Brexit – the consequences for ITC markets

The UK accounted for 16% of total IT and communications spending in EMEA in 2015 – the second largest market after Germany. It is a potent mature market with strong ties to the US, the EU and EMEA, despite being largely devoid of indigenous vendors, plays a pivotal role in the industry. I thought it was time to look at the implications of its exit from the EU, which is a possible result from the referendum the Conservative government has tabled for June.
There are a number of pros and cons depending on whether you’re a citizen, vendor or user. Let’s look at some of them:

• Income and corporation tax revenues could be substantially increased as a result of independence. In 2015 15% of the net profit of ITC companies in EMEA were generated in the UK. At the moment a vendor doesn’t have to be a registered UK company to do business here. As a result, many suppliers pay their EU tax in countries (such as Ireland) with low corporation tax. However UK governments have consistently failed to crack down on off-shore company registrations and the current one is not taking the lead in making changes following the revelations of the Panama papers. It is true that Google has been persuaded to pay something, but we’re a long way from the government’s proposal for a 25% tax for multinational companies. You should read Private Eye for on-going examples of the the way companies avoid paying tax in the UK: even Vodafone (an indigenous supplier) pays almost nothing. Leaving the EU would make it possible to collect more tax, but unlikely – at least until a less big business-friendly government takes over.
• The gaming industry is apparently booming in the UK, partially driven on by funding from EU grants. It might do far worse if the country becomes independent from the EU. Have a look a Jane McConnells article in the Guardian for the rationale.
• UK-based software and services companies are going to find it more difficult to do business if the UK leaves the EU. Even more red tape, the wait for new trading treaties, etc… will increase the uncertainty of doing business abroad and reduce opportunities.
• Multinational ITC users and vendors would need to adjust their contracts if the UK becomes independent – not a major concern, given that the UK never joined the Euro – the movement of exchange rates of the Pound to the $US and Euro will continue to vary all the time, irrespective of the UK’s membership of the EU.
• ITC employment – we’re lucky to be in one of the few industries which has little unemployment. It will become harder to employ non-UK citizens for vital roles, such as the newly-announced 250 IT security experts the government is looking for. Migration is a big issue in the referendum – especially the freedom of EU citizens to work where they like. As a rich country the UK has been a very attractive destination for citizens from poorer (typically newly-joined) Eastern ones. Independence is likely to make it harder to fill vacancies in ITC roles, even if it opens its doors to workers with specific technical skills.
• Breaking up the UK itself – Scotland only just decided to stay when undertaking a referendum on its independence from the UK a couple of years ago and the SNP is likely to look for another referendum if the UK leaves the EU.
• Antagonism from other EU countries – UK-based companies may find less enthusiasm than they do now from customers in the remaining 27 country markets.
• Closer ties to the US and British Commonwealth countries could lead to better business, but less so the tax havens if the government clamps down on corporation and income tax.

I’m not sure I’ve captured everything here. In general it looks likely that the UK will be a more difficult place to do ITC businesses with and in than before if it leaves the UK. It has the potential to rake in more taxes from multi-national companies, but is unlikely to do so… Personally I’d advise those of you in business to stay in – I’d certainly like to hear what you think. Let’s see what happens.