Leaving the EU – Implications for London’s technology sector
07 May 2015
The EU is one of the hottest and most contentious topics of current times, especially in light of the UK general election. The 28 member-state block seems to hit the headlines almost every other day - From multi-billion Euro membership surcharges to banana wonkiness regulation, the EU is an institution frequently embroiled in controversy and is often regarded as either a wonder of modern democracy or the embodiment of pointless bureaucracy and the loss of sovereignty. With David Cameron and the Tories promising a referendum on membership if they win the next election and an apparently growing Eurosceptic sentiment with the likes of Nigel’s UKIP, we have to ask ourselves (as rationally as possible) what the outcome of leaving the EU would have on London’s emerging technology sector.
If you aren’t already aware, the technology sector in London is becoming a bit of a big deal. In case you happen to have been living under a rock for the past few decades let me throw a few statistics your way to illustrate my point… In its entirety London’s Technology, Media and Telecoms sector is estimated by Deloitte to contribute at least 8% (£125 Billion) to the UK’s £1.6 Trillion GDP. Which is particularly interesting considering that London accounts for around only 1/3 of the UK’s GVA. London’s digital sector managed to grow at a whopping 16.6% from 2009 to 2012, when most other industries were hopelessly floundering. Currently growth in UK wide technology is forecast (in a Barclays survey) to outpace GDP by four times, much of which is driven by London. In fact, a recent study found that technology is growing in London and the Southeast at an even faster rate than California! With London’s technology scene then clearly being so fundamentally valuable to the UK, it’s obvious that any changes which might affect its prosperity or growth are a cause for concern for all.
Technology is uniquely placed as an industry due to the fact one of the very founding principles of the digital era is the democratisation of knowledge and the lowering of cultural, geographical and physical boundaries. This means that anyone from Beijing to Blackpool has the capability to work on the same piece of software, at the same time, speaking the same language of zeros and ones. London has historically always been a mixing pot for cultures and a place where people from all over the world come to trade and create something valuable from its inherent variety. London has capitalised on its advantage as a city for all by providing a physical space in a digital world where people from all backgrounds can come together to forge something new.
What this means is that a significant proportion of London’s technology workforce are from overseas, hence any change to immigration via exiting the EU is clearly going to have an effect. With 27% of all jobs grown in London powered by the digital sector, but only around 13,000 people granted a relevant Visa from outside the EU (not only for London), EU workers are taking a large share of this job creation (standing at just under 600,000) – Especially when we consider that 70% of TLA members believe that there is a skills shortage in London’s tech scene.
However EU workers aren’t only making a significant contribution to the tech sector in terms of pure manpower. According to a report by Duedil and the CFE, 1 in 7 businesses in the UK have been founded by an immigrant entrepreneur, employing over 1 million people, almost half of which are based in London. It is interesting to consider this alongside the fact that number of digital companies in London has more than doubled over the past 5 years. From the biggest success stories such as ARM, to the small start-ups with just one employee, the tech sector is deeply linked to Europe and any change in policy would no doubt effect not just employees but also the creation of potential employers!
What is also worth considering is that one of the major reasons global companies cite locating operations in the UK is its access to Europe as a member of the EU, in conjunction with its convenient cultural relationship to the US. Multi-national Silicon Valley firms regularly establish London offices as their European headquarters, drawing on the access to both talent and international markets, even being encouraged to do so by the government. With no legal basis for free trade and a smaller pool of talent it is uncertain if that upward trend would continue were the UK to exit the EU, with the founder of Wikipedia, Jimmy Wales stating that this would have the ‘Potential for disaster’.
Lastly the technology sector here in London seems to be moving towards a watershed moment in another way too. Venture capital funding stood at £1.4Bn for the period of 2010 – 2013, which in comparison to the levels seen in The Valley is almost laughable for a three year period. However last year saw just under £1Bn alone in venture capital funding flow into London’s start-up ecosystem, with the latest figures for Q1 of 2015 showing that we are already halfway there just 3 months in! This matters with regards to the question of our membership of the EU because this money is largely being pumped in from overseas investors. Just look at the funding recently received by WorldRemit, Blippar and Farfetch. Funding Circle for example secured its recent unicorn $1Bn valuation through funds from Russia, the US and Singapore.
Successful tech firms are dependent on receiving the right kind of funding. As a nation which is becoming more reliant on the technology sector for growth, we should understand that successful tech firms are therefore vital. The VC firms and investors are putting money into an ecosystem which is inherently tied in to mainland Europe, through both markets and talent, which they will no doubt have to re-asses should they become suspicious of London being a viable location for a tech business.
One further point which should also be considered is that any changes to our relationship with Europe will likely result in trade barriers of some sort, possibly affecting technology. History suggests that this is unlikely to be positive. Based on this and the above I think it is hard to see any break away from the EU being positive for London’s technology firms. London is an international city and has always used this feature to its advantage. The information age has only amplified this (helped by a large EU technology workforce), creating a start-up ecosystem thriving on outside investment and large tech corporations choosing to make London their European headquarters – partially because we are in the EU. I find it difficult to see how pulling out from Europe will do anything other than pull the plug on London’s tech scene.