Brexit will surely present both challenges and opportunities across the whole of both EU and UK economies. As CEO of a 50-person digital agency, it’s something that’s on my risk register as both high-likelihood and high-impact. So what follows is a rundown of my thoughts and worries.
Of all the industries in the UK, digital is hugely important and is growing. It’s an industry that creates value, creates jobs and represents a positive influence in the UK market. It’s an industry that I’m proud to be a part of, not least because of its flexible work opportunities.
Digital agencies are great at employing people who want to work from home, or work part-time, such as those with disabilities or returning to work mothers. The digital sector creates enormous value for the UK economy, accounting for 16 per cent of output, 10 per cent of employment and 24 per cent of exports. It’s an industry that should be listened to.
Theresa May herself introduces the Tech Nation 2017 report with:
Today more than 1.5 million people are already working within the digital sector, or in digital tech roles across other sectors, while the number of digital tech jobs across the UK has grown at more than twice the rate of non-digital tech sectors. From analysts to web developers to software architects, these pioneers of our digital economy are at the forefront of a great British success story.
As a simple snapshot, consider that the digital economy is growing at twice the rate of the wider economy and contributes around £97bn a year.
So, what makes Brexit particularly challenging and interesting for digital agencies? Firstly, I think the industry is predominantly anti-Brexit. According to polling data, Remainers outstripped Leavers in the younger age brackets, with nearly three-quarters of 18 to 24 year-olds voting to remain. On the whole, digital agencies tend to be run and staffed by younger people. The calculation I’m therefore making is that most people in digital agencies would have voted Remain.
Beyond those statistics, there’s further a feeling that the voting decisions of many were swayed by misinformation, misleading information and even straight-out lies. People in digital spend a lot of time online.
We’re used to having to evaluate information sources and decide what we believe to be true. For example, we have to choose between two technical opinions, follow Reddit threads about latest trends (evaluating both the original poster and the commenters) and help clients to solve problems caused by user-generated content or behavior on their digital properties, both now and looking out to the future.
So I assert that people working in digital agencies are both more likely to be naturally inclined to be anti-Brexit, more likely to be trading internationally, be more critical of propaganda and increasingly valuable to the UK’s economy.
Leaving political allegiances and emotions aside, let’s have a look at the challenges and opportunities that Brexit appears to present.
Markets, talent and data risks
Others have written that the three biggest risks to the UK digital industries through Brexit are access to markets, talent and the free flow of data across borders.
Firstly, access to markets. Global brands in so many industries, but particularly in technology and digital, use the UK and especially London, as their European hub. Yet if Brexit means they can no longer access Europe in the same way, then they won’t be able to export in the same way. The risk is that the European hubs for global enterprises are moved to Berlin or Paris, causing a massive brain drain as the talent follows.
Secondly, access to talent. Even if the companies don’t move out of Britain, the best talent may no longer be able to (or want to) work here. There’s a shortage of quality home-grown talent and the digital sector relies on hiring staff from within the EU. Around 7 per cent of the digital sector’s 3m workforce come from EU countries.
Many of these workers will be worried about whether they can continue to stay after Brexit. Or they may simply feel they are better off relocating to elsewhere in the EU rather than risk staying on in a regressive political climate where the economy doesn’t offer the potential that the rest of Europe can. Certainly, the hubs that will have by then relocated to Berlin, Paris and Tallinn would be foolish not to try to attract those workers from the EU, as well as some of the UK’s best native talent.
Thirdly, free flow of data. The global economy has spent a lot of effort drawing up regulations to protect consumer data. Even after two years of development, the International Safe Harbor Privacy Principles were declared invalid after only a few years of existence, to be replaced by the EU-US Privacy Shield which was again an expensive and difficult piece of international legislation to draw up.
Indeed, UK businesses are even now staring down the barrel of GDPR, a powerful and disruptive piece of EU regulation that will come into force even as we are committed to leaving the EU. Will the UK economy end up paying twice, to comply with GDPR and then a revised UK-only version? Data is difficult; regulating what happens with it is complex and the cost of complying with that regulation can be extremely expensive. Who knows what the indirect economic impact will be of a change in the free flow of data between UK and the EU?
To these risks, I’d add financial instability caused by currency foreign exchange rates. Will Brexit cause the pound to go up or down against the Euro and the dollar? Will that make us unattractive to those huge economies? Or will it make using UK agencies financially attractive to clients? But no-one running a digital agency would want the UK to become a cheap ‘offshoring’ location.
It’s a risky competitive position that can easily be defeated by other parties offering even cheaper rates. To succeed, the digital industry needs to provide high quality, high value services. A weaker pound would also leave UK agencies with significantly higher costs for using the international services and remote workers that make up a significant proportion of our cost-base.
So if these are the key challenges, then what does that mean in terms of opportunities? They’re less clear (and probably more controversial). I think they come down to:
- Increased government funding/backing
- The opportunity to leave the UK economy
- The opportunity to disrupt the UK political landscape
The government isn’t going to want to see the digital sector crumble. Perhaps in recognition of the backlash from the tech sector, the government a couple of months ago launched a Digital Strategy plan that it asserts will keep the UK at the forefront of digital, despite Brexit. The plan includes offering digital training to millions of people and businesses and the creation of five international technology hubs.
Critics have lambasted it for its lack of detail and have said that it just doesn’t go far enough. Besides, it’s not even clear where the money to fund much of it will come from and a lot of the digital training was to come from private sector organizations, which I suspect would follow their own agendas, not act in the interests of the digital sector as a whole.
So if the government fails to create an attractive environment for digital businesses, then what? Well, of all industries, digital is one of the easiest to pick up and move around – literally. An agency can easily register in Estonia or Singapore and be up and running the next day as an incorporated business there. It’s not like there’s a manufacturing base or a physically-restricted business operation to consider. Agencies can and do collaborate with remote workers and clients using open-source software.
Even financially, we’re relatively free. Of all sectors, digital has the most expertise and understanding of disruptive financial technologies. If Goldman Sachs (who are invested in Bitcoin) came to us and offered to pay us using Bitcoin, would I agree? Almost certainly. And that’s a risk to the UK economy.
If people and businesses increasingly use non-fiat, non-government-controlled currency to trade, the government loses control and the fiat currencies lose value. All of this presents a very real risk for the UK; a digital economy in which digital agencies freely operate, but where the corporation taxes are no longer funding the UK’s coffers.
A bigger opportunity
I believe there’s currently a reasonably harmful level of disenfranchisement with UK politics and government with younger generations. The political process has disregarded the 48 percent that voted against Brexit and is flailing around trying to react.
It seems that party politics are just not reflective of how the current generation of digital leaders understand that decisions should be made (and increasingly are in influential spaces such as corporations, open-source software projects and digital spaces like Wikipedia).
I think there’s a real danger that if the government and opposition parties continue to fail to reflect the views of half of our digitally-divided country, then the electorate may start to find their own alternatives. There is a bigger opportunity now more than ever before for the emergence of a new political paradigm or party that will fill the vacuum and will offer to represent the people that the government is failing to legislate for.
Personally, and if my own agency’s experiences are anything to go by, Brexit is causing us real issues – and it’s not even here yet. We’re having to look at contingency plans to counter the disrupted pipeline of European talent. We’re having to rejig strategies and tactics to account for increased costs of using remote workers and services. And we’re having to consider our own place in a UK economy that may well drastically weaken when Brexit comes.
I don’t want our sector to just sit back and take all this. The potential implications of Brexit on the digital economy mean that the UK government is playing a dangerous game. The digital industry needs to step up, provide check and balances and come together and be a force to be reckoned with – so that we cannot continue to be ignored.