UK tech industry fears Brexit could be “crippling”

A British vote to leave the EU could have major ramifications for the tech industry. With polls predicting a close result in the ballot on 23 June, many technology companies are fearful that Brexit could damage their business. While some tech leaders favour leaving the EU, the majority would rather stay, worried that an exit could reduce trade potential and limit access to skilled labour from within the EU.

According to figures from Tech London Advocates, a network of some 2,500 technology professionals, 71% of its membership believes that Brexit would make it harder to reach customers in EU countries, and threaten relationships with suppliers based in Europe.

Research from trade body techUK also highlights an industry preference for staying in the EU, with 70% of its tech company members preferring to remain in Europe and only 15% hoping for an exit.

Skills and funding

The biggest fear among Britain’s tech companies is that a withdrawal from the EU will exacerbate the skills shortage in this country. There simply aren’t enough candidates to fill certain technical roles, and the talent pool across the Channel is an attractive reason to stay. There are no visa requirements for EU nationals, and while migration is a concern for many voters, free movement fills vacancies for businesses. The Tech London Associates survey found that 81% of respondents thought that hiring staff from the EU would be more difficult if the UK left.

“We recently employed a young guy from Lyon,” Rich Pleeth, co-founder of friend-finding app Sup, told Alphr. “We flew him over for the interview and within two weeks he’d moved to London and was working, and that’s because we have this freedom of movement. If we can’t tap into the talent and the funds that are based in Europe, then we’re in a bad place.”

As a startup seeking funding, Pleeth has first-hand experience of the uncertainty the referendum is creating for new companies trying to find investment from Europe. The company lost £100,000 of funding from a German investor, following the government’s announcement of the referendum. “We speak to [fund managers] every day and they say: ‘We love what you’re doing, but we’re not prepared to deploy any capital until after 23 June,” he said.

“People are so nervous – they think that if we stay in Europe the markets will be fine, but if we exit they’ll be unstable; the big thing for markets is stability. For us, as a small business, it could be crippling if we leave Europe. We need to make sure tech startups have as much chance as possible to compete with Silicon Valley.”

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Emerging markets

The EU might include 500 million potential clients, but that market is dwarfed by the potential in India and China. As a result, an argument often cited by the pro-Brexit campaigners is that leaving would give the UK more flexibility to arrange trade deals outside the EU.

“It would be useful for the UK to have the freedom to strike trade deals with non-EU countries, [but] this is currently impossible,” stated campaign group Business for Britain in its report on SMEs. “Under the current terms of EU membership, the EU has sole control over the UK’s trading relationship with non-EU countries. Countries outside the EU, such as Iceland and Switzerland, have had far more success in negotiating trade deals with countries outside the EU.”

While pro-exit advocates believe the EU is blocking new trade links, Pleeth – having taken part in EU trade missions to emerging markets – believes tech companies would be worse off if they tried to establish new markets without the support of European trade bodies. “It’s huge that we can trade with India or China, and that’s a market we’re looking at because we’re developing an Android app and it’s critical that we have access to the market,” said Pleeth.

“But the fact that we’re in Europe gives us more access to that market, not less. We have European trade missions that go over there and they want to promote Europe, so instead of just having the UK trade body – and UK Trade and Investment does some great stuff – we have two people promoting business. So it’s rubbish to say we have less access to Asia as part of Europe.”

Cutting red tape

One of the criticisms levelled at the EU is the red tape and directives that arrive from Brussels are a burden on businesses – especially small ones. The perception is that, by voting to leave the union, Britain could end the regulations imposed on UK tech firms. According to Business for Britain, 40% of respondents to its survey believed that EU regulation hampered their business, while only 20% thought EU controls helped them.

However, according to legal experts, many companies that wish to continue trading with EU customers will still need to adhere to the regulations, even if Britain is no longer part of the union. “If you look at the various models where non-member states are able to trade in a full and unfettered way with the EU, they come with two requirements: first, you comply with the rules; and second, you allow the free movement of people,” said Darren Jones, a technology lawyer who has signed up to a pro-EU campaign group called Lawyers in for Britain. “Why would we want to do that and not be part of it? You want to influence the rules if you’re going to be subject to them anyway – why would you accept those obligations without having any input?”

Research from trade association techUK claims that 66% of UK tech companies selling into Europe would still have to comply with EU rules, even if the UK votes to leave. In addition to having to comply with existing EU rules, tech companies would also have to wait and see how new regulations and trade deals would be applied – and trade deals are notoriously difficult to finalise. “If we pull out of the EU, the amount of regulatory work that we’d have to do in the UK to unravel the withdrawal – and then re-ravel what our position would be – would probably create an increased amount of regulatory activity in the UK,” Jones said.

Tech consumers

It isn’t only tech businesses that profit from EU ties, but consumers, according to Jones. As part of the Digital Single Market, UK consumers have benefitted from EU regulations such as standardising prices for mobile data roaming, cross-border sales and proposed regulations on content portability to end geographic restrictions. “There’s lot of interesting things going on in the single market,” he said. “Basically, the idea is that it doesn’t matter what member state you’re in, you have access to the whole European market online – and it works.”

The EU has also been a thorn in the side of the large US companies that have been criticised for poor privacy practices. The tech industry might not have agreed with the EU’s stance on cookies and the right to be forgotten, but data professionals say the UK’s data is safer as part of the EU. “As a large trading bloc, the EU was able to secure the EU Data Protection Regulation against US pressure,” said Nick Thomson, chief revenue officer at collaboration-tool provider Workshare. “The UK may well have to compromise this level of data protection in the negotiation for its new trade concession from the US, which would lead not only to less data security for people and businesses based in the UK, but it would also make it vastly more complicated to share data with the rest of Europe – our main trading partners.”

Nobody in tech would claim that the EU is perfect, but most firms seem to hope for a “stay” vote in the summer.