Tech sector on No Deal Brexit - it's going to hurt and more government help is needed

Profile picture for user slauchlan By Stuart Lauchlan September 16, 2019
Summary:
Boris Johnson's Incredible Hulk posturing is ridiculous; the prospect of a No Deal Brexit is no laughing matter for the tech sector.

Johnson

UK Prime Minister Boris Johnson has his first meeting with Jean-Claude Junker, President of the European Commission, today after a weekend of being widely mocked for declaring that Britain will apparently Brexit like the Incredible Hulk.

Leaving aside inappropriate Marvel analogies, Johnson and Juncker meet as the clock ticks down remorselessly to the 31 October Brexit deadline, with the UK leader still adamant, for public consumption at least, that there will be no delay and if there’s no deal in place by that date, so be it.

That’s not a position that’s making the UK technology sector any happier. A survey by trade association techUK conducted towards the end of August and published appropriately enough last Friday - the 13th -  finds that 71% of respondents believe that a No Deal Brexit will harm their businesses, up from 69% in an earlier study last December when Theresa May was Prime Minister.

Today, 27% reckon that crashing out of the European Union would have a very negative impact on business, while 44% said it would be fairly negative. It might be British reserve that lends weight to the ‘fairly’ category, but Julian David, CEO of techUK, is in no doubt about the overall mood of the sector:

In the nine months that have passed since we last surveyed our members, sentiment has not changed about the impact of no deal with the majority of respondents saying it would have a negative impact on their business. Even for those members we spoke to who have taken steps to prepare for No Deal, mainly larger members, it is clear that No Deal remains an unattractive outcome.

Concerns 

The main concerns are by now pretty familiar after 3 years of Brexit wrangling:

  • Overall negative impact on the economy and a slowdown in business (73%)
  • Confusion and uncertainty over the regulatory compliance requirements following a No-Deal exit (51%)
  • Additional regulatory barriers to access EU markets/divergence between EU and UK markets (47%)
  • Impact on the ability to retain and recruit talent from EU 27 countries (45%)
  • Disruption to the free flow of personal data between the EU and the UK (38%)

That last point is worth noting as the government’s own ‘worst case scenarios’ Yellowhammer document, publication of which was forced on Johnson last week, contains the following warning.

yellowhammer warning

 

That should set alarm bells ringing among UK and non-UK cloud services providers alike!

A counter point that would doubtless be made by Brexiters in the Johnson Cabinet would be that the hardening of the stance on the 31 October deadline has been accompanied by an increase in preparations to mitigate against the worst impact of a No Deal exit.

That’s the theory at least and there is some evidence from techUK members that there is some action on that front, although it doesn’t look as though the Government gets much credit for this. Small and medium businesses who haven’t been as active in preparing for No Deal attribute this to being unable to predict what the outcomes of such an exit would actually be. The Yellowhammer document should have given them food for thought last week in that case.

When asked if they were aware of any information or support that the Government has made available to help prepare for a No Deal Brexit, large organisations - over 250 staff -  are twice as likely to be aware of information provided or support on offer than medium or small firms.

Overall, there has been an increase in preparing for the worst however. Back in December, 51% of surveyed members had taken at least some steps in that direction. That’s risen sharply to 67% today, with only 28% of respondents saying they’ve done nothing.

Large businesses are the most confident, with nearly a third believing themselves to be very prepared for No Deal and a further 55% saying they are fairly - that word again - ready. In contrast only 5% of small businesses and 6% of medium businesses claim to be very prepared.

Needs

If the UK does indeed crash out without a withdrawal agreement, techUK members have a clear wish list for what they want from the Government to help them cope with turbulence.

Financial Support

  • Tax relief/financial support to pay for professional services such s legal support to amend contracts to include free flow of data provisions - 36%.
  • Partial off-setting of the costs of any tariffs imposed on products sold into the EU for a limited time post No Deal - 27%.
  • Guarantees for existing funding delivered through EU programs - 24%.
  • Co-ordination with banks to make available low interest or interest free loans to business to prevent cashflow problems - 23%.

Communications Support

  • Updated technical notices for Brexit preparedness and a dedicated government helpline for business support - 38%.
  • A designated SME support service - 33%
  • Explicit details of planned compensation, adjustment and assistance for companies badly affected by new trading arrangements - 32%.
  • Information on how businesses can communicate details to Government of negative or unintended consequences relating to the new tariff schedules - 26%.

Tariffs

  • A commitment to align with EU single market rules and standards for six months or more after a No Deal Brexit - 53%.
  • A temporary extension of freedom of movement followed by a simplified immigration scheme for EU migrants - 49%.
  • Immediate preparations to request an adequacy agreement on data - 48%.

My take

All of this makes for pretty grim reading. And as techUK’s David points out, 31 October isn’t the end of the story:

A No Deal Brexit on the 31st October will not bring an end to uncertainty for business. The UK will have to return to the negotiating table on the 1st November to start talks on a Free Trade Agreement, with no Withdrawal Agreement to build on. This will only extend uncertainty and undermine confidence for UK tech businesses.

Still, at least we know what Boris Johnson’s Halloween outfit will be - don’t make him angry, you won’t like him when he’s angry!