The real cost of Brexit
Wednesday 19th Apr, 2017
By Fiona Czerniawska.
Brexit? Article 50? We don’t care anymore. Or at least that’s the impression we’re getting from clients in the UK. With hard Brexit driving the political agenda and a real danger that we emerge from two years of wrangling with not a single trade agreement in place, many British businesses are deciding that they can’t afford to wait and see. Nothing about the political process to date would give a senior executive even a modicum of comfort that politicians have understood, or perhaps been honest about, the scale of the challenge ahead.
Our data suggests that, in the absence of anything else, organisations are going to find their own way through Brexit. Some will leave; many more are likely to want to minimise the upheaval by moving jobs and operations overseas, while keeping others here. The key weapon in their armoury is technology. Greater automation may make it easier to move some operations overseas while keeping others in the UK, shedding jobs in the process; much as US organisations, looking to repatriate some of the foreign operations, aren’t necessarily going to return jobs to America. Technology will also give people more choices: you can start to see a world in which systems have the ability to cope with different trade and regulatory regimes so that adapting to change becomes more akin to throwing a switch or turning a dial.
But the money to do this is going to have to come from somewhere. The real cost of Brexit, therefore, lies in what UK companies can’t do as a result. When we ask clients about how they think Brexit will impact their expenditure on consulting, demand for financial management and risk work will rise, alongside Brexit-specific projects. To pay for this they’ll be spending less on digital technology and transformation.
There’s a parallel here. The Millennium Bug—the fear that computer systems wouldn’t be able to handle the date change in 2000, bringing down everything from global financial markets to life support machines—generated huge amounts of work for organisations (and consultants), the total cost of which has been estimated at being more than $400bn in today’s terms. Opinion is still divided about whether that money was well spent, but, leaving those aside, it’s possible to argue that countries that spent less on fixing the bug—South Korea—were able to invest more in technology innovation.
As a nation, we’re going to pay for Brexit by innovating less, falling further behind other countries, and replacing vital productivity improvement with lower wages. You might call it the Brexit Bug.