CW Technology Community Brexit Impact Survey
The future of science and technology in the UK post-Brexit has been discussed heavily among businesses, politicians and industry leaders. This report presents a microcosm of the industry’s insights, exploring the potential impact of Brexit on five areas:
- Business Confidence & Investment
- Cost of Business
- Recruitment & Retention
- Business & Innovation Opportunities
- Regulation
It is based on data collected through a survey of Cambridgeshire’s technology businesses. The results were initially presented by invitation to the South Cambridgeshire District Council Brexit Advisory Group and Cambridge City Council in November 2018.
The primary conclusion from the data is that uncertainty is rife, that projects with European partners are perceived as risky, and that the flow of skilled talent into the technology sector is already suffering.
There are also positive insights emerging that reflect the global, rather than European, perspective of many technology firms in this region. While business with the European Union may be more complicated short term, there is hope that trade with major economies such as China, the United States of America, Korea and India may grow.
The primary recommendation to local Government is that the information flow between business and Government needs to improve. Organisations require knowledge and certainty in order to plan for the future with confidence. In addition, it is critical that the Government recognises the contribution of international talent to the Cambridgeshire economy and puts in place both short-term solutions to allow EU nationals to continue to work in the UK, and long-term solutions that nurture the next generation of talent through high quality, business focused education programmes.
Business Confidence & Investment
In terms of business investment, the majority (58%) of respondents claimed that the Brexit process has had no impact to date. Many of these respondents hold senior positions such as Director, CEO or Manager and are the most likely candidates to be knowledgeable about investment in their business. The minority (10%) that were ‘Unsure’ on whether the Brexit process has increased or reduced their rate of investment into their business tended to hold jobs in the practical divisions of these companies such as Engineers and Designers, which may be the reason why they are unsure as to the effect of Brexit on this matter as they will not work closely with this.
The respondents’ comments imply many companies are uncertain as to how much of their business will be affected due to the Brexit deal still being unconfirmed. One respondent commented that as far as they are aware, there has been no impact yet since Brexit was confirmed.
Regarding the impact that the Brexit negotiation period has had on the growth of their business, 45% of respondents claimed that there had already been an overall reduction in the size of their business, while 40% claimed that there had been ‘No Impact’. Examples of causes for slower growth are decisions to not replace staff and unwillingness to invest in new infrastructure until the state of the UK post-Brexit has been revealed. One commenter revealed the fact that EU based multinationals have been delaying contracts until Brexit is finalised.
Another key thing to note is that some Cambridgeshire technology businesses who deal with EU companies (whether partners or suppliers) were struggling with retaining business or receiving new business due to the uncertainty surrounding Brexit with many commenting on the fact that former EU partners were worried about taking a ‘risk’ with UK partners.
Looking to the future, the majority of respondents believe that their business will experience slower growth post-Brexit, with as much as 24% of respondents claiming that their business would likely experience significantly slower growth post-Brexit, mostly due to the perceived risk of entering new projects with UK businesses. It is also unclear whether public / private partnership projects such as those appointed by the European Commission will continue post-Brexit. In terms of technology industry support services, a law firm raised the point that it is likely post-Brexit that the UK court will lose international prominence and that their business would suffer because of this.
A couple of comments suggested that we need to wait and see what the trading relationship with non-European countries will be like before determining the level of growth post-Brexit.
Only 6% of respondents suggested that their business was likely to experience faster growth. These businesses tended to focus on the promise that Brexit offers.
I expect significant growth from a clean Brexit that delivers on taking back control of laws, money and borders.
With Brexit uncertainty, it is difficult to see what will happen.
Cost of Business
When asked whether the Brexit process has already had an impact on the costs of running their businesses, the majority of respondents (40%) believe that there has been no impact, but this is closely followed by 38% of respondents claiming that they have already experienced slightly higher costs and another 4% claiming significantly higher costs. The root cause of increased costs stem from recruitment challenges and currency exchange rates.
We recruit engineering and data science talent worldwide and the cost and time associated to Tier 2 visa applications means the business incurs £10-£20k of cost per person. We are very concerned about the visa process and cost post Brexit.
At the time of writing this report, the exchange rate between the sterling and the euro is at one of its lowest points, with the pound now worth £1.14 in euros, compared to when it was worth £1.41 in May 2015, the summer before the EU Referendum. The exchange rate is affecting the cost of bringing European expertise to the UK, as well as budgets for European projects.
