Brexiteers often tout the UK’s departure from the EU as a fantastic opportunity for British businesses. However, a leaked Whitehall paper paints a much gloomier picture. According to the analysis of the three most likely scenarios, departing from the union will have a negative impact on the British economy for years. And while Leave campaigners have tried to brush the analysis aside, the UK startup community has greeted the document with some trepidation.
Never intended to be made public, the assessment, titled EU Exit Analysis – Cross Whitehall Briefing, was planned to be presented to key ministers ahead of a discussion at the Brexit cabinet subcommittee next week. However, the document was leaked to BuzzFeed last night. When asked why the report wasn’t intended for public consumption, a source at the department told BuzzFeed: “Because it’s embarrassing.”
And it’s easy to see why: contrary to the optimism of the Leavers, the document states that every form of Brexit will see Britain worse off over the next 15 years. If the UK leaves the EU without a deal and trades under World Trade Organization (WTO) rules, the country’s growth would fall by 8% over that period compared to current forecasts. If the government sets up a comprehensive free-trade agreement with the EU, it would see UK growth slow by just 5%. The most optimistic scenario outlined in the document would be if Britain retained access to the single-market through membership of the European Economic Area. The paper suggests that a softer Brexit like this would see growth only slump by 2%.
Moreover, the analysis also estimates that Brexit would hit sectors like chemicals, clothing, manufacturing, food and drink, cars and retail the hardest; conversely, it predicts that the agriculture sector would fare reasonably well under the WTO scenario. Additionally, the analysis believes that every region in Britain would be affected negatively no matter what form its departure from the continent takes. Particularly worrisome for fintech startups, the document warns that Brexit may diminish London’s position as the financial centre of Europe.
But that doesn’t mean that the report didn’t have any good news. It estimates that the country’s growth could jump slightly if the UK signs trade deals with non-EU countries, albeit not enough to mitigate the fallout from Brexit. For instance, it estimates a deal with the US would boost the economy by 0.2%. Moreover, deals with other non-EU countries and blocs such as countries in the Commonwealth, Middle East and nations in south-east Asia would in total add between 0.1% and 0.4% to GDP over the long term.
Responding to the leak on BBC Radio 4’s Today show, Iain Duncan Smith, Tory MP and Leave campaigner, said that the timing of the leak was “highly suspicious” and that government forecasts have been wrong in the past. “In fact, if you look at the OBR forecast even in the budget recently they [forecasted] growth at a lower level than we’re now achieving and that’s only months ago,” he said. “So I think the answer is we should take this with a pinch of salt.”
Nevertheless, the UK startup community is seemingly not as calm as Duncan Smith. “The latest revelations coming out of Westminster have highlighted the government’s sentiment on Brexit and serve as a reminder of the fact that the British economy is set to take an enormous hit across all sectors with the exit from the EU,” said Russ Shaw, founder of Tech London Advocates and Global Tech Advocates. “While the UK tech industry is as strong as ever, with record amounts of investment flowing into the country, it remains intricately linked to the rest of the economy and it will prove challenging to shield it from the Brexit impact, particularly around securing further investment opportunities and access to talent.”
While most entrepreneurs agreed that the data was a cause for concern, they also agreed that there will always be a space for innovative startups. “If entrepreneurs waited for a benign political climate before starting or scaling a business then many of the world’s most successful companies wouldn’t exist,” said Philip Salter, founder of The Entrepreneurs Network. “General Electric, Microsoft and Disney were all started during recessions.” He concluded: ”Ultimately, entrepreneurs shouldn’t let economic forecasts deter them.”
While there’s certainly a long way to go before the negotiations between the UK and the EU are done, it’s encouraging that uncertainties and gloomy news like this seemingly won’t stand in the way of UK startups.