Brexit: Dog finally catches car

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24 June 2016

Paul HearnsWe all woke this morning to the news that Britain had voted to leave the European Union.

The early demographics are very interesting showing that the leave vote was primarily among the older generations, with the younger generations voting to remain. It is somewhat ironic that the main leave supporters are unlikely to see the real consequences of their actions. Also, with Scotland and Northern Ireland voting to remain, there are some difficult negotiations to come for those nations.

I had already speculated on the prospect of Brexit and data sharing implications, as some analysts and commentators had already suggested that the EU-US Privacy Shield could serve as a model, or at very least a starting point, for future agreements with a non-EU Britain.

“Perhaps a greater impact will be seen for those Irish technology companies that have made significant investments in the UK in the last few years”

This morning, that seems a little inadequate as are there are now so many other potential implications for the tech sector.

The pound has plummeted, as has the euro, against the dollar. Irish and UK shares have suffered a hammering, wiping them back to deep recession levels.

Within this, what are the areas most likely to be affected?

Multinationals
Well, one of the first is for the technology multinationals that have complex tax and operational structures between the UK and EU members. For example, situations such as Google’s assertions that its UK operations don’t really do sales and that all sales are handled through Ireland could be threatened. The situation is already being heavily scrutinised and even if the future UK government (I say future as David Cameron has already announced his resignation) accept as is, the EU may not and Ireland will have to abide by whatever outcome the EU decides.

A further implication of this is that other multinationals seeking to reduce their tax burden through such arrangements may seriously reconsider plans for UK offices, and particularly UK headquarters, as a result of a EU exit. That may be a boon for Ireland as it may well be seen as the next best alternative. Indeed, in sectors outside of tech, this may well have implications too as medical and pharmaceutical companies that may have preferred the UK for a European base now reconsider.

Another implication is for tech companies that have recently invested heavily in data centres and data hosting within the UK, as a means of ensuring that digital assets can remain within the EU. Amazon, Microsoft and Oracle have all recently announced major new data facilities in the UK. While these facilities may not have been entirely for this specific purpose, there may well be significant changes to such plans as a result.

Workforce
One area that may well impact the technology sector is the free flow of the highly skilled workforce. Statements have already been made that the free flow of people between Britain and Ireland will remain, irrespective of the outcome of the referendum, but even a small increase in bureaucracy to allow people to move between the two countries could have an adverse effect. Our appointment notices over the last few years have shown a number of senior Irish executives moving on to senior positions in the UK operations of large companies. This may not be as natural a progression under the new conditions.

Perhaps a greater impact will be seen for those Irish technology companies that have made significant investments in the UK in the last few years. Several technology partner and service provider type companies have either acquired UK companies or made significant expansions into that market. There are also those large distribution companies that have expanded to become Ireland and UK entities. How those moves will be affected by the referendum outcome remains to be seen. There will almost certainly be a period of uncertainty and then change as new trade conditions are negotiated and implemented.

Legal situation
However, as has been pointed out by David Allen Green, author, legal commentator for FT.com and the former legal correspondent of the New Statesman, the referendum was an advisory one, not a mandatory one and therefore, in and of itself, has no legal implications. It is not until Article 50 of the Lisbon Treaty is triggered that the process for the UK to leave the EU begins. Cameron in his resignation speech indicated that this is something for the new prime minister to do. This would then begin a roughly two-year process of departure.

So, as the tech sector here gears up for the implementation of the General Data Protection Regulation in May of 2018, it is likely, if the Britain does actually leave, that those efforts will be further complicated by dealing with Brexit too.

In fact, Green speculates it is perfectly possible that the so called ‘red button’ of Article 50 is never pressed. For example, if another ‘new deal’ emerges for Britain, then there may be a row back that sees no exit.

He also suggests that another referendum could take place, if there is widespread popular remorse, that might see a different result. Now, where have we heard that before?

In effect
But in the meantime, Green also points out that all UK law, including that drawn from the EU, remains in effect and that nothing in the referendum results changes in anyway the applicability or enforceability of UK and EU law.

So, with plummeting sterling against everything, the euro falling against the dollar, shares on UK and Irish markets falling, but bank stocks across the EU being hit too, the pinch of Brexit is being widely felt already. The leadership contest for Britain will likely determine the timeframe between now and the triggering of Article 50 to begin the two-year exit process. That period of uncertainty is again likely to impact trading, currencies and markets overall, further complicating any plans to handle the situation. The tech sector, and many others, in the meantime, will have to ride out the period of uncertainty before adjustment to the new reality.

It is a good job that so many organisations have invested so heavily in digital transformation recently, perhaps giving them the agility to move as quickly as these interesting times demand.

 

 

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