Theresa May suffered a huge defeat in Parliament this week. With MPs categorically “naying” her Brexit deal, the outcome of a “No-Deal” Brexit remains firmly on the table.
If this were to be the case, the impact on the UK would be consequential. There would be no 21-month period of transition, meaning that business and industry would have to respond immediately to the changes required as a result of leaving the EU.
Dr Simon Usherwood, a reader in politics at the University of Surrey provides clarity on this point. He states:
“On 29 March next year, the UK would leave the EU and everything associated with that would come to an end…[A no deal] doesn’t stop the UK leaving but it means there is absolutely no clarity about what happens.”
In this blog article, we will be looking at the possible consequences of No-Deal Brexit on UK Tech.
No-Deal Brexit and UK Tech: Impact on Funding
Back in June, 100s of tech leaders lobbied the government to back a meaningful vote on the terms of Brexit. They make up a group called Tech for UK and are of the belief that just the prospect of Brexit had an adverse effect on the UK technology sector. Leaving the EU will mean that the UK will lose access to European funds and the Digital Single Market. The repercussions of which have proven to be wide and far-reaching. Funding from the European Investment Fund, the EU’s investment arm, fell 91 per cent year-on-year, with UK-focused funds attracting just €61m (£53m), according to its annual report published in April. The fund backed three UK-focused investors in 2017, compared to 20 in 2016.
Popular opinion amongst UK tech investors indicates that Article 50 was the catalyst of the decline, with backing from the European Investment Bank also having dried up. It is forecasted that in the wake of uncertainty, any further investment from these sources would be both rare and unlikely.
It’s not all doom and gloom, however. UK tech companies have enjoyed more in venture capital investment following the referendum. £5billion to be precise. This is more than France, Germany and Sweden combined.
Tech hubs are popping up all over Britain. Cities spanning the UK, from Glasgow to Bournemouth are homing these hives of innovation. Unsurprisingly though, it is those businesses located in our capital which have benefited the most from venture capital investment since the referendum.
Looking to the future, the long term growth prospects of our tech and digital hubs, from these sources at least, look promising. Indeed, further analysis reveals that international investors are increasingly backing companies from some of London’s fastest growing sectors. Big Data, AI and BlockChain have seen record levels of funding in 2018 and more investment than other European hubs.
No-Deal Brexit and UK Tech: Impact on Staffing
Around 8% of workers employed in the UK’s tech sector hail from the EU. However, uncertainty in the wake of the Brexit referendum saw the percentage of UK companies recruiting foreign workers fall by a third. This level of ambiguity, coupled with the Tier 2 visa cap imposed in 2011, have clearly discouraged (or prevented) UK tech firms from employing workers from outside the EU.
Karen Kaur, immigration specialist at immigration law firm Migrate UK believes that “Without the scope for compromise and the added Tier 2 visa cap restricting talent based on salary as oppose to skill set, emigration from the UK will continue” and such a “shortfall of talent acquisition” has created a “potential risk to the future innovation of (the) UK and global technology sectors, on whom this society relies so heavily,”
As all sectors of industry become more and more digitalised, top tech talent will be needed to implement the changes needed to keep the UK relevant and competitive. It has long been forewarned that the pipeline of UK talent alone looks unlikely to meet that demand. On this point, Ms Kaur goes on to say;
“The UK and global technology industry is already in the grips of a major skills shortage. Foreign skilled IT workers whether from the EU, working in the UK or UK workers in the EU, feel uncertain over their future, causing a large proportion to return home or to work elsewhere.”
In the wake of a No-Deal Brexit, the UK would be free to set its own rules regarding immigration by EU nationals, and the EU would be free to do the same. There are currently 3.7 million Europeans living in Britain and a further 1.3 million Britons residing in EU countries across the bloc. The fate of these ex-pats in terms of their rights to live and work would be unclear. Additionally, professionals may find that their qualifications are no longer recognised, meaning that they cannot practice or are suddenly “unemployable”. Would this level of ambiguity encourage those affected to return “home”??
It’s the “uncertainty that will kill us” says Simon Hansford, chief executive of UK Cloud Hosting supplier start-up, UKCLOUD. Indeed, IT and digital experts have been vocal about the implications that a “non-deal” would have for the UK’s fledgeling startup industry in particular.
