus the US, whether it's versus Asia, the Middle East, Europe, etc. And we have to welcome people with capital and ideas to come and set up and scale a business. And you want the UK to be one of the best places in the world to set up and scale a business. Are we welcoming people to do that? I think we're inconsistent, right? So it would be overly negative to say we have no inward flow. We're not attracting people. I mean last year over 900 ,000 new businesses were set up in the UK.

17:45We still probably have the most thriving venture capital scene outside of the US and China. So we're not short of capital and we're not short – You know, some of the biggest private equity and VC firms in the world have offices here in the UK. But I go back to you've got to give them the confidence to deploy that capital into the UK because they can also deploy it elsewhere. What's the mood music, whether it's from the anecdotes, from the data, the huge amount of data that you have with your clients about whether that confidence is increasing or decreasing? Yeah, I think small business owners generally, so people who own their own business, are generally an optimistic bunch because to run your own business, you need a lot of passion, you need a lot of enthusiasm, etc.

18:37So again, recent survey data, people remain cautiously optimistic. I think the new prime minister has given the country a bit more of a, you know, he's a positive communicator. So there is a little bit of cautious optimism, but there are some critical points ahead of us, one of which is the budget. But we need to start to see some pro-growth, pro-business actions and stability. And I think generally people are hopeful, but the confidence is fragile. Have you spoken to Andy Burnham? No, I haven't. We have a meeting with number 10 over the next few weeks. But he's obviously had a very busy start to his schedule.

19:32There's always a queue. And so you're in it. But we're in the queue. Yeah, you're in it. Do you think, whether it's from just others in the business community that you speak to, do you think they're listening? I do think they're listening. And I do think, look, he's obviously, you know, I'm a northerner. So I like, you know, I like a lot of his sort of, you know, it's got to be balanced growth. It can't all be about London and the southeast. I mean, Sage employs, you know, nearly 3000 people up in Newcastle. So, you know, I think the determination to create more balanced opportunity across the country is to be really welcomed.

20:09But, you know, obviously, again, it's one of the hot topics, isn't it? of how do we give young people the relevant experience and get them into employment so that they build up their experience. I mean, all the evidence shows that, you know, if you get into your, you know, if you get to 20, 21 years old and you haven't got work experience on your CV, you're going to really struggle. So those early years, those 16 to 19-year-old years, these are super important. I mean, this year we're going to hire 100 early careers, graduates, apprentices, etc. into Newcastle because I'm determined that we remain committed to bringing young people through, giving them the skills that they need to contribute to the workforce.

21:00And I think this is also something that the prime minister is very passionate about and it's a very important subject for the country. But is it just a matter of bosses being more determined to do that? Or is there an ecosystem that's actually making that harder for you to do? Because we often hear, in fact, at the moment that we're speaking, there's letters been going out to hundreds of businesses saying, step forward and sign up to commit to providing more work experience and more apprenticeships and all of that. But is the system there to encourage you to do it? Yeah, so I think it's both. I think the private sector absolutely have an obligation to get involved, which a lot of big companies are.

21:45As I say, Sage is employing the biggest graduate – the biggest apprentice cohort in Newcastle that we've ever done. and at a number i mean i'm on the board of sainsbury's and sainsbury's is also committed to give work experience to large numbers of um of uh of young uh people but what the government also have a role the government have to make it easier they have to um you know cut red tape and make it easy for you to give people work experience i mean the more you the more you make harder for businesses and and you know the more you you you increase the uh you you put in place friction and barriers you know the less likely you are to get um volume you know large numbers of businesses leaning into this because it requires effort i mean you know to train young people i you know as i say i'm completely committed to it i i it's very important for sage to have its pipeline of talent.

22:48But it costs money to invest in young people. And so the government need to make it attractive to do that. Do the policies match the talk? I think we need more flexibility around, you know, obviously the government have introduced a number of increased safeguards around employment rights, they've increased the minimum living wage, etc, etc. A lot of these things do not necessarily make it attractive to employ a 16 year old, you have to create flexibility, it has to be, you know, we don't want to go back to the feudal days of people working for free or anything like that. But, but it has to be a partnership, you know, we have we have to all invest and get our young people the experience they need.

23:43Do you see a difference in the way companies are recruiting after they change in employment rights increasing costs? I think it has made, I've spoken to a lot of small business owners and it goes back to it's made them a bit more cautious. I don't want to say that, you know, it's stopped people hiring, it hasn't, But it's made them think twice. And, you know, we need to, as I say, we need to get our economy going. We need we need more growth to get more growth. You need to both deploy AI in the right places. But you actually, you know, you need to get more humans contributing to the output that we that we need.

