UK IT spending to shrink if Brexit goes ahead - IDC

Analyst pessimistic and other IT experts claim the move could cause headaches for data protection and recruitment

If the UK votes to leave the EU, IT spending will shrink, according to IDC, as other IT experts claim recruitment and data-protection issues could also arise if the Vote Leave campaign is victorious.

The analyst said today that the UK would be hurt more in the long term, as multi-year licensing agreements and outsourcing deals will protect spending initially. It added that with both factors considered, the overall impact of a so-called Brexit on the UK IT industry would be "mildly negative". For the rest of Europe, the UK's exit would have no tangible impact on IT spending, it added.

The UK will vote on its membership of the EU on 23 June.

The issue so far has divided the UK channel, with SCC boss Sir Peter Rigby claiming a vote to leave would be "potentially difficult" for his firm, and with Cisco's CEO Chuck Robbins going so far as to say it would be a "big mistake" for the UK to leave. But ANS chairman Scott Fletcher added his signature to a list of business leaders who are campaigning for more powers to be devolved from Brussels.

Philip Carter, chief analyst at IDC Europe, said: "We would expect a Brexit to impact UK IT spend, but the effect will not be dramatic because IT spend is governed by multiple factors which include demand drivers, such as the transition to third-platform technologies, that are relatively independent of the local economic cycle."

IDC added that IT spending in the financial services, manufacturing, retail and wholesale industries would be most negatively affected if Brexit goes ahead.

Data dilemma

But IT spending is not the only way Brexit could affect the UK IT industry, with other firms weighing into the debate, citing potential problems with recruitment and data-protection rules as other possible issues.

European leaders are currently locked in negotiations with the US authorities around the transatlantic transfer of EU citizens' data. The long-standing Safe Harbour agreement - in which companies had to self-certify that they were complying with local laws - was scrapped last year, with the Privacy Shield - which proponents claim is a beefed-up, stricter replacement - currently under negotiation before going live in the summer.

Willy Leichter, global director of cloud security at CipherCloud, said Brexit could derail the process for British tech firms.

"Privacy Shield, which governs data transfer between the EU and the US, will likely apply to UK organisations that operate in the EU," he said. "If voters opt for an exit where the UK is outside the European Economic Area (EEA), UK-based controllers would need to certify adequate protection for personal data in the same manner as data transfers between the EU and approved non-EU countries such as Switzerland, Canada and Israel."

Gabriel Gambill, senior director of product at Quorum, agreed that data-protection issues will become an even hotter topic should Brexit occur.

"Currently, UK businesses operate within the laws set out by the EU, but Brexit could mean this will change.

"It's important that organisations keep data stored in the country it originated from and this filters right down through every part of the business, from offsite storage through to backup and replications residing in an offsite datacentre. UK organisations are now fearful of what might happen to their data stored abroad, but whatever the outcome will be in June, businesses need to use this opportunity to opt for solutions that store data within the country in which it resides."

Local privacy issues will also be thrown into the limelight, added Jon Snade, partner in the tech department at law firm Thomas Eggar.

"Another consequence of the UK leaving the EU will be that EU General Data Protection Regulation will no longer apply to Britain," he said. "Of course, this will not mean that data in UK will be any less of a security target than it is now. But Brexit will put the UK government under enormous pressure to protect its citizens' data, but very possibly with less international co-operation.

"Whatever happens, UK resellers and vendors offering services to EU customers will have to adapt to a far more stringent regulatory climate than the one governed by the UK Data Protection Act today."

Snade added that leaving the EU could also mean the UK is no longer a favoured location for US firms to set up European bases.

"The UK has always had an advantage in terms of [common] language, good logistics and skilled staff and this will not change overnight," he said. "But if the cost base in the UK rises as a result of Brexit, we would definitely expect US vendors to look carefully at moving their European HQ to those parts of the EU where the cost of business is lower."

Skills gap

The UK tech industry, including the channel, has been suffering from a severe skills shortage for years. Just last week, EMC and Skyscape leaders claimed to be pessimistic that the situation would improve in the near future, and in February, channel recruiter Marc Sumner said the struggle to recruit the right staff is as hard as it has ever been.

Snade said Brexit could make things worse.

"One of the main issues for the UK tech and digital sectors is the recruitment of European tech talent and immigration," he said. "If the UK leaves the EU, the free movement of workers within the union ends, and this could have a significant impact on the ability of UK tech and digital businesses to find and retain employees with the right skill sets from abroad."

Kate Craig-Wood (pictured), managing director of IT supplier Memset agreed.

"It is well-known that we have a dire skills shortage in the UK ICT sector," she said. "As a company specialising in harnessing bleeding-edge open source technology we are increasingly finding that we import our people too - it is surprisingly hard to find Linux sys admins and Python developers in the UK. Lately a third of our new recruits have come from the EU. Brexit would undoubtedly starve the UK ICT industry of this invaluable source of skills."

The latest study from trade body TechUK found that 70 per cent of the 277 tech leaders they surveyed supported Britain remaining in the EU. Another 15 per cent supported leaving the union, while the rest sat on the fence.

Those wishing to remain in the EU said it would mean the UK would be able to get a better deal on EU trade, be more attractive to international investors, and better able to create more jobs.

Those who supported Brexit cited more flexibility in the global economy, becoming more globally competitive, and more jobs as reasons to leave.

Import-ant issue

According to the Office of National Statistics, in 2014, the EU accounted for 44.6 per cent of UK exports of good and services, and 53.2 per cent of UK imports of the same.

Memset's Craig-Wood said this is a hugely important to stay in the EU.

"For an ICT business - especially in cloud - our main costs are people, hardware and electricity. Brexit is a threat on all those fronts," she said.

"The UK doesn't make computer hardware; we import it all. That means short-to-medium term weakness in sterling is a major threat, as is the spectre of increased import duties under Brexit.

"Britain is also reliant on imports for 33 per cent of its power generation, much of which is Norwegian gas. While electricity is presently a relatively low cost for most IT firms, with the cloud computing price war heating up and hardware resource utilisation increasing, power will undoubtedly become a major factor for any British business that operates its own tin, or needs UK-based hosting. I firmly believe that long-term power prices will be higher and more unstable if we leave the EU, thus will hampering our competitiveness on the global cloud computing stage."

She said it is a similar picture for exports.

"To those who say the UK can focus on exports outside the UK, they are applying 20th century thinking - goods and services, not data," she said. "If you're selling cloud or hosting, customers generally want less than 100 milliseconds latency, and that means for UK-based facilities the only viable market is Europe."