Smart Cities

Is Brexit All Bad News For UK Tech Sector?

Britain has not left Europe, despite some of the headlines that seem to suggest some sort of tectonic shift. Britain has voted to leave the European Union (EU) but will continue to be a major European economy, like other non-EU European nations such as Norway or Switzerland, whose voters rejected becoming part of the union. However, no country has ever left the EU, therefore there is a great deal of uncertainty about the future. The first thing to consider is that it will take years for the UK to leave the EU. Britain is not expected to begin negotiating its withdrawal until October 2016 and that will be the start of a maximum two years of negotiations. This period is likely to be turbulent and uncertain, with the UK government creating incentives to keep businesses in the UK happy and developing new links with European partners. Whether the UK is able to stay in the […]

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Britain has not left Europe, despite some of the headlines that seem to suggest some sort of tectonic shift. Britain has voted to leave the European Union (EU) but will continue to be a major European economy, like other non-EU European nations such as Norway or Switzerland, whose voters rejected becoming part of the union. However, no country has ever left the EU, therefore there is a great deal of uncertainty about the future.

The first thing to consider is that it will take years for the UK to leave the EU. Britain is not expected to begin negotiating its withdrawal until October 2016 and that will be the start of a maximum two years of negotiations. This period is likely to be turbulent and uncertain, with the UK government creating incentives to keep businesses in the UK happy and developing new links with European partners.

Brexit

Whether the UK is able to stay in the single market will be an important factor for businesses. London Mayor Sadiq Khan has said he will push for the country to stay within the trading agreement as part of the forthcoming negotiations between EU and the UK.

London’s increasingly prominent technology sector, including smart building related firms, is particularly worried about its future outside of the EU. A survey of the UK's tech workers by Juniper Research has found that 65% think Brexit will have a negative impact on the global tech industry. Seven in ten of those who predict a negative outcome for tech also believe it would be harder for UK tech firms to attract and employ individuals from EU countries.

As one of the UK's fastest growing industries, growing 32% faster than the rest of the economy, the technology sector is made up of lots of early-stage companies, which rely heavily on EU grants to survive. Over the past five years, the European Investment Bank has invested over €29 billion in the British economy. Only days ago, it agreed to lend £100 million to small and medium-sized businesses in the UK.

Many British tech companies also earn a large proportion of their revenue outside of Britain, and argue they need unrestricted access to the European market in order to compete effectively. The UK’s technology trade association, techUK, said that the result of the referendum was not the outcome that the majority of its members were hoping for.

"To succeed, the UK tech sector needs great people, great infrastructure, world-class science and research, unfettered access to global markets, and a world-class smart and predictable regulatory environment," said Julian David, CEO of techUK. "Without the benefits of EU membership, the UK needs to be at its very best to succeed”.

"For technology functions based in the UK, the particular concern is over shortages of IT skills and now the increased risk of much more difficult and more costly recruitment of IT professionals from the EU," said Joanna Poplawska, executive director of the The Corporate IT Forum (CITF). Pragmatically speaking however, the UK will likely take all necessary measures to ensure those skills gaps are filled, be that by EU nationals or the rest of the world – now the UK is not bound by EU immigration quotas.

The UK’s tech start-up community is thanks in large part to EU venture capital that helped many of these companies to get off the ground, which also attracted EU start-ups to move to the British capital. Jon Moulton, founder of private equity firm Better Capital, said that the Luxembourg-based European Investment Fund is the largest investor in UK venture capital firms and warned the European fund "would probably stop investing in the UK" if Britain left the EU.

And while polls showed that the vast majority of tech firms were against leaving the EU, some are more optimistic. "I am confident that British Tech CEOs know how to instil confidence within their company and have the ability to seek out those with the budgets to pay for their innovations", said French-born Vincent Delaroche, chief executive of software company CAST.

Once the UK has left Europe and until a new deal is struck, the UK would trade with the EU under World Trade Organisation rules. These rules would see UK exporters paying new EU import tariffs, as well as facing other fresh barriers to trade. The UK would also have to renegotiate the more than 50 free trade deals the EU has with countries ranging from Canada to South Korea.

The impact on UK-based tech firms will obviously be dependent on which regions of the world they do business with. "Brexit will not have a significant impact on our business as almost all of our earnings come from outside the EU zone," said a spokesman from ARM, who designs the chips inside 95% of smartphones.

Those campaigning for Leave claimed that exporters could be compensated for the additional tariffs by the UK government, using money saved on not paying EU membership fees. There has been no real discussion on the possibility of that but it’s safe to assume that money saved from EU membership would be used to fill holes left by the EU.

One of those holes will be research grants; between 2007 and 2013 the EU funded nearly £7bn worth of research. Once British contributions to this funding are taken into account, this worked out as a net gain of about £300m a year for the UK.

Data protection is another EU-prescribed area. A new European Data Protection Regulation (GDPR) was passed in April after more than four years of negotiation that included the UK. The regulations, which will outline how citizens' data is processed, is set to be implemented across the EU in 2018.

International Business Times (IBT) reported on the potential cyber impacts to the workforce talent crunch, escalating cost of operations, data sharing and privacy laws, and even the threat of a cyber-attack growing. However, many suggest the UK has the best cyber-security workforce and capabilities in the EU currently, and it will be a larger loss for the EU cyber-security than for the UK.

Be it cyber-security, smart cities, buildings or other elements of the UK and EU technology sectors, the future is uncertain. However there are many European and non-European countries that have strong relationships with the EU, and what we can say with relative certainty is that new deals will be struck to support the UK-EU tech sectors and the economy as a whole.

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