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Two years of uncertainty begins on 29 March, as prime minister Theresa May triggers Article 50 and launches the formal process to exit the European Union (EU). For the UK’s tech industry this means it’s time to officially begin to prepare for Brexit.
Earlier this year, industry body TechUK outlined its views on what should be the key Brexit negotiation priorities, highlighting access to the EU market, skills and cross-border data transfer. Having that access could be key in ensuring the UK continues to be a digital leader.
TechUK CEO Julian David said the triggering of Article 50 is the start of a “historic process that will shape the future of the UK and Europe for generations to come”.
“The EU and the UK government now have a responsibility to work together to secure a deal that supports the jobs and livelihoods of citizens across the UK and the EU,” he said.
The UK is already facing a skills shortage. In fact, the digital skills gap costs the UK economy £63bn a year, according to a report by the House of Commons Science and Technology Committee, published in 2016.
James Parsons, CEO and founder of digital solutions company Arrows Group, said that many of the implications of Brexit are still unclear. However, he added: “From a digital skills perspective, we’re already seeing how Brexit is making top digital talent reluctant to come to the UK and flock elsewhere instead."
According to the company’s own community data, there is already a 10% reduction of skilled workers from within the EU relocating to the UK. At the same time, UK talent is moving elsewhere.
“If this trend continues, it could lead to a brain drain of top UK talent, as generally they will want to work where the exciting projects are,” he said. “We’re already seeing an increase in best-in-class developers taking roles in Switzerland which continues to be a fast-growing hub for tech innovation.”
“Of course, this isn’t welcome news to UK companies at a time where the UK digital skills gap is already large, and where a significant amount of tech talent comes from abroad. As the Government takes these next steps, it’s critical that it puts the right laws and incentives in place to keep top tech talent firmly on UK shores to enable innovation.”
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- Since the Brexit vote, IT contractors have seen higher pay rates and longer contracts, which indicates businesses’ caution over permanent recruitment.
- Microsoft has raised the price of its Surface PCs by as much as 15% in the UK because of the falling value of the pound since the country voted to leave the EU.
Within government, the skills gap is also evident. An NAO report, published last week, showed that the government needs an extra 2,000 digital staff within five years, costing up to £244m annually if it’s to keep up with digital projects.
It’s not all doom and gloom. Tech City UK’s annual report, published earlier this month, heralds the UK’s digital sector. The report found that the collective annual turnover of what digital tech industries was £170bn in 2015, and £6.8bn was invested by private equity (PE) firms and venture capitalists (VCs) in UK technology companies in 2016 – twice as much as France, with £2.4bn.
The government’s own plans, as set out in several strategies in recent months, are also preparing for a post-Brexit Britain. May’s industrial strategy aims to create a prosperous post-Brexit Britain through developing Stem skills, investments in science and innovation, and infrastructure upgrades.
Access to the market
One thing that could alleviate the industry’s fear and uncertainty would be confirmation that UK businesses would still have access to the EU single market. In its Brexit priorities, TechUK highlighted that it wants the government to ensure maximum access to the single market for digital products and services, and to make sure leaving the customs union doesn’t leave UK trade bound up in red tape.
However, May has already said it is “impossible” to leave the EU and remain part of the single market.
TechUK CEO Julian David said the tech industry wants a “trade agreement that ensure the industry continues to grow, including continued market access, frictionless movement of talent and a robust legal process for cross border data flows.”
“Both sides must remember that a good deal for tech is a good deal for everyone. A new relationship must be forged that not only works for today’s economy, but for tomorrow’s digitally-enabled world,” he said.
“We urge all parties to enter into the negotiations committed to achieving an outcome that supports the strong mutual interests of both the UK and the EU. These negotiations will be complex and arduous, but must be conducted in a spirit of partnership and mutual respect if they are to achieve the outcome that works for tech, the public and the future.”
Smaller companies deterred by tariff
Research from the Federation of Small Businesses (FSB) found that one in four smaller companies “would be genuinely deterred from trading with the EU should any tariff – no matter how low – be introduced”, and one in three businesses would stop trading with the EU should a tariff rate between 2-4% be introduced.
Ross Mason, founder of MuleSoft, said Brexit has “thrown UK involvement in the EU digital single market into chaos”.
“With Article 50 being triggered, it is clearer than ever to me that being outside of a digital single market would damage economic growth in the UK,” he said.
“A post-Brexit UK needs to be able to flourish in the global digital economy. Yet if Europe simplifies the rules of digital business and the UK is left out, businesses across the country will be at a disadvantage: not just those in the UK digital sector, but also all those companies that do business online.
“Whether you are selling goods online or providing a service made up of technology components that reside in different countries, the cost overhead will only increase if the UK sits outside of an EU digital single market.”