CXO

Brexit: 5 ways the UK leaving the EU will affect tech firms

The UK public's decision to leave the European Union will impact technology firms operating within Britain in a variety of ways. Here's a breakdown for business and tech professionals.

The UK has voted to leave the EU, leaving British-based technology firms facing uncertainty over the impact on their business.

It will likely take the UK years to leave the EU. Britain is not expected to begin negotiating its withdrawal until October this year, and that will only be the start of at least two years of negotiations.

The decision to back Leave has various implications for the UK's tech industry and will affect firms' ability to employ non-UK workers, to access research grants, to bypass trade tariffs, and how they handle data.

1. Access to skills

Tech firms based in the UK routinely employ EU nationals, but Britain's decision to leave the EU has created uncertainty over whether the practice can continue after the UK brings in new immigration controls.

UK-based ARM, which designs the chips inside 95% of smartphones, is concerned about the impact on non-UK based workers.

"We will watch the negotiations closely, particularly on the subject of visas, as we employ approximately 200 non-UK EU citizens at our Cambridge headquarters," a spokesman said.

While there will be no immediate impact, there are no guarantees that EU workers will be able to continue living in the UK in the long run, according to an assessment by legal experts, who raised the likelihood that individuals would eventually need additional documentation to prove their right to remain.

The Corporate IT Forum (CITF)—the membership organisation for IT leaders at FTSE 250 organizations—is worried about how future recruitment difficulties could worsen existing skills shortages within the tech industry.

"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 CITF.

The British government is facing similar appeals to keep the country open to EU talent from multinationals who operate out of the UK.

"We call on the UK government to adopt a stance in forthcoming negotiations aimed at ensuring that the country's economy remains successful, open, competitive and innovative," said a spokesperson for IBM.

2. Availability of funding for startups

The UK has a large and vibrant community of tech startups, many of which are based in East London.

The venture capital that helped many of these companies to get off the ground, and that also attracted EU startups to move to the British capital, could now be under threat, by some estimates.

Jon Moulton, founder of private equity firm Better Capital, told The Financial Times 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.

Ahead of the referendum vote, none of the UK startups that have grown into unicorns, private companies with a valuation above $1bn, supported Britain leaving the EU.

3. New trade tariffs

A new EU-UK trade deal is expected to take years to agree, with the Leave campaign saying it wants a new deal to be in place by 2020.

Once the UK has left Europe and until a new deal is struck, the UK would trade with the EU under World Trade Organization 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.

However, 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 chip designer ARM.

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.

4. No more EU research grants

The EU funds research grants within British institutions and companies, some of which are technology firms.

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.

ARM is among those tech firms that expects to lose EU research money as a result of Britain leaving the EU, although it is hopeful that the UK could meet the shortfall.

"We may lose some EU research grants but these have represented less than one percent of our R&D spend in the last three years and we hope to see this picked up by the UK government," a spokesman said.

5. Uncertainty over handling data

A questions mark now sits over how tech firms should handle from UK firms and citizens: How they process it and where it can be stored.

The EU is currently in the process of negotiating a new deal for the transatlantic transfer of personal data, under the EU-US Safe Harbor agreement, Privacy Shield. Meanwhile, firms operating in EU member states have until June 2018 to comply with the new General Data Protection Regulation (GDPR), which sets out far-reaching changes to how organizations handle personal data.

Firms operating in the UK will be bound by these regulations and agreements, at least for the foreseeable future, according to data governance and risk specialist DQM GRC.

"In my view the long term impact of a 'Brexit' on the legislative framework for privacy will probably not be hugely significant," said Peter Galdies, development director at DQM GRC.

He said the process of leaving the EU was unlikely to begin until at least October this year, and that this would only be the start of drawn-out negotiations.

"There will be a mandatory two-year minimum period in which we remain a member of the EU whilst we negotiate an exit. During this time all existing legislation, including GDPR, will continue as before.

"Many forecast that this process might take much longer, with many estimates between three and six years," said Galdies, adding: "The pressure to negotiate a strong trade deal with the EU will also drive the adoption of "mirroring" legislation—designed to minimise the barriers to continued trade."

The Corporate IT Forum's Poplawska called on the government to move quickly to clarify how companies operating in the UK should proceed with regards to data handling.

"Our members will have many questions that will need to be answered—for example, where we stand with data protection as the EU General Data Protection Regulation was passed recently after four years of negotiations and is due to be implemented across the EU in 2018," Poplawska said.

Multinationals operating out of the UK are also keen to not see new barriers to the free movement of data between UK and EU countries.

"We also encourage leaders throughout Europe to preserve cross-border data flows that drive growth and innovation, and that underpin the worldwide digital economy," an IBM spokesman said.

Also see

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Image: European Commission

About Nick Heath

Nick Heath is chief reporter for TechRepublic. He writes about the technology that IT decision makers need to know about, and the latest happenings in the European tech scene.

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