One of the key moments of last week’s session of Prime Minister Questions came as the SNP’s leader Ian Blackford declared “businesses are begging for certainty” on Brexit to which Theresa May retorqued: “Give business certainty by voting for the deal”.
Uncertainty is indeed hurting businesses, especially startups and SMEs that operate in highly regulated markets or depend on trade with the EU to survive. Investor confidence is also starting to wane. Meanwhile, May’s slightly revamped deal is receiving little (if any) love, be it in the UK or the EU. But for lack of better alternatives, is her “bad” deal better than no deal at all?
Uncertainty is paralysing businesses and investors
Let’s first take a look at how the lack of clarity surrounding Brexit is hurting British companies. Changes in policy can always bring about new challenges which demand businesses to adapt and can slow down their progress. They can also represent opportunities for startups and innovators that can provide solutions to these hurdles. Regtech startups for instance could benefit the need of new compliance audits. We can therefore expect that any divorce deal between the EU and the UK will see both winners and losers.
However, a no-deal scenario could have a much bigger impact on business than a “bad” deal as it doesn’t allow businesses to prepare and come up with solutions to trade conditions post-EU. With the absence of an agreement, the UK will probably have to negotiate bilateral with each of the EU member countries, consequently extending the period of uncertainty.
It’s also worth noting that extending the negotiation period beyond March 30th, as suggested by Blackford, is not a desirable scenario either: there is no guarantee a longer period of talks would result in greater cohesion within the government and with the EU. It could in fact just drag the limbo for longer and worsen the situation.
The harder the Brexit, the larger the brain drain?
Since the EU vote, entrepreneurs and investors have been keeping relatively calm and carried on business pretty much as usual. However the lack of clarity at this late stage of negotiations is pushing them to vote with their feet and find more stable grounding elsewhere. Indeed, a recent study by the Institute of Directors (IoD) found that 16% of SMEs have relocated part or all of their operations overseas and a further 13% are actively considering doing so due to Brexit.
But it’s not just entrepreneurs and directors that are leaving the UK, all EU workers and especially tech profiles are also starting to look for opportunities elsewhere – a major concern for startups looking to recruit skilled talent. At Early Metrics, our startup ratings have demonstrated time and time again that the quality of the founding team is crucial to the survival and success of any startup. The UK, and particularly London, has been in the lead in Europe for innovation and investment mainly thanks to its international and diverse pool of talent. But here as well the lack of certainty, specifically regarding the status and movement of EU workers, is having an impact on recruitment by dissuading young professionals from migrating. If the government fails to keep attracting highly skilled workers, the British tech scene would definitely suffer and investors would probably turn their gaze to more dynamic ecosystems.
Obviously, cancelling Brexit would seem like the best option for startups and SMEs – at this stage though, it’s just wishful thinking. Divorces can get ugly, we can only hope the UK government will manage to find internal cohesion and finally provide the confidence and guidance businesses need to plan their future.
Antoine Baschiera, Co-founder and CEO at Early Metrics
