A Sinking Ship? – A Second Look At The Brexit

Back in March we published an article that looked into the potential effects that a Brexit vote would have on the technology industry, and unless you have been living under a rock since the 24th of June you will know that Britain has chosen to leave the European Union. Despite this result the final fallout of this decision is still a hot topic of debate and is still a concerning unknown, but luckily for business owners all over the UK the leaving process will not be a short one and will provide them with time to plan and re-plan for any eventuality.

The biggest concern continues to be the availability of skills within the UK.  However, our previous article failed to address the potential effects of losing funding from European sources which is used by a wide range of UK businesses for research and development or as venture capital for new tech start-ups.

Research and development plays an important role in improving products and services all over the UK, certain industries such as railway and highways have made large strides forward thanks to R&D processes.  The European Union provides British Institutes and businesses with a large number of research grants.  For instance, between 2007 and 2013 the UK received nearly £7bn worth of research funds which amounts to a £300m net gain a year after British contributions have been taken into account.  Already some of the top British universities are finding that EU projects are reluctant to collaborate with British partners, and in some cases universities within the EU have expressed that partners from the UK are not welcome.

Whilst this may sound bad on the surface, there is a chance that the UK could still receive funding from the EIB even after a Brexit, as the EIB does offer finance to countries outside of the EU, however the level of funding provided will be significantly less than what we currently receive and it is still unknown as to whether the European Commission will allow the EIB to continue financial operations with the UK.

Whilst there is a chance that the impact to research and development within the UK will be minimal, there does not seem to be the same level of optimism for the levels of venture capital available for new business start-ups.  A large proportion of the UK’s venture capital is provided by the European Investment Fund (EIF), in fact by the end of 2015 over 100 of the UK’s private equity funds and around 30,000 small to medium businesses were being supported by the EIF. Unlike the EIB, the EIF’s funding is restricted to the members of the EU and the countries currently on the accession list, which means that if negotiations with the EIB (the major shareholder of the EIF) fall through UK tech start-ups and other small businesses may find themselves cut off from a key source of capital.

So far the outlook does not seem the bright picture painted by leaders of the leave campaign, however, it appears that there will be no immediate impact on funding as neither the EIB nor the EIF will change their arrangement with the UK until the member states have negotiated new terms.  What continues to be a concern in the long run is whether the UK will continue to be included in EU research initiatives and how much input we will have.  Currently, the UK is one of the largest shareholders in the EIB with around 16% allowing us to have a noticeable impact on how EU finances are distributed.

In order to keep up, UK companies are going to have to become more innovative (with less money), buy in essential skills and be more nimble (productive, adapt quickly to the markets).  Companies like Zircon can help provide cost effective, highly skilled resources with creative/innovative minds to support R&D activities.  The ability to work alongside in-house staff and help make the most of limited R&D investment, without the ongoing commitment that in-sourcing requires, will be a valuable asset to such companies.

As a company, we have had plenty of experience of working on a variety of research and development activities for clients, especially in the  ‘proof of concept’ and feasibility study areas.  If you think that we would be able to help your company in anyway, do not hesitate to get in contact with us.