How bad will Brexit be for tech?

Hard Brexit, soft Brexit, Brexit over-easy. Ever since the outcome of the referendum everyone from radio show hosts to internet commenters have thrown in their thoughts on our vote to bid adieu to the EU, and we’re no closer to any kind of certainty over Britain’s plan to parachute out of Europe. We won’t remain members of the single market, although we’re seeking the “freest possible trade” with our chums from across the Channel. We’ll be leaving the customs union, but are hoping to negotiate “a customs union agreement” with the rest of the EU.

This signals the end to free movement of labour, though it isn’t yet clear whether we’ll follow an Australian-style points-based system, work permits or something different altogether. We won’t be bound by the European Court of Justice, the body that ensures EU legislation is applied in member states. In short, we know enough that – with the help of industry experts – we’re able to make educated guesses about the likely impact of Brexit and what consequences it will have for tech jobs, legislation and prices.

Indeed, we don’t even need the crystal ball to examine some of the implications of the Brexit vote, as anyone who has bought a Dell laptop or app for their iPhone will know, with prices already heading north thanks to the weakness of the pound. Are pricey laptops the worst of it, or is Britain’s tech industry in for a hard landing?

British jobs for British workers

One of the clearest implications of the vote to leave the EU was curbs on immigration. The enshrined rights of EU citizens to live and work in any member state were always going to be a casualty of a leave vote, and the government has made it absolutely plain that it will seek to control the number of people coming to Britain from Europe, as it already does for the rest of the world.

Britain’s tech industry is dependent on foreign labour, and several leading firms have expressed concern about tighter controls on immigration. “We have 300 people in Cambridge right now from mainland Europe, and more could start tomorrow,” Simon Segars, the chief executive of chip designer ARM told The Financial Times in October 2016. “If there was some law enacted that said every employee has to be from the UK, the business would fail.”

While it’s highly unlikely the government would be draconian enough to outlaw foreign recruitment, any increased restrictions would exacerbate Britain’s long-standing skills shortage. “There are a finite number of [UK] engineers with the right skills that we can hire,” Segars added. “We have to be able to play unencumbered on a global playing field – that’s really important for us.” ARM’s warning is all the more prescient given that the company was bought by Japanese investment group SoftBank, which immediately sought to allay fears about the sale by pledging to keep ARM’s headquarters in Cambridge and to at least double the number of employees in the UK over five years. Segars has already warned that any kind of visa system would “slow us down”.

That warning appeared to fall on deaf ears at the Home Office. Home Secretary Amber Rudd outlined plans to make British companies declare how many foreign workers are on their books, arguing that some firms are “getting away” with not training enough British workers and that “we should be able to have a conversation about what skills we want in the UK”. Tech London Advocates, which calls itself a “private sector-led coalition of more than 4,000 expert individuals from the tech sector”, claims that one in three of Britain’s tech workers were born overseas; industry analysts agree that, if the drawbridge is wound up, there simply isn’t enough local talent to fill the gaps. “Companies need access to the best talent,” said Richard Muirhead, who has set up three of his own software firms and is now general partner at early stage venture capital firm OpenOcean. “They would be choosing the talent locally if they could find it,” he added. “It’s a global market for technical talent. 

Brexit IT Jobs

Making it harder for companies or universities to get hold of it seems highly unlikely to increase the competitiveness of our universities or companies.” Muirhead thinks the uncertainty over what will happen with immigration controls is already having an impact on companies’ ability to hire the right staff. “The target is a net immigration number, and it’s probably possible to ensure the right people make it in to support the long-term prosperity of the nation. “At the same time, it isn’t clear what that programme will be. People are making decisions now about where to study, and where to set up companies,” said Muirhead.

Not everyone is gloomy about the British tech industry’s prospects outside of the EU, however. Although the value of IT contracts has taken a hit because of the devaluation of the pound, global tech advisory firm ISG says there are reasons to be cheerful. “Britain is one of the world’s leading centres for technology,” said John Keppel, partner and president of ISG. “The fact that the UK is the authority on Fintech [financial technology] and dominates the market with its intellectual property will continue to make it a highly appealing trade partner. “Ultimately, we believe that a post-Brexit environment where we are seeking tighter trading relations outside of the EU with countries such as the US and Israel, both outstanding innovators in the tech space, should only serve to enhance Britain’s position.”

Inflation island

One consequence of the Brexit vote that’s beyond doubt is that we’re going to end up paying more for our tech. Several tech companies have used the plummeting value of the pound – down around 20% against the dollar – to push up their prices. The cost of Microsoft enterprise software such as Microsoft Office went up by 13% in January 2017, while Azure customers were hit with 22% hikes. Dell increased prices by 10% in the UK not long after the votes were counted, and HP quickly followed suit. Apple has raised prices across its portfolio several times since the vote, first on iPads and iPhones last September, followed by Macs in October and then the App Store in January. A $0.99 app now costs Brits 99p – a straight pound for dollar conversion, albeit without US sales tax taken into consideration.

