The problem of skills shortages
The UK’s tech sector, largely based in London, is highly dependent on a workforce endowed with relatively specific digital skills, which are in short supply across the UK and the continent of Europe as a whole. In January 2016, the UK government produced a report in which they indicated that the UK is already suffering from a shortage of digital skills, which could undermine the potential economic gains from the sector.
The imposition of controls on freedom of movement from the EU-27 will only make such shortages more acute, and their impact more damaging. Around 20% of those employed in the tech sector in the UK are non-British EU citizens. The sector is therefore disproportionately dependent on labor coming from the EU, and an end to freedom of movement could do real economic damage.
It is unclear at this point what exactly the post-Brexit settlement in terms of immigration will be, but any controls on immigration will likely have a negative impact on confidence in the tech sector, and thus could also deprive the sector of crucial investment. A hard Brexit would thus produce a bleak outlook for the UK tech sector.
However, the impact of digital skills shortages in the UK would not be restricted to the shores of Britain. Instead, given the importance of the UK e-commerce and digital sectors to the European markets, the ramifications of such shortages would be felt across Europe.
Ecommerce Europe’s 2016 report on the UK shows that the UK continues to be the largest e-commerce market in Europe, with total B2C e-commerce turnover of €157.1 billion. Meanwhile, London in particular is also of Europe-wide importance as a centre for the digital sector and for digital innovation, as is demonstrated by its domination of the European Digital City Index.
Thus Europe as a whole could lose out from a decline in the UK’s tech sector, as the leadership and innovation role played by the UK is undermined. However, there is also an alternative view, in which controls on immigration to the UK allow other European states to retain a greater number of workers endowed with digital skills, supporting the development of their own technology hubs. In the event of a hard Brexit, we will see which of these two perspectives is closer to reality.