Very few small and medium-sized businesses have the funds, resources or the desire to invest in the unknown. Kickstarting a successful business is hard enough. Developing a “Brexit contingency plan” is an additional burden; on that entrepreneurial startups need as much as they need a hole in the head. In some cases, multi-million-pound investment decisions need to be made. Startups simply do not have the freedom to “gamble” while access to capital and people hang in limbo.
Perhaps in direct contrast to this, Silicon Valley tech giants are revelling in the face of this uncertainty. Facebook, Google and Snap have expanded their UK presence in the wake of the UK’s exit from the EU. Indeed, Tim Cook, Apple’s chief executive believes that the UK will be “just fine” post-brexit…easy to say when you have deep pockets and a globally recognised brand to fall back on. In direct contrast, Amazon’s UK boss, Doug Gurr is reported to have said that Britain faces “civil unrest” if it leaves the EU without a trade deal.
No-Deal Brexit and UK Tech: Impact on Trade
In the wake of a “No-Deal” Brexit, the UK would return to World Trade Organisation rules on trade, and would no longer be bound by the regulations imposed by the EU.
“Red tape” may cause some British made tech products to be rejected by the EU, with new authorisation and certifications being required.
Border control will undoubtedly be affected. Manufacturers could choose to move their operations to the EU, thus avoiding delays in components crossing geographical lines.
Prices of goods and services for UK tech companies could also see increases. Businesses would have to place charges on EU imports. On the one hand, Britain would no longer be bound by EU rules. On the other, it would have to shoulder the EU’s external tariffs.
That being said, it has been argued that the tech industry is better placed to deal with these changes than any other. Jass Sarai, PwC’s UK technology industry leader believes that the adaptive and flexible nature of tech firms mean that they are more likely to be positive about the potential effects of Brexit than other sectors. He said that “Technology companies are used to facing disruption, and are arguably more agile than most and less affected by new barriers to physical trade,” he added.
That being said, the restrictions on trade and the associated costs are factors that will once again impact most heavily on the UK’s startups. Without the financial security in line with some of the established industry heavyweights, these new kids on the block are the most likely to head to the bloc! Blossoming tech hubs such as Berlin, for example, boast low property rental rates, no EU border restrictions, and a mine of tech talent. Couple this with the security a European HQ may provide, and it is an attractive proposition for ambitious, savvy entrepreneurs.
No-Deal Brexit and UK Tech: Impact on Data
Theresa May disclosed that 2019 would see Britain leave the Digital Single Market. This EU wide strategy was designed to encourage cross border e-commerce, solid cybersecurity and reliable infrastructures. To replace this, she said the UK would be granted an all-encompassing free-trade agreement.
Without a deal on Brexit, all free trade agreements would disappear into the abyss, and any moves to secure data sharing rights between the UK and EU would disappear with them. This is, of course, holds huge consequences for tech companies both sides of the Channel.
Dominic Zammit, Head of Digital at the Conran Design Group has looked past the short term opportunities this may present to players outside the EU and looks to the long game. He believes that this will have a “profound impact” on innovation as well as social and economic development, “not just within the UK but worldwide”.
However, it’s not all doom and gloom. The UK has a global reputation as being a leader in data privacy. As a consequence of its former good practice, it could be granted adequacy to continue sharing data throughout the EU.
With the jury still out, it is undeniable that the UK tech scene is likely to face challenges over the coming weeks and months. Despite these though, London Deputy Mayor for business Rajesh Agrawal remains optimistic.
“The fantastic success of (London’s) tech sector is rooted in our city’s openness and our diverse, international talent pool. Regardless of the outcome of Brexit, London will remain open to innovation, talent and investment from all over the world.”
Over 2018, we too have witnessed the UK tech scene go from strength to strength. Companies of all shapes, sizes and specialisms are actively searching for new tech talent. We are positive that whatever the outcome of Brexit the UK will continue to be a driver of digital progression and transformation. UK tech has proven itself to be robust, adaptive and responsive to change; well positioned to face the challenges a Brexit deal – hard, soft or otherwise can throw at it!