What Will Brexit Mean for Tech?

Last week, the UK public voted to leave the European Union – despite warnings about such a move by business leaders and independent bodies like the IFS. Although there have been questions raised about what will happen next (as several of the Leave leaders are already distancing themselves from the campaign’s promises), here we will look at what the decision means for the technology industry.

UK Prime Minister David Cameron, who will resign, will leave the invocation of Article 50 (the official beginning of leave negotiations) to his successor. As these negotiations are expected to take as much as two years, that means a long period of uncertainty for firms and investors.

The biggest worry is that the UK will no longer have access to the European single market. Access means allowing free movement of people across borders – one of the main campaign points of the Vote Leave body. However, since the vote PM hopeful Boris Johnson has spoken out in favour of free movement and the single movement (also known as “Being a member of the European Union” – TA).

There have been voices in the EU calling for the UK to be punished for taking a Leave vote, by providing unfavourable trading terms. Others, specifically major trading partner Germany, have been more moderate.

One example is to be found in the Audiovisual Media Services Directive (AVMS), which guarantees freedom of reception throughout the EU to service providers. In return, a common framework is used, ensuring that all media and broadcast services are subject to certain minimum standards, and are regulated under the laws of the nation where the provider is based. Post-Brexit, the UK government is likely to have lost any influence on further developments in the AVMS, even if UK companies can still benefit from it. Law firm Olswang told Advanced Television that ‘there may be a less industry-friendly Directive than if the UK had retained a strong voice at the table.’

On regulatory issues, the UK is one of the loudest voices in Europe calling for a limitation on regulations in the technology sector. Countries such as France and Germany, which have pushed for more scrutiny against the likes of Facebook and Google in the past, will gain more power after the UK leaves the Union. For example, cross-border transmissions of on-demand services from the UK could now be subject to local regulation in every country in which they are receivable.

Jobs are likely to be lost or moved. Several banks have already floated the idea of moving their headquarters from London. Startups – which have thrived in Tech City UK, an area of London – are expected to also look outside of the UK. The Federation of German Startups said that Berlin will do well from Brexit, although “It is a victory we do not want and will not be celebrating.”

Berlin surpassed London, in the number and overall volume of financial transactions from startups, in 2015. German Startups Group CEO Christoph Gerlinger said, “This development will now accelerate and the distance between Berlin vs. London will increase. We expect a significant decrease in new incorporations in London in favour of Berlin, as well as an influx of successful London startups. This will be particularly true of the especially dynamic [financial technology] sector.”

Market researcher Canalys has warned that spending in the UK IT market could fall by up to 10% this year, and up to 15% in 2017. Vendor price hikes could also result. This is in contrast to IDC’s prediction in mid-April that a Leave vote would hurt spending, but be “only mildly negative.”

In other areas, it has been warned that the UK will be more vulnerable to cyber attacks, as it will no longer benefit from information sharing with other Member States. Acer CEO Jason Chen has publicly said that the company’s European business will be affected by the decision, due to weakened consumer confidence and exchange rate fluctuations.

Analyst Comment

See our Editorial in this week’s issue for some more comments on this topic. (BR)