While tech giants hire, startups fret Has BrexitBritain becomeLa La Land?

September 21, 2018

If youve read the latest headlines about Britains tech industry, youd think the country hadnt been rocked by the greatest political and economic uncertainty since the Second World War. Not only are UK startups raising record amounts of funding year on year, but tech giants like Amazon are investing and doubling down on the UK economy, as if the mood music was taken straight froma dance scene inLa La Land. Surely Brexit Britain is booming?

This week Amazon said it would hire5,000 people across the UK this year, boosting its headcount by a quarter when it moves into new offices in Londons Shoreditch. Atleast 500 of thosenew jobs will be in Amazons newresearch and development centres in Edinburgh, Cambridge and London, which has a hand in developing technology forAlexa, drones and Prime Video.

It was hailed as clear sign of the ecommerce giants long-term commitment to Britain.But of course 4,500 of these jobs will be in its packing warehouses across the UK.That said,Amazon did add3,500 new jobs in the UK in 2016 andopened its first UK AWSdata centres in London.

Doug Gurr, Amazons UK country manager made it all sound pretty sexy, emphasising all types of roles from flight-test engineers, software engineers and corporate managers whilefleetingly mentioning the fulfilment roles in our fulfilment centres when speaking to the FT.

The move followedpromises by other tech giants to double-down on the UK, seemingly undeterred by the uncertainty aroundBrexit.

In November last yearGoogle said it would hire an additional 3,000 people in its London office over the next few years. Soon after,Facebook said it would hire an extra 500 employees in the UK in 2017, boosting its British headcount by 50 per cent.

Apple also announced last year that it will establish a new UK headquarters at the re-vampedBattersea Power Station, takingan enormous 500,000 square feet.

So, given all this apparently good news why is it that survey after survey reveals an underlying sense of dread and fear from the UK startup community about the future?

Again this week, new surveys out of the UK startup community found huge underlying concerns.

The Coalition for a Digital Economy (Coadec), a policy group representing tech and digital startups, released two reports in quick succession.

The first highlighted a criticalfall-off in the STEM skills held by the UKs population due to alack of governmentfunding. The second sounded alarm bells overvisa restrictions leading toa tightening ofthe numbers of high-skilled specialists from overseas.

Right now the tech sector accounts for 16 percent of U.K. domestic output and 3 million workers, or10 percent of all jobs in the U.K. By contrast, manufacturing accounts for 10 percent and construction accounts for 6 percent. As you can probablygather, most people work in theservice economy.

Coadec said theUK is going to need anextra twomillion digitally skilled workers by 2020 to satisfy its growing tech economy. Software developers are the most sought-after, accounting for 27 percent of vacancies. But at the moment the UK isthe bottom division internationally when it comes to the proportion of teenagers studying math to a high level.

Separately, Coadec warned that restrictions on the availability of high-skilled specialists from overseas risks choking off a major growth sector of the U.K. economy. Its calling for a special visa to allow qualified people to enter the U.K. and seek work in the digital economy, given that a third of the average tech companys workforceis from outside the UK. It estimates there is already a talent shortage of 800,000 workers. In a year or sos time that figure will probably hit a million.

But is it easy to hire techworkers from overseas in the UK? Almost 70 percent of respondents to the Codec survey said bureaucracy and time is already a major barrier, and many saidthey were put off by the red tape and around 6,000 in legal feesto make a single hire. Of course, we can expect that to get so much easier and cheaper after the UK leaves the EU

So where are thesemillions of tech peoplegoing to come from? Space?

While the media and politicianstrumpet a few thousands tech jobs created in Amazons packaging centres, it turns out that the UK tech industry and especially startups is facing a huge shortfall in the number of people it requires to feed its economy, and with continuing uncertainty over the status of EU workers in the UK due to Brexit.

Unsurprisingly,the Brexitpropaganda doesnt tell the whole story.

For Amazon is creating jobs all over Europe, not just the UK.

The pomp about Britain being Open for Business as the Prime Minister likes to trumpet,wearsthinner when you realise the moves by Amazon aresimply part of a wider European expansion. In fact Amazon is so confident in the EU thatits hiring 15,000 people across the continent.

What are we to make of this huge divergence in views? On the one hand thetech giants seem to be doubling down. But at the startup end of the spectrum, where the pockets are not nearly so deep,they are enormously concerned about were they are going to get their future talent.
Its probably time then, as our US cousins like to say, to wake up and smell the coffee.

Lets start with the big dividends for large companies around property.

Commercial property, where all these Google, Apple andFacebook employees are going to be housed, is in a state ofpost-Brexit confusion.

Aquarter of the value of commercial property deals that were in the market on June 23, the day of the EU referendum, fell through. Any savvy person at one of the above tech companies would immediately have sealed a sweet deal on their new office at that point.

Andaround 3.5bn worth of commercial property transactions have failed since the UK voted to leave the European Union. Although values have held up, all this uncertainty will have likelyallowed the tech giants to play hard ball with propertydevelopers.

And Apples 1,400 employees are simply being merged fromeight offices around the capital into one. Thats quite a saving.

Lets also remind ourselves that while Amazon is moving into thefamousShoreditch area,where Londonstech startup boom originated 10 years ago, its now aplace weremost earlystartups must huddle together in packedco-working spaces, often unable to afford office spaces of their own.

Then theres the currency. With the Pound crashing to the floor in recent months, its become cheaper than ever before to hire in the UK, which remains the simplest and easiest place in Europe to both hire and, crucially, fire, when needs be. The salary bills in the UK are currently making Financial Controllers weep with joy.

And if you are selling things, as Amazon and Appleare, yourprofits are just fine, as retailers look to squeeze more out of a British public who must buy their good in their diminishing pounds, even as costs go up.

Is seems like Brexit Britain might well be a Shangri-La for a certain type of tech industry which has deep pockets, access to international currency reserves and plenty of property lawyers. But where the future of its innovation sector, its startups and entrepreneurs is concerned, its not looking at Shangri-La so much as La La Land, singing a much sadder tune.

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