Brexit and the UK technology sector - read our analysis of the implications
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The UK IT industry is preparing for the real possibility of the country removing itself from the EU, as the referendum on membership approaches.
On 23 June, UK citizens will be asked whether or not they want to remain a member of the EU. It might be a simple yes or no, but it has potentially huge ramifications.
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There are two camps but three groups – those who want to stay, those who want to leave and, critically, those who are undecided. It is this last group that campaigners on both sides want to influence.
Although this is a decision for each individual citizen of voting age, businesses groups are getting their points across.
The status quo with a little negotiation
UK IT industry bodies and their members appear to favour remaining in the EU.
For example, UK technology trade association TechUK is firmly in the "stay" camp. It believes that by leaving the EU, IT companies would miss out on trade agreements that give them advantages in targeting a market of 500 million people.
TechUK polled 277 UK companies, three-quarters of which were SMEs, and 70% said they want to remain in the EU. The remaining 30% were split evenly between those that want the UK to leave and those that don’t know.
Three-quarters (76%) of the IT business leaders that wanted the UK to remain said it was because EU membership makes the UK more attractive to international investment. Similar proportions said EU membership makes the UK more globally competitive (71%) and gives the nation a better deal in trading relationships with the EU (75%).
Julian David, CEO at TechUK, said the UK tech sector is thriving and creating jobs more quickly than the rest of the economy. “The vast majority of our members say that being in the EU supports growth,” he said. “Open markets and co-operation are good for business. This is not about fear; it is about opportunity – a market of 500 million consumers.
“Most of these companies, large and small, have customers and suppliers across the EU. They are saying they will still have to comply with EU rules, whatever the UK decides on 23 June. A British exit would mean the UK giving up control over how those rules are set.”
Emerging tech firms want to remain
In the UK tech startup sector, an even bigger majority of business leaders want to stay in the EU, at least according to a poll of IT startup firms conducted by Coadec (Coalition for the Digital Economy). It found that 81% want to stay in the EU, with the rest preferring to leave and none undecided.
For those who said the UK should remain, the key issues were: access to a large single market that has the same regulations throughout; the free movement of labour, giving access to more talent; the fact that the UK, through its membership, will “have a seat at the table” where decisions are made; and improved stability and security.
Coadec executive director Guy Levin said the UK’s startup community is international in its outlook and its composition. “Founders come to the UK from across Europe, and the world, to launch and grow their businesses,” he said. “They look to Europe for talented staff to help them grow. And they aim to sell and expand across a trading block of 500 million consumers.”
Speaking at an all-party parliamentary group (APPG) event to discuss the impact of Brexit on UK IT firms, Eamon Jubbawy, co-founder of startup Onfido, a platform that enables organisations to perform background checks, said that as an employer, attracting talent keeps him up at night. The free movement of EU labour is essential to help startups grow, he added.
However, it is not just the talent pool that might be reduced by leaving the EU, but the number of IT firms setting up in the UK, said Jubbawy. “The UK as a hub, and London in particular, is currently good at attracting entrepreneurs because of the market and the access to talent,” he added.
But leaving the EU would diminish this and cut the number of companies setting up in the UK, he said. “Why come to the UK when you can go to continental Europe and access a large market of customers and skilled staff?”
Bindi Karia from the Startup Europe Initiative told the APPG event that if the UK were to leave the EU, it would be a less attractive place for tech companies to set up. “The UK would have less chance of attracting firms to set up global headquarters,” he said.
Also in the ‘stay’ camp are the UK’s IT outsourcing service providers. According to a survey of members carried out by the National Outsourcing Association (NOA), 73% of UK outsourcing service providers said they want the UK to remain in a reformed EU.
The survey showed that 35% of those who want to stay in the EU think doing so will protect outsourcing trade relationships.
“The views of the NOA membership reflect those of Britain’s outsourcing industry as a whole – the same views held by the C-suite at the likes of BT, HSBC, IBM, Serco and Unilever,” said Kerry Hallard, CEO of the NOA. “We are all for keeping Britain in a reformed EU, where we can continue to have influence and be seen globally as a key player. Brexit would certainly diminish Britain’s appeal on the world stage.”
Not everybody wants the status quo
There is another side to the coin, however. According to the NOA survey, 27% of UK outsourcing business leaders thought the UK would be better off outside the EU, and their main reason to leave was that they only wanted those elected by the British people to govern the country.
Meanwhile, of the 15% of respondents to the TechUK survey who would prefer to leave the EU, most said the UK would have more flexibility in a global economy if it was not an EU member.
A total of 64% said the UK would be more competitive globally and more than half thought the UK could get a better deal in its relationships with the rest of the world. These respondents said the main drawback of remaining in the EU is that the UK does not have enough influence in the EU and there is too much regulation.
In the Coadec survey, those that wanted to leave (19%) said the key issues were sovereignty, over-regulation and red tape.
Peter Chadha, CEO at technology advisory firm DrPete, believes that leaving the EU and changing things will benefit the UK.
“I do not think any of these challenges [posed by the stay supporters] are insurmountable and I think this change would be great for Britain,” he told the APPG.
As in any election, the undecided voters are an important group. In the Brexit debate, there are many, creating a lot of uncertainty.
Still uncertain for many
Richard Holway, chairman at analyst firm TechMarketView, said there are many contrasting views within his organisation.
“Most of our clients are multinationals – predominately US- or French-owned,” he said. “Their corporate view is pretty much towards the ‘stay in’ camp. The same applies to our UK-headquartered customers, such as BT.”
For UK firms, it depends on trade with Europe, said Holway. “If European trade is significant, there would be a corporate view to stay in. If not, the leave campaign would win the day.”
But this is a referendum, in which each individual’s vote carries the same weight, so what businesses think does not really matter. Holway said people’s personal views are often at odds with their employers’.
“There is a distinct divergence in views between personal views and corporate views,” he said. “Many CEOs are privately backing the out camp while publicly backing the stay in group.
“On a personal level, I am truly undecided – and I understand that a lot of voters are still in that camp. The current level of debate is truly juvenile. I wish for a more factually-based debate, but I fear we will not get it.
“If the UK votes to leave, I think the economy will suffer in the short term. But the UK is very capable of recovering from this and might well be stronger in the longer term.”
Gareth Lodge, financial services IT analyst at Celent, said the UK financial services and fintech sectors benefit from being in the EU. “With so much innovation happening in London-based fintech, the future for UK IT companies looks great,” he said.
But the UK market alone is not big enough to support them, said Lodge. “Being in gives them easier access to a much bigger market.” ........................................