Brexit: Tech firms express dismay at continued uncertainty after delay

What does delaying Brexit until 31 October mean for tech businesses operating out of the UK?

Brexit: Tech firms express dismay at continued uncertainty after delay

In the three years since the UK voted to leave the EU, prime minister Theresa May pledged more than 100 times the UK would leave on 29 March.

But now the UK may not exit the EU for another six months, after the EU decided the country could put off Brexit until 31 October, to provide more time for the UK parliament to decide what sort of Brexit it would like.

For UK-based tech firms, who have been left in limbo about what form Brexit would take, what does this latest delay mean?

In the run up to the March exit day, firms warned of the various negative effects the looming Brexit deadline was having on their business, and companies believe this damage will continue in the wake of the latest delay.

"The extension agreed by the European Council means that digital businesses no longer have to brace for an imminent No Deal Brexit. However, for tech firms who have already had to spend millions of pounds and thousands of working hours preparing for Brexit, an October extension is not long enough to reduce the need for No Deal stockpiling or increase investor confidence," said Julian David, CEO of techUK.

SEE: The Brexit dilemma: Will London's start-ups stay or go? (TechRepublic cover story)

A big issue for firms is the lack of clarity on what form Brexit will take and whether there will be a 21-month transition period after Brexit, during which the UK's relationship with the EU would stay broadly the same.

Such a period has been agreed under the terms of the Withdrawal Agreement negotiated by the EU and Theresa May's government.

However, Parliament overwhelmingly rejected this Withdrawal Agreement three times, leading Theresa May to open negotiations with the opposition Labour party to try to identify a Brexit agreement that could get through the Commons and that would also be acceptable to the EU. The EU has said the UK can leave the EU at an earlier date if it settles on a withdrawal agreement that's also acceptable to the EU. Prime minister May has expressed hope that her Withdrawal Agreement could be passed in time for the country to leave on 22 May, although given the opposition to the agreement in Parliament, this seems unlikely.

"Businesses are also very aware that the clock is already ticking on the 31st December 2020 and the end of the transition period contained in the Withdrawal Agreement. Trying to deliver the second phase of negotiations on our future partnership with the EU in just 13 months is simply not credible," said techUK's David.

The difficulty for tech firms watching from the outside is that it's not clear what an alternative Brexit would look like, with every new Brexit proposal that's been placed in front of Parliament being rejected so far. The only proposal that was backed was one to avoid no-deal Brexit, where Britain would exit the EU without a framework of agreements or a transition period -- widely agreed to be a damaging prospect for the UK and the EU. That doesn't mean a no-deal Brexit couldn't still happen at a later date, if a withdrawal agreement isn't passed in time for the 31 October deadline.

"The lack of a clear path is increasingly becoming a roadblock. We cannot ignore what is happening in Parliament, but I fear it is becoming an excuse for inertia at a time where momentum is required," said Tesh Durvasula, EU president at datacenter provider CyrusOne.

That uncertainty is a problem because of the potential negative impact that Brexit could have on tech firms based in and operating out of the UK.

Talent shortages and uncertainty

Tech industry body techUK has warned in the past that the UK's digital skills shortage means the need for talent can't be met domestically, and said the tech sector faces a 'triple hit' on its ability to recruit and retain skilled workers post Brexit, cautioning that "there is significant uncertainty on access to EU talent".

"The science and technology sector is already strapped by a scarcity of talent -- which a Brexit delay will only exacerbate. This will affect existing talent in the UK as well as potential talent from Europe and beyond," said Jonquil Hackenberg, head of C-Suite Advisory at Infosys Consulting.

Robbie Clutton, head of Pivotal Labs EMEA said the latest developments in Brexit would do little to reassure tech firms considering whether to scale back hiring in the UK.

"It may take a while, if ever, for a final agreement to be reached and for the tech industry it remains a huge concern that the UK may lose its position as Europe's leading hub for technology talent post-Brexit," he said.

"With software developer talent in Britain predicted to decrease post-Brexit, and a majority of CIOs looking at staffing outside the UK to assist in the development and deployment of software post-Brexit, much uncertainty still surrounds the future of innovation in the UK."