24:28And that means, you know, we need to mobilize. You know, we can't, you know, we can't have loads of people who are not in education. They're not in employment and they're not in any form of training. I mean, that that's not good for those individuals and it's not good for the country. So I'm optimistic that the prime minister has all the right intent. He faces some tough choices. um you know what's the toughest choice he faces do you think well he's got to balance the books you know the the economy has to work right and you know obviously the US is famous for the amount of borrowing that they have but I think you know as an as a trained accountant although I've left it behind now that I'm a CEO but you know as a kind of trained accountant I sort of look at these things in pretty simplistic terms that you can't keep going with ever rising borrowing costs.

25:28So at some point, the answer really is to get the economy growing, which will then naturally bring in more tax receipts. But in the short term, you've got the politicians have got some tough choices. They can't spend money everywhere that they want to. So they're going to have to decide where to trim that back in order to balance the books. Do you have a view on where that should be? Well, I think that's a political question, isn't it? I think because it's not an economically rational decision. So they have to choose between a philosophical commitment to defense being 3.5 % of GDP. They're a labor government who obviously have to be very thoughtful about how they are looking after all citizens.

26:16So obviously the easy thing that people always say is, well, you just have to cut benefits. Well, that's not straightforward. I mean, I think most people would say, yes, the benefits bill looks very high, but it's complex. I think it's very easy just to say, well, you just need to slash the benefits bill. I think there is work going on. If you look at the work Alan Milburn's done around the people not in education, employment, etc., I think that's a really thoughtful piece of work where they're actually trying to get to the root cause rather than just making grandstand statements. And I like to see that because I think that's real substance.

26:56It's not grandstanding. But not necessarily a reduction in spending. No, what you've got to do is you've got to find a way of speeding that up so that hopefully you are deploying those people to drive more growth so that ultimately, yes, you're spending the money but you're investing it as opposed to spending it if that makes sense. So there needs to be some – is radical the word to be used? Does the system need a jolt? I think the prime minister needs to be bold. Away from those sort of growth policies and the tax decisions, the spending decisions, the infrastructure that we have in our country to take advantage of artificial intelligence, you sort of described that as being the other thing, not the other way, but the other thing that's needed alongside all of this.

27:49Are we set up to capitalise on the opportunities that you see? Yeah, so I think where the UK is incredibly strong is, you know, we have some incredible innovation technology. You know, we have, you know, a lot of, yeah, a lot of innovation, a lot of invention. And we are very good at creating applications. So we're very good at taking those ideas and then turning them into outcomes for customers. Where we need to do better, though, is the pace at which we then scale that we always struggle with. So if you compare us to the US, as I say, we set up lots of businesses. We are a nation of small businesses.

28:42We have a lot of venture capital, et cetera. We are capable of getting ideas into practice. But compared to the US, we don't scale them in the same way. There is this kind of slightly perennial thing in the UK that people sell out earlier. So we create a great business. We get it to 50 million revenue, 100 million revenue. And then the founders sell out often to Americans. And so actually, take Sage as an example. How many UK technology companies are there that turn over£3 billion? Basically, it's SAGE. You could argue from a data perspective, people like Relics, Experian. But in America, there are hundreds if not thousands of these scaled businesses.

29:37Now, some of that's access to capital. You need capital to fuel those scale-ups. But I think you've got to really focus on what you're good at. And I think we're good at producing these solutions for our customers, for the customers and solving their pain points. People often talk about building data center infrastructure. And I'm a bit of a contrarian on this, that I don't really see why we need data centers all over the UK. They're just big sheds full of computers, to be honest. and they can be based anywhere. I mean, if you listen to Elon Musk, he thinks they can be based in space. I mean, that in itself is not the intelligence.

30:24It's the place where it lives, but it's not the intelligence. Sovereign security, if it's on our shores? Sure, but, you know, are we really going to create UK sovereign security? You know, to be honest, I think that's too late. We can't compete. You know, if we're going to do that, we need to align ourselves with the Europeans or we need to align ourselves with the big nations. The UK does not have the capability to be a sovereign data AI nation. I don't think that's achievable. You need to focus on the things that we're good at and the things that are really achievable. And I think we still have the capability to be one of the world leaders in the application of AI.

31:13But I don't think having a feel-good factor that we have data centers all over the place really necessarily helps that. That doesn't seem to be what we've been hearing from policymakers and even though many in the tech world. who would talk about the UK being able to be one of those leaders in the development of AI? Yeah, that's why I say I'm perhaps a bit contrary. Because obviously the big LLMs, the Anthropics, OpenAI, etc., they're all building out very large data center infrastructure. But they're not just building the infrastructure. They're building the LLMs. They have decided to be full-stack providers.