Britain has already started looking to the future – and rightly so. Whether leaving the EU is a bad decision, as many economists, trade organisations, and financial institutions believe – and today Morgan Stanley announced it is pulling jobs out of the City and moving them to Europe – or whether it is a positive move to throw off the shackles of European bureaucracy, as a majority of the population believes, we must live with it and move on, in every sense.
But three of the key challenges alongside the data protection, security, and transfer issues (which have yet to be resolved), and the question of who will minimise the risk of monopolistic/antitrust activities in the UK, are skills, innovation, and investment. [See yesterday’s report for an analysis of the data governance and regulatory challenges.]
Skills and innovation will remain a key challenge for a post-European Britain, which is itself at risk of breaking up still further into its constituent nations, each of which will compete for the same business and the same skilled people. From the day the UK formally leaves the EU, our young people will lose their right to live and work in 27 countries, while the ability of the UK to attract skilled people from the EU and elsewhere will remain in doubt for years to come.
This means the UK has no choice: it must invest in its young people at home, invest in their training, education, and professional development, and not saddle them any further with escalating debt, which has made them into little more than grist for the financial services mill.
Trade itself has become more international in recent years – even as the cloud market has become more international, albeit under national laws regarding data hosting and transfer. Trade barriers have been broken down. Many of those barriers will now go up again.
Historically, a lot of US tech companies that have brought their business models to the UK have struggled, because they don’t understand some of our domestic markets, such as the government IT sector, for example. Again, that was partly to do with rules governing the location and governance of data. Those rules have yet to be rewritten.
Another challenge is purely financial: domestic investment in the UK’s IT and communications sector. The UK has always been good at providing seed and angel investment, while the government itself has pushed funding into initiatives such as Tech City/Silicon Roundabout, but there is precious little money at this end of the scale, and demand for it is hyper competitive.
At the other end of the funding spectrum, the City is a major player in private equity; some of the biggest private equity funds in the world run out of London. At least, they do at present. Whether that will still be the case in a more inward-focused market in which the UK no longer offers its traditional bridge between the US and Europe is moot. We will have to look further afield, perhaps, to China, India, and the Commonwealth. But in every case, we will be the weaker partner in the deal.
This leaves the middle of those two extremes, which has always been the crunch point for UK technology companies seeking to grow beyond ‘three people with a great idea’. You can raise £250,000 or so from seed or angel investors in the UK, or from friends and family, but if you want to raise, say, £25 million to expand internationally, then that has always been a challenge. It is hard to see how that challenge can be overcome by the UK presenting a more insular face to the world. We will need to be super ambitious.
However you look at it, the future of any number of joint UK/European ventures and partnerships across dozens of different fields, from the arts to science, technology, and engineering, must be at risk, along with the UK’s place in pan-European research and development.
A related problem is cultural, and hardwired into the UK psyche. Many investors within the UK are innately conservative. UK investment funds see areas such as financial services, big pharma, aerospace and – incredibly – oil and tobacco as being safe investments. They’ve always performed well, and so some financial advisors push people towards making the same ultra-conservative bets with their cash.
Meanwhile, digital, high-tech and new media ventures are seen by many major funds as being speculative and extremely high risk. As a result, potential UK success stories may never get the boost they need into the big league. Part of the problem, then, is that the UK is fundamentally risk averse when it comes to technology, however world class our ideas may be.
Today, perhaps, that changed; but there’s a caveat: the British people took the risk against the advice of most economists, most trade organisations, most banks, and most finance professionals – and for reasons that were, in some cases, based on half truths, distortions, and outright lies.
However you look at it, the UK has a small, homogenous domestic market, so if you want to sell to millions of people and grow big, you’ve got to go elsewhere. That’s inescapable.
So the conclusion is clear: in order to succeed in the global market, post-Brexit, the UK has to do something truly radical: stop being risk averse and conservative with its investments, and start investing in youth. It’s clear from the polls that the nation’s youth did not vote for Brexit – and many did not vote at all. But now we must place our faith and our future in them.