The status of Europeans already in the UK is another pressing issue, with about one in five existing London tech workers being from the EU. The UK government has said EU citizens and their families resident in the UK when the country leaves the EU will be able to stay and carry on working or studying and enjoy the same protections as currently available. To enjoy these same rights, EU citizens will need to apply for 'settled status', which will be open to EU citizens who have lived in the UK for five years without a break. However, the uncertainty over what form Brexit will eventually take is unsettling for many Europeans living in the UK.

Other concerns revolve around the additional regulatory burdens when trading goods and services with the EU, and whether firms will be able to recoup money spent on new tariffs.

"The continued looming yet unclear reality of Brexit means that we're facing the biggest change in trading rules in 40 years and UK tech companies are still having to go through 'what if' planning to account for all scenarios," said John Callan, senior director at Coupa, which runs a technology procurement and expense management platform.

Brexit uncertainty and its effect on UK manufacturers is already impacting manufacturing software vendors, and the delay looks likely to cause new problems.

"Delaying Brexit is a double-edged sword for our business," said Dr Simon Kampa, CEO and founder of Senseye, which makes software that helps manufacturers monitor industrial machinery.

"Kicking the can a further six months down the road reduces the possibility of a damaging no-deal Brexit, but it does nothing to provide the certainty that our big UK manufacturing customers need to invest with confidence."

"With everything still up in the air, we expect to see more manufacturers move production to other countries, and the competitiveness of plants in the UK to fall further as they delay spending on the smart factory projects that are so important for the future," Kampa said.

"I am concerned for the future viability of large-scale manufacturing in the UK, and -- if we were only selling to UK manufacturers -- I'd be particularly concerned about our own prospects," he added.

Data flows

Another big unanswered question is how Brexit will impact the ability of technology firms to handle EU data, and for the UK and the EU to share data freely.

If data is to continue flowing between the UK and the EU, the UK will still need to be granted an adequacy decision -- a ruling by the European Commission that the country meets the bloc's data protection and data privacy standards. Some analysis says that Britain's controversial Investigatory Powers Act, with its sanctioning of mass-surveillance, could hamper the UK's ability to be granted such a decision, and have pointed out that a data-sharing agreement between the US and the EU took two-and-a-half years to negotiate. For its part, techUK says the UK's Data Protection Act 2018 will help ensure adequacy between EU and UK data protection standards, but warns that the time needed for UK and EU negotiations on an adequacy agreement is now likely insufficient.

"Tech businesses are particularly aware of the challenges on issues such as the free flow of data, where the fastest-ever agreement with another country took 18 months. It is therefore now very clear that the transition period will have to be extended if and when we reach the next phase of negotiations," said techUK's David.

The government has also warned that, in the event of a no-deal Brexit, "transfers of personal data from the EEA [European Economic Area] to the UK will become restricted once the UK has left the EU". That could be a problem for a lot of firms, as the definition of 'personal data' is quite broad, including any information that can be used to identify a living individual, such as a customer's name, their physical or IP address, or employee details such as staff working hours and payroll details.

No-deal disaster

One fact the majority of tech firms agree on is that a no-deal Brexit, where Britain leaves without any formal Withdrawal Agreement for continuing existing trading and regulatory relationships with the EU, would be a disaster.

In a survey of 276 member companies by techUK, 70 percent said a no-deal exit from the European Union in March 2019 would have a 'very negative' or 'fairly negative' impact on their business.

While no deal doesn't look to be a likely outcome of Brexit at this stage, the only certain thing about Brexit is that, yet again, no-one knows what will happen next.

"The best way to lift uncertainty continues to be Parliament finding a suitable solution to the Brexit impasse," said techUK's David.

"Leaders from all parties should continue to seek an agreement that supports our entire economy, including our world leading digital services. All options, including a confirmatory referendum, should be on the table. Anything other than finding a way through the current mess will simply ensure that both politicians and business leaders are unable to refocus on the issues that truly matter to supporting the rapidly growing firms of the future."

Additional resources

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