All of these companies have cited exchange rate fluctuations among the litany of excuses (taxes, cost of doing business, market conditions) used to justify the price hikes. But is it just that – an excuse to push prices north? “We have seen price rises of around 10% for many technology products since the Brexit referendum in the UK,” said Andreas Olah, lead analyst for IT in retail at Current Analysis. “This varies, however, with some vendors using currency fluctuations and uncertainty as an excuse for much higher increases, while others are under pressure to keep prices down and rather risk lower margins.” Olah isn’t surprised that Apple has been one of the most aggressive with its increases, arguing that “higher-end products from major brands such as Apple are more likely to see a price increase than lower-end products from less-known manufacturers”. “This is due to higher price competition at the lower end of the market, where customers are more sensitive to price changes,” he added.

Olah predicts that prices will eventually settle down again, as factors aside from the exchange rate – such as competitors’ pricing and the disposable income of consumers – come into play. And companies that push the exchange rate excuse too hard may find themselves shut out of the British market. “Retailers will have to settle for slightly lower margins, although larger store chains will try to push back against vendors’ price increases,” Olah explained. “Although it’s rather unlikely that a store such as Carphone Warehouse would pull out of selling Apple devices in the same way as Tesco dropped Marmite, it is a possibility for less-known manufacturers that are likely to feel the squeeze.”

Letter of the law

There must be some benefit to leaving the EU, right? If there is, many would consider being unshackled from European regulations and the auspices of the European Court of Justice one of them. Let’s not forget, it was the EU that was behind the ePrivacy Directive that forces every website to enquire whether you’d like cookies or not, forcing you to click OK on every new site you visit while generally leaving you none the wiser about the implications of said cookies.

Leaving the EU will indeed leave Britain free to make its own legislation, but it certainly won’t be an overnight process. “The prime minister has already indicated there will be a Great Repeal Bill, which will incorporate all of those regulations into UK law,” said solicitor Peter Wright, who runs DigitalLawUK and is chair of the Law Society’s Technology & Law Reference Group. “They can be reviewed at the leisure of parliament, and the decision can be taken over whether we want to maintain regulatory equivalence with the European Union, or whether we want to go down a slightly different, more liberalised path.”

In the meantime, the European General Data Protection Regulation (GDPR) was implemented earlier in 2018, and as Britain hasn’t parachuted out of the EU yet, the new, tighter data regulations this means it affects companies operating here. But if Britain decides that the EU’s data laws are too stringent and veers towards the American model, British businesses could be cut loose.

There’s already concern that the UK may fall foul of European standards thanks to the implementation of the government’s “Snooper’s Charter” (see p102). “The EU will have to make a determination with regards to the United Kingdom, whether personal data can be transferred within its laws,” said Wright. “There has already been an indication that this determination may be in difficulty because of the very intrusive surveillance legislation that has just become law in the form of the UK Investigatory Powers Act.” If the EU decided that the UK didn’t have sufficient privacy safeguards, “it might make it difficult for data to be transferred from organisations where it is gathered inside the European Union”. For firms that have UK data centres serving customers across Europe, this could be a big problem.

Campaigners from the Open Rights Group (ORG) say the UK must resist the temptation to make Britain’s data privacy laws more business friendly, not only to protect people’s privacy, but to eliminate the risk of the EU deciding the UK isn’t a safe place to store data. “Given the possibilities for challenges [from human rights organisations] or simply other countries trying to take business from the UK… we think it would be quite a mistake – indeed, really dangerous – to re-open the legislation,” said Javier Ruiz, policy director at the ORG. “Even if it isn’t perfect, even if it could be improved, the moment you try to improve it… the risk of being found not in compliance increases.”

There’s another reason why attempting to rewrite regulations such as the GDPR is fraught with risk: we haven’t written our own privacy laws for more than 30 years. Consequently, we’re out of practice and don’t have departments set up to do it. “It’s true that most privacy legislation has been drafted in more detail at the European level,” said Ruiz. “It would be quite difficult for the UK to draft better legislation. “It isn’t just the capacity of civil servants or legislators to do it,” he added. “It’s the fact that, for all its criticisms, the legislative process in Brussels has been the product of huge amounts of lobbying.

The end result reflects a very complex argument, which tries to take into account views from all kinds of industries and human rights groups.” Nevertheless, for all the risks of being ostracised by Europe, Peter Wright believes that the UK will eventually end up with data laws that sit somewhere between the tight privacy safeguards afforded by the EU and the more business-friendly regulations of the US. “You only have to look at all of the apps that so many consumers use on their phones and tablets; the majority of them are created not within the environment of the European Union but in California,” he said. “You ask yourself where is the UK’s Uber? Where is the UK’s Facebook? Where is the UK’s Airbnb? The answer is sometimes they’ve struggled for want of finance, or they’ve struggled because of what can be quite restrictive data protection laws,” Wright argued. “It’s going to be open to the UK government in future to decide which path it wishes to follow to encourage those sorts of businesses.”