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All Abroad!? Expected Effects of Brexit on the UK Technology Industry

Britain’s vote to leave the European Union has been met by feelings of fear and uncertainty by the Technology community – will jobs be lost? Will start-up investments dry up? To what extent will we lose access to the single market?


The majority of Tech industry workers were overwhelmingly in the Remain camp. A pre-election poll by Manchester Digital reported that 78 per cent of respondents wished to Remain, whilst a number of large firms claimed they would consider moving their headquarters abroad, should Britain leave the EU.

Any changes to regulation and the movement of talent are likely to be felt by the IT & Technology industries. Depending on the departure terms struck by the Britain and the EU, the free movement of labour between us and other EU states may be affected, meaning it could become harder for EU nationals to work in Britain and vice versa.

This could further fuel the significant digital skills shortage facing the UK.

There may also be barriers to the Digital Single Market – an initiative led by Britain – which the EU claims will contribute €415bn to the economy per year by tearing down regulatory walls between member states.

Data sharing and storage could be hardest hit by these changes. We face the possibility that the UK’s data centres may be unable to facilitate the vast quantities of data which the UK produces, should regulation changes mean that the UK cannot easily store data within the EU.

The full effect of Brexit on the Technology market is unlikely to be seen for a number of years.

Under Article 50 of the Lisbon Treaty, Britain will have a two year exit period upon the submission of a notification in which to negotiate terms and make the necessary arrangements. David Cameron stated in his withdrawal speech that this notification will be the responsibility of his successor – therefore the full exit should be expected around October 2018.

Due to Britain’s positioning within industry and tourism, we personally expect (and hope!) that there is unlikely to be major changes to regulations such as trade and labour movement terms between Britain and the EU.

But at the current moment all anyone can do is speculate.

Brexit Impact on Tech Start-Ups

Britain is home to more than 40 per cent of Europe’s start-ups valued at $1bn or more (source: Financial Times) and one of the world leaders in the FinTech industry, fuelled by London’s position in the Finance market.

A number of start-up owners have openly expressed their uncertainty on the effects Brexit will have on investor confidence and willingness to finance British companies, but stated that their resilience and entrepreneurship can steer them through the impending changes.

In an interview with Business Insider, top tech investor Saul Klein, founder of start-up accelerator Seedcamp, called for calm:

“Nothing changes for at least two years," he said in a call with Business Insider on Friday morning.

"We have an amazing opportunity to make connections within Europe the best for everyone."

"The tech community will do what it always does, which is be adaptable. The interconnection in Europe is so strong. Seedcamp is a great example, one of many entities that exists provides profound interconnections for and between European entrepreneurs."

Martin Mignot, partner of tech start-up investor Index Ventures, offered hope that early stage companies can continue to thrive.


Impact on Larger Tech Businesses

The Brexit vote has led many established British Technology firms to assess their position due to potential regulation changes which could affect the ability to trade freely with other European nations, and their ability to recruit top-class talent from overseas.

Unless the UK can maintain their EU freedom of labour movement, global businesses are likely to be forced to move UK jobs into EU locations to comply with data protection laws.

HSBC and foreign exchange service TransferWise publically stated their intentions to move their headquarters abroad should Britain vote Leave, however the latter has since announced this is unlikely to be an immediate action.

There are three main challenges which may face established Tech companies, depending on the outcome of the Brexit terms: recruiting talent, storing data and trade barriers due to poor performance of Pound Sterling compared to both the Euro and US Dollar.

Advertising & marketing revenues could be curtailed, which could impact the Digital Marketing industry. Given the huge amount of choice now available for people spending on marketing campaigns, 2016-18 will probably put pressure on the industry to be more creative to attract campaigns, rather than bid based on price.

Longer term, the demand for technical skills is only going to increase and ‘Brexit’ is likely to hurt the UK’s ability to poach European ‘techies’ if the UK government blocks the EU freedom of movement rules as part of any trade negotiations. Furthermore, we may potentially see top UK talent moving abroad for better opportunities in the Tech industry.

 

Importing skills in truth has only ever been a short-term fix, masking a wider problem of the UK education system not churning out graduates with qualifications suitable for a 21st century economy.

This heaps pressure on the present government and the wider technology industry to plan for the longer term and seek to reform Higher & Further Education to encourage more students to pursue Computer Science & Engineering courses.

Impact on Technology Recruiters

Initially we don’t expect to see a lot of changes to the Technology recruitment market. Our dependence on tech underpins most businesses, with consumers constantly demanding products and services requiring the latest technology.

That said, in times of volatility businesses tend to put a freeze on recruitment activity. Couple this with anticipated loss of jobs in the Financial Services industry, the knock-on effect of that may be felt in the burgeoning FinTech industry.

Central Government departments will continue to be committed to the ‘Digital by Design’ programmes which continue to be a strong source of vacancies, particular in Agile skills and open source technologies. The government cannot afford to pull back on their spend in this area.

Over time, it’s likely we could see a lot of services outsourced to third parties or accelerated offshoring. British tech leaders have developed a greater understanding over international cultures and capabilities over the last 15-20 years, so the move to offshore work is seen as a lower risk than it was a decade ago. Co-located technology teams are the norm and will only grow.

Another trend which could emerge is the decentralisation of technical jobs to other locations across the UK. Average wages are lower outside of the capital and UK firms may seek to reduce operating costs by moving locations.

In recent years Deustche Bank have moved a number of jobs to Birmingham and Sky to Leeds for that very reason.

While this is good news for those living outside of London, it could pose a fresh challenge to Recruiters as smaller salaries could potentially mean smaller placement fees.

As the UK legal system ‘unstitches’ itself from the EU, this will could in a huge change to UK regulations governing a whole host of industries including Financial Services, Utilities, Telecoms & Insurance. There will also be changes to Data laws.

This will stimulate a large amount of demand for Business Change & Transformation professionals.

Much like 2008-10, businesses sought to find efficiencies in their operating model to make themselves much leaner and more profitable. Organisation Change programmes, possibly underpinned by using technology to replace people or processes.

In conclusion the results of Brexit are as yet undefined, and will be until the final terms are drawn in 2018.

What we do know is that any changes to freedom of movement could have a hugely detrimental effect to the UK Technology industry – further widening our digital skills gap and potentially forcing big business and jobs abroad.

In the near future, ripples may also be felt in the Tech recruitment sector as uncertainty causes some CEOs to hold back on their recruitment and expansion projects.

Written by Colin Frontczak
Head of Practice - Senior Appointments

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