5% of respondents claimed that they have already experienced significantly lower costs due to Brexit. One of these respondents gave the reason for the improvement that their business invoices are all in euros which for them has been a favourable currency movement. Another mentioned that the respondent was paid in euros, rather than sterling, and that the exchange rate worked in their favour.
As I am paid in Euros, I am now receiving more sterling in exchange.
Following Brexit, 66% of respondents claimed that they were expecting an increase in costs post-Brexit, with as much as 20% of these businesses expecting significantly higher costs. Import duties and talent acquisition are cited as key reasons for increased costs. Another 20% of respondents claimed that they anticipate no impact on their overall costs after Brexit, and 4% predict a reduction in costs.
No further impact on the basis that the £ is mostly already priced for Brexit.
We explored in detail the perception among businesses of which costs they expect to increase the most. Accounting for a number of costs behind a business, this chart shows the impact of how said costs may/will be affected post-Brexit. Recruitment, legal and import costs are the ones most likely to increase, and the export of goods is the most likely factor to decrease in cost.
Business and Innovation Opportunities
When asked about the impact that Brexit has already had on businesses order books, 42% of respondents claim that there has been no change, and 23% mention a slight decrease. There is a general feeling that businesses cannot hold their order books liable to a single event.
Very difficult to trace fluctuations to a political event. Overall no real impact.
However, it is clear from the 23% already suffering shrinkage that decisions around European projects are on hold pending the deal. One firm went so far as to claim 50% fewer inward investment projects from last year.
There may have been other European consortium projects that we might have been invited into that have been effected by Brexit, but we have had no direct feedback to prove this either way.
Export revenues is the factor most expected to increase post-Brexit for Cambridgeshire’s technology firms. 14% of respondents predicted a growth, with many commenting on the trade that can be conducted with the USA and Asian countries, and others reflecting that as the pound becomes cheaper then services become more attractive.
The perception of the UK as the gateway to Europe came out strongly through this study. Cambridgeshire’s technology firms are aware of the risk that for countries such as the USA this ‘gateway’ will become less attractive and foreign direct investment in the UK will decrease as firms looking to access the European market move to the continent.
I expect there will be less interest in UK tech vs EU tech post-Brexit, so greater competition.
The European Union is a source of funding for many technology firms and research projects in Cambridgeshire. Horizon 2020 is an example of this. It is an EU Research and Innovation programme with nearly €80 billion of funding available over a period of seven years, (2014 – 2020). This programme promises more breakthroughs, discoveries and world-firsts by taking ideas from the lab to the market. The goal for Horizon 2020 is to ensure that Europe produces world-class science, removing barriers to innovation, making it easier for public and private sectors to work together in delivering innovation.
38% of respondents claimed that their participation in cross-border innovation projects has been reduced because of the Brexit process and 48% believe that they will see a decrease in participation after the UK splits away. Respondents stated that they are unwilling to enter innovation projects such as Horizon 2020 as there are too many unknowns in terms of the project results and outcomes.
We just won’t enter into cross border projects like H2020: there are just too many unknowns.
Talent Recruitment & Retention
Many technology firms in Cambridgeshire hire individuals from around the world, including countries within the EU. With the uncertainty around Brexit and the reluctance of some talent to move to or remain in the UK, these companies are having to source more ways to attract staff to their positions, which entails a cost.
78% of respondents claimed that their business relies on a flexible and cost-effective immigration system. Only 18% of respondents claimed that such a system is not important for their business.
60% of respondents state that over the past two years they have already seen an increased difficulty in recruiting talent, mainly due to the perception of EU nationals that the UK no longer “welcomes” foreign talent, and the difficulty of working through the UK’s visa process. The value of the pound was also commented on with suggestions that due to the pound lowering, the UK may not be able to offer attractive salaries to those currently living abroad.
This difficulty perception increases to 78% when respondents consider the impact of Brexit on recruiting talent in the future. One respondent said that their business planned to open an EU design centre instead of having roles that cannot be filled within the UK due to the talent acquisition between the UK and the EU.
[…] people are concerned about being welcome here, and if they change jobs are looking outside the UK first.
Overseas employees are hesitating to come and we have lost 3 people this year who became uncomfortable with the uncertainty […]
This is a key concern and as an employer our ability to be informed and provide reassurance is vital.
