A leaked document from the U.K. government suggests that Brexit could hurt the local economy no matter what, according to a BuzzFeed News report this week, but that's something many startups have long suspected. In fact, a growing number of companies across the nation are planning to launch elsewhere in Europe, new data finds.
On Tuesday, Silicon Valley Bank released its annual U.K. Startup Outlook report, drawing on interviews with more than 1,000 companies in the U.S. and abroad. The banking giant found that roughly one in four British firms are planning to launch outside of the U.K. in 2018, up from one in five last year, out of fear that Brexit could negatively impact the bottom line.
At the same time, the memo obtained by BuzzFeed revealed that the U.K. government's own research predicts that national income will decline by as much as 8 percent in the event that Britain leaves the E.U. without a set trade deal. That estimate further assumes that the U.S. and the U.K. will negotiate a trade deal--a scenario that is far from certain.
"This is a colossal act of economic self-harm, written down clearly, in black and white," said Eloise Todd, head of the anti-Brexit organization Best for Britain, in a statement regarding the leak. "We are reading about an economy facing the abyss," she added. The memo also found that national income would be 5 percent lower under a free trade agreement with the European Union, and still 2 percent lower in the case of a "soft" Brexit option, including single market membership over a 15-year period. It's worth noting, however, that the analysis does not consider the kind of bespoke trade agreement with the E.U. that Theresa May has said she plans to negotiate in the coming months--one that is "deep and special."
It's not only the prospect of a weak trade agreement--which could lead to increased tariffs for manufacturers that import, and companies that otherwise do business across the E.U.--that has startups drawing contingency plans. As part of the current system, U.K. companies can easily hire foreign workers within the rest of the E.U. zone, but that could all change after Brexit. Thus, access to talent is top of mind for business leaders like Neal Slateford, whose Bath, England-based adult toy retailer could suffer in the event that it is unable to hire multi-lingual customer service staff. "We find it very easy to grow our business by recruiting people from [the rest of] Europe," Slateford previously told Inc. Overall, 82 percent of business leaders say that access to talent is the most important policy issue facing the U.K., according to the Silicon Valley Bank report.
The report carried a silver lining. Brexit notwithstanding, overall business confidence is up across the region, with half of founders surveyed insisting that 2018 will be better than the previous year. More entrepreneurs are convinced that the damage Brexit will cause can be mitigated--or, ultimately, that the drama of it all will blow over. That's echoed by the fact that investment in U.K. startups peaked in 2017, with startups raising $7.7 billion in total, according to Dealroom data.