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THE IMPACT OF BREXIT. ON THE TECH SECTOR.ADVISORY NOTE

WELCOME TO A POST-BREXIT WORLDBritain’s EU referendum and decision to vote Leave has had a profound effect on the country’s political and economic landscape. Britain’s tech sector – proportionally the largest of any country in the G20 – obviously won’t escape the impact of such a momentous change.

The vast majority of tech businesses wanted to remain in the EU. They now have to adjust to a post-Brexit landscape, even if none of us is entirely sure what that will look like yet. But tech businesses are all about adapting to changing circumstances, and their can-do attitude will see them through even these difficult times.

So based on what we do know, what is Brexit likely to mean for Britain’s tech sector? We think the impact can best be compared to ripples in a pond, affecting virtually every business over time.

1. IMMEDIATE IMPACTThe areas immediately affected will be data, privacy, fintech, telecoms and talent. These are the areas most heavily affected by current EU regulation and therefore the most likely to be affected by the scrapping or rewriting of those rules. In the absence of any clarity about when and how legal changes might happen, these are the areas suffering from greatest uncertainty. (To give you a sense of the scale of the challenge: overall there are 80,000 pages of EU legislation that will need renegotiating and rewriting.)

Data and privacy

The UK has traditionally lobbied for lighter regulation on data and privacy. Without its voice in the EU, the likelihood is European data protection and privacy rules will become more stringent in the years ahead, while UK rules will become correspondingly looser.

In the meantime tech firms will need to adapt to changes already agreed and coming into effect soon. The EU General Data Protection Regulation, which applies from 2018, establishes tough rules around the collection and security of consumer data. British businesses will almost certainly have to comply with these rules, regardless of EU membership, if they want to trade with other European firms. The ongoing negotiations around replacing the Safe Harbor rules (whereby the US is viewed as a safe destination for Europeans’ personal data) will presumably carry on without a strong UK voice.

Fintech

The UK’s booming fintech scene is particularly affected by Brexit given that financial services has benefited so much from the existing single market rules. The UK currently has “passporting” rights which enable British financial institutions to access the entire EU market. If these rights are revoked, that will pose serious challenges to fintech firms hoping to operate outside the UK. In the longer term the financial regulatory environment might become less favourable if the UK isn’t involved in the drawing up of new EU rules.

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Telecoms

The EU has only just harmonised the telecoms market so that roaming costs are in the process of being abolished. The exact impact of Brexit on this new pricing structure is unclear, but presumably operators will be loath to change their prices again until the political situation is clarified. Radio spectrum is also being harmonised, in the run-up to the launch of 5G services in around five years’ time. The UK won’t have a say any more in EU discussions about the allocation of this spectrum, but realistically will have to follow these decisions to remain globally compatible.

Talent and skills

The UK will remain a member of the EU for at least another two years and current rules on freedom of movement will apply until that time. But the very fact of the Brexit vote may well have a dampening effect on the number of skilled workers wanting to move to the UK from elsewhere in the world. Some skilled British workers may also consider moving overseas. A skills shortage could well ensue.

Digital Single Market

The UK was one of the strongest proponents of the forthcoming EU digital single market. This will come into force at the end of 2016 and harmonise Europe’s online marketplace so that content, products and services are available for the same price everywhere. It was designed to help encourage Europe’s digital sector, and missing out on its benefits will be one of the most serious implications of Brexit for British tech firms. Access to this single market will presumably form part of the overall trade negotiations the UK will conduct with the EU in the years ahead.

2. ECONOMIC FALL-OUTThe secondary impact of Brexit will be on the wider economy in the coming months and years.

The referendum process itself was sufficient to make businesses hold off on some hiring and investment. The ongoing uncertainty after it – potentially lasting until October – could well push the UK into a recession. In this context it seems reasonable to assume that consumers will be less likely to make major purchases and businesses to greenlight large-scale investment projects over the next three months, and perhaps beyond.

We can discern some other implications too. The European Investment Fund (EIF) was the largest investor in UK venture capital firms: if its funding disappears, that could have a serious effect on the British startup ecosystem.

An economic downturn combined with two or three years of legal and regulatory limbo might well encourage tech businesses to consider relocating from London to other major hubs, such as Berlin or Amsterdam. The German Startups Group has already said “Brexit is good news for the German startup scene.” Whether larger businesses follow suit remains to be seen.

One potential silver lining of a weakened pound could be cheaper exports, helping British businesses that sell abroad. That said, currency fluctuations are already making life difficult for companies buying cloud and data centre power as they are now getting less for their money.

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3. CHANGING MOODThe final and least tangible impact is the change of mood that has come over the UK. It isn’t an exaggeration to say that the UK is currently going through a moment of national trauma, the likes of which it hasn’t seen since the Second World War. Traumatic incidents typically involve violence, anger, shock and grief: Brexit so far hasn’t been much different. The after-effects – stretching far beyond the tech industry – will last for many years.

Brexit is a once-in-a-lifetime event that completely changes the prevailing “narrative” of daily conversation and media analysis. As happened after the global financial crisis in 2008, previous assumptions have been overturned and unquestioned certainties replaced by doubts. Within this new narrative, every tech company will need a view on what Brexit means for its business. The

focus on growth, investment and skills will become even greater than before. Business plans will be scrutinised harder than ever.

What we can say is that tech businesses are nothing if not innovative. Their entire attitude is to capitalise on disruption, embrace risk and solve difficult problems. Those skills will certainly come in handy now. The fundamentals of Britain’s tech scene remain strong: an educated workforce, a heritage of innovation and a positive business environment, combined with natural advantages of language and time-zone, make the UK an attractive place to start and locate a business. Most tech businesses didn’t want Brexit, but now it’s here their attitude will be to roll up their sleeves and make the best of the situation.

THE IMPACT FOR COMMUNICATIONS

From a communications perspective, we foresee a few immediate effects that businesses should consider:

• Everything will be seen through the lens of Brexit over the short to medium term. Company narratives will need to be re-evaluated to chime with the mood and broader business environment. Certainly for the next few weeks this will reduce the opportunities for non-Brexit related media coverage and likely make non-Brexit social media content and engagement less effective too.

• One of the messages from the referendum is that there is enormous mistrust of and lack of confidence in institutions, including big businesses.

This makes employee engagement, human-centric stories and “social selling” more important than ever, as people trust messages from other people rather than from faceless brands.

• Opportunities abound for fast movers. As many companies are either distracted by Brexit or frozen by its implications, those who are confident, bold and fast to respond have the chance to stand out.

• Effective social listening systems will be more valuable than ever to act as early warning systems for potential problems and also spot opportunities as the narrative evolves.