A Healthy Tech Sector in Post-Brexit Britain

This article was published prior to the publication of the post-Brexit agreement between the UK and EU which covers the relationship between the UK and EU following the end of the implementation period (commonly referred to as the “transition period”) created by the European Union (Withdrawal Agreement) Act 2020, and should be read in that context. For up-to-date commentary and information on our services, please see our Beyond Brexit page.

There are some dark Brexit clouds hanging over the service sector. Whilst not immune to its own challenges, the tech scene’s future seems relatively replete with silver linings.

Brexit’s effects

The EU provides Britain with skilled IT and creative workers, an arrangement under threat from immigration reform proposals. In the short run, the industry could feel a talent shortage keenly. In the medium term, however, the excellence of UK universities and the issuance of tech visas will go some way to smoothing things out. Despite some commentary that there would be a mass exodus, the number of applicants for visas has soared since 24 June.

Computer Weekly lamented that the Brexit debate ignored network effects – the idea that more participants using any system has an effect that improves its function (e.g. Facebook) or frustrates it (e.g. road traffic). It went on to make the point that Britain just isn’t large enough to have a voice that matters in IT on its own: ‘…the Brexit idea that Britain could simply press a magic button and ignore all this “red tape” is deluded.’ Still, tech investment in the UK amounted to a third of all European venture capital funding last year; innovators will continue to develop their ideas while legislators argue.

New challenges and optimism

UK tech has a history of thriving in difficult economic contexts. A flash recovery after 2008 saw the sector leap back to its pre-crisis levels in less than a year. With impressive dynamism, the digital sphere has grown 32 per cent faster than the rest of the economy, according to Tech City, and employed almost three times more new workers.

Industry observers are confident; only one in five tech managers expects to revise their growth ambitions, and one in three is rethinking hiring plans. Co-founder of startup booster Incubus Rishi Chowdhury says ‘Although disappointed by the Brexit result, I am optimistic … with change comes opportunity. London and the UK has some of the world’s most enviable resources and knowledge for startups to access.’

The optimism is partly fuelled by recent deals such as £210 million for Deliveroo and £50 million for Darktrace, a Cambridge-based cybersecurity company, in the latter half of 2016. We are seeing UK, US and European investors continue to fundraise and invest, with few financings appearing to have been withdrawn as a direct result of Brexit.

UK structural advantage

The UK's traditionally pro-market legislation can underpin new momentum. Its data protection laws could be eased to attract companies seeking to store data for the continent. Aspects of corporate legislation are also more lenient here; Germany and France are using legislation to crack down on Uber.

Amazon recently invested heavily to make London their European shipping hub, and pundits see the city’s capital in fields such as fashion and food tech as underexploited. Business is booming for fashion tech firm Metail, which provides shoppers with virtual fittings, and its founder maintains that there is still much room for development around retail.

The sterling’s devaluation is an extra fillip to export-oriented retail tech firms and would seem, for the time being, to be providing further advantage.

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