The Cambridgeshire business community is consistent in requesting from local Government the tools to provide reassurance to European colleagues. This viewpoint is supported by an article published by The Independent which claims that ‘More than one million foreign workers are preparing to leave the UK within five years’. The survey, conducted by accountancy firm Deloitte, suggested that 26% of EU national workers were planning on leaving by 2020 although a third of these workers would consider changing their minds if there were more positive statements released from the Government which would make them feel welcome in the UK.
The digital skills gap that the UK faces was something that businesses were clear to emphasise. To meet the technology sector’s demand for skilled talent, it is necessary to recruit from international pools because the supply from the UK’s educational system is not yet sufficient. If the Government wants to nurture internationally competitive growth in this sector, action needs to be taken to increase the domestic supply of STEM talent as well as ensuring that, post-Brexit, access to skilled international talent is as streamlined as possible.
The raising concern for costs relating to tuition fees in the sectors of science, technology, engineering and mathematics was presented. Several recommendations emerged for mitigating this cost and encouraging more young people to study STEM subjects, such as the creation of a fund to be managed by the existing technology investment community which would allow the next generation to receive a high-quality education.
Zero tuition fees for students studying science, engineering, maths. Set up a Government Technology fund to be run by the existing tech investment community […]
Regulation
As a member of the European Union, there are laws and regulations that all organisations have to abide by if they offer goods or services or operate within the EU. Once the UK has left the European Union, some of these regulations may change, adding to project lead times and legal costs.
The answers given in relation to this section focused heavily on three major laws in place for all countries operating and trading within the EU which are: GDPR, CE Marking and Cross-Border Data Flows.
CE Marking: Is a certification mark that indicates conformity with health, safety and environmental protection standards for all products sold within the European Economic Standards (EEA) with products sold outside of the EEA but manufactured in, also having to receive CE marking.
Concern appeared over the fact that if we revert to UK standards, costs for business will significantly increase as they will have to comply with CE requirements to supply within the EU, and the new UK requirements to supply to the UK. This duplication of effort was a prime concern for medical device companies.
We work extensively in the medical space, so aligned CE-mark regulations are core to what we do. Deviations from this system will require us to work two systems instead of one, which will increase costs.
GDPR: The EU General Data Protection Regulation has been set up to protect all EU citizens from privacy and data breaches in today’s data-driven world. GDPR, which came into force on May 25th, 2018, applies to all companies processing and holding the data of EU subjects regardless of their location.
The majority of respondents who discussed GDPR mentioned the impact on their business processes but accepted the fact that it has promoted better practices across their company.
We’re a data business so GDPR has a significant and ongoing impact on our business…in an area of legislation, we need to take into account as we develop our products and services.
Cross-Border Data Flows, (within the EU): The transfer of information, or data which crosses country borders is commonly referred to as ‘Cross-Border Data Flows’. The European Union have drafted provisions designed to ensure that cross-border data flows are not hindered in international trade deals, which will stop countries from restricting the flow of data to within their own borders by requiring organisations to use computing facilities, ensuring that GDPR is not undermined.
Answers raised the point that cross-border data flows are already an issue in most organisations, but some thought that cross-border data flows are likely to become important in the future, once the UK has left the EU.
For further reading, you can view summaries of EU legislation laws here.
Conclusion
Clickbait reporting from the media merged with daily updates on the conflict in Parliament has generated uncertainty and confusion among Cambridgeshire’s businesses. This lack of information is preventing firms from investing in high impact growth strategies, limiting access to European opportunities and making it harder to recruit and retain European talent.
The Government has clear ambitions around the future of the technology in the UK. It is investing in four Grand Challenges in order to put the UK at the forefront of the industries of the future. These Challenges include Artificial Intelligence and Data, Ageing Society, Clean Growth and the Future of Mobility.
While Brexit poses a true risk to technology firms in Cambridgeshire, and support is needed from Government in addressing some of the key issues raised by this report, there is still plenty of opportunity for our business community. We need to secure new ways of working with the European Union, while looking beyond our immediate neighbours for promising opportunities across the world, for example in China, with whom we have signed a ‘joint trade and investment review’.
If you are wanting more information on Brexit, find out more at the sources below:
- Brexit Information – Cambridgeshire Chambers of Commerce
- Business Brexit Checklist – British Chambers of Commerce
- How to prepare if the UK leaves the EU with no deal – Gov.UK
- Prepare your business for the UK leaving the EU – Gov.UK
For a more in-depth review of this survey, please refer to the downloadable PDF.