Why focus on just CS and engineering degrees? I was a Physics student, knew more about code than some CS undergrads and wasn't alone in that regard. You'll also find a lot of generally smart people who you can teach to code here.
I'll second the point many have made about money. It's hard to resist one of the big banks offering you £40k+ straight out of university.
I probably sound like a broken record on HN, but this is surely a big part of the problem - living costs in London. Even £40k doesn't give a great standard of living in London, due to ridiculous accommodation and transport costs. I think that startups should locate somewhere much cheaper but still attractive to grads, somewhere north. Examples - Birmingham, Nottingham, Sheffield, Leeds, Newcastle.
Fair point. My personal definition of a reasonable living standard, is being able to save a house deposit and eventually buy a 2-up 2-down terraced house, without forgoing all social life or basic no frills holidays. Such as house costs £70-80k in a cheap part of a northern city, £120k in a more up-market part, and, as for London, well maybe its under £300k on the very last stop on a tube line - Morden for example.
In London you're likely to end up in a shared apartment for years. It might be a nice apartment, with good housemates, but it'll never be yours, and what happens when you get married and have kids? Lots of people answer "well then I move a 45 min train ride away". My other definition of decent standard of living involves not paying out thousands of £ to catch a stressful crowded train every day. ;)
I'll second the point many have made about money. It's hard to resist one of the big banks offering you £40k+ straight out of university.