Brexit: An appetite for destruction

Image: Stockfresh

24 June 2016

Niall Kitson portraitNo matter the outcome, #Brexit polls demonstrate how quickly half of any population can be convinced to vote against itself. Quite a lesson. – Edward Snowden

The above tweet from PRISM whistleblower Edward Snowden will likely be quoted ad nauseam both in the aftermath of this morning’s Brexit referendum results and the forthcoming general election in the US. The worst case scenario on both sides is that the two of the world’s largest economies will be managed by men with terrible hair and buffoonish personas pandering to the worst instincts of a conservative electoral base.

The short term impact has been well reported at this stage: the collapse of the pound, suspended trading in Tokyo and calls for a second Scottish independence referendum and a first on Irish reunification – a mix of temporary panic and medium-term political realignment.

That the result was swayed by the over-55s outside London will come as a shock, effectively meaning that generations raised on heavy industry that suffered through the Thatcher years and the outsourcing of the manufacturing base may have decided the future of the digital economy. Is the UK’s tech sector staring down a period of international isolation or will the global network effect shield it from long-term damage? Let’s look at some of the areas that will set it apart from the rest of the EU after the Lisbon Treaty’s Article 50 divorce plan is completed.

Data protection and surveillance
A subject that will doubtless be touched up on by my colleague Paul Hearns today, but you can’t underestimate the importance of the European Court of Justice’s (ECJ) work on data protection and limiting the rise of the surveillance society. Without the ECJ we would still be working with the obsolete Safe Harbour agreement, giving US companies free access to data on EU citizens for commercial and surveillance purposes.

The EU’s new rules on data protection directive will seek to bring a new standard into line where data gathered in the EU will be subject to EU standards, regardless of where it is processed. These tighter standards are good for consumers but add a layer of regulation start-ups and SMEs may find costly to adhere to. This is, however, offset by the size of the European market and the fact that complying with a stricter standard in the EU – where data is seen as more like personal property than the US understanding of information as a commodity.

What does this mean for the UK? Well, for one it means it won’t have to adhere to EU standards and can negotiate its own agreement with the US, perhaps one favouring the ability of law-enforcement agencies to combat terrorism. A significant part of such as strategy would come down to the location of data centres, which would require relocation from, in the cases of Google, Apple, Facebook and Microsoft, Ireland to the UK.

Will the cost savings of a more lax regulatory regime be a tempting prospect or is the Republic’s much-praised talent pool strong enough to keep jobs and services within the EU?
It’s arguable that too much money has been invested to see beyond the status quo.

FDI funding and tax
The UK government has long been critical of Ireland’s 12.5% corporate tax rate and rightly so. Part of the attraction of the EU is the alignment of economic policies and regulatory practices. Anything that belies the principles of the free movement of people and trade across territories with minimal disruption is going to be a stumbling block, especially when your nearest neighbour is taking a 7.5% less than you are from multinationals and actually less than that when arrangements like the ‘Double Irish’ are factored into account.

In February Google negotiated a £130 million deal to pay back taxes to the HMRC, a bill slammed as “disproportionately small” by the Committee of Public Accounts. Europe doesn’t have the power to set corporate tax rates but it can shame countries into playing fair and help close loopholes.

Outside the EU it will be open season on tax and it will have to be for the UK to maintain foreign direct investment from multinationals. Given two of Ireland’s main selling points are an English-speaking population and easy access to European markets that leaves the UK with tax rates as its only form of leverage.

STEM and research
The EU’s Horizon 2020 research programme is its eighth and best-supported – having a fund of €83 billion to be spread out across basic and applied science. Along with a massive budget, the European Commission’s vision based on the three Os of ‘open innovation’, ‘open science’ and ‘open to the world’ fosters a collaborative ethos and, ultimately, better quality research. Withdrawing from this kind of support will hurt UK research but that’s more money available for the remaining 26 member states.

The cluster effect
Language, market access, talent and tax are the cornerstones of Ireland’s success in attracting tech companies and one knock-on effect of that is the creation of a ‘cluster effect’ where start-ups and multinationals can engage, share ideas and work together. It also offers up a climate where local start-ups have a genuine possibility of acquisition – which is great news for entrepreneurs. Dublin remains a vibrant start-up ecosystem, far ahead of London. Long may this continue. A Brexit implies we’ll be seeing more of an isolationist UK, which will be bad for jobs and bad for attracting companies looking to network and innovate alongside the big players. I don’t think there will be many of these shores unhappy about that.

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