Ahead of the UK referendum on EU membership there was no shortage of comment on how a Leave vote would affect the country’s science and engineering sector. As the dust settles, E&T correspondents assess how to make the best of the outcome.
Not exactly what we wanted – that appears to be how the vast majority of those working in science, research and innovation in the UK feel about the result of the 23 June referendum. The question now is what to do next. What will be the least damaging outcome for the UK’s scientists and innovators and what are the areas of pressing concern that need to be urgently addressed?
Pre-referendum surveys of the sector provided a clear pro-EU picture. In a joint study by the Campaign for Science and Engineering (CASE) and the Engineering Professors’ Council, 93 per cent of the survey’s 400 participants considered EU membership to be a major benefit.
“Science and engineering are going to be substantially affected by Brexit,” said CASE director Sarah Main. “The sector substantially benefitted from being part of the EU so it follows that there is a substantial risk in leaving the EU and we don’t know how that will work out.”
The UK’s researchers have had an outstanding track record of winning EU funding. While the country has always been a net contributor to the overall EU budget, it has been a net receiver of science and research funding. In the 2007-2013 period the UK paid €5.4bn towards EU R&D programmes but its research institutions won €8.8bn in EU grants. These EU money taps are set to close two years after the UK triggers Article 50 of the Lisbon Treaty, initiating the process of British withdrawal.
“We have to lobby government to maintain the current levels of funding or to replace current levels of funding, which we now get from the EU for both university research but also university and industry collaboration,” Stephanie Haywood, president of the Engineering Professors’ Council and professor of optoelectronic engineering at the University of Hull, told E&T.
“A lot of this research has an applied dimension and that’s going to be very important for us economically in the future as well as for the universities now.”
Ahead of the referendum, Leave campaigners were confident the UK government wouldn’t struggle to replace the missing EU funding using resources it would no longer need to send to the EU. Haywood questions that.
“There will be a lot of people competing for the funding. Farmers are going to want that, there are going to be a lot of people wanting to make sure that they can maintain their current levels of funding and the economy is certainly going to shrink,” she said. “There won’t be as much money to go around so I think we would be very lucky if we maintain the levels of funding.”
That the maths won’t be as simple as the Leave campaigners had argued ahead of the vote was essentially confirmed by the great architect of the Brexit himself, former UKIP leader Nigel Farage. In the first hours after the results Farage admitted that not even the prioritised NHS is likely to receive the money promised by the Leave campaigners. The Scientists for Britain campaign, which advocated a Leave stance, didn’t respond to E&T’s enquiry.
Of course, money isn’t everything. Great research in the 21st century is done on the international level and the loss of international collaborations and access to facilities is what the researchers fear the most.
Anecdotal reports have emerged of UK researchers being asked by their European colleagues to remove their names from joint applications for Horizon 2020 funding. Leading EU researchers about to take up positions in the UK have been reportedly changing their minds due to the uncertainty over their future status in the country.
“Our European partners are already asking whether it is worth involving UK partners in Horizon 2020 projects,” said Haywood. “I think it would be very easy for us to lose contacts and to lose collaborations which we currently have and which are important on many levels. There are also things like the Erasmus scheme, Marie Curie and other staff mobility schemes that we currently have and that are a very important stimulus. We should lobby to keep them going beyond Brexit.”
Once outside the EU, the UK research community would push for the Associated Country status that would allow cooperation on Horizon 2020 and future research programmes.
There are currently 15 Associated Countries including Switzerland, whose future is uncertain because of the country’s refusal to ratify free movement for citizens of Croatia. Although outside the EU as well as the European Economic Area, Switzerland is part of the European Single Market and is therefore bound by the requirement of free movement.
However, there are other Associated Countries, such as Israel, for which the free movement of people – the major decider in the Brexit referendum – does not apply.
“There are models of countries with the Associated status and they are all slightly different based on what each of those countries negotiated with the EU,” said Main.
“People talk about the Swiss model, the model of Israel, the model of Norway. They all are Associated Countries and the access they have to the European Union facilities varies depending on what was negotiated and varies over time depending on the policies of that particular country.”
The Norwegian example, many believe, would be the most straightforward one in case of no restrictions to the free movement in post-Brexit Britain. The Scandinavian country, with a population of 5.2 million and the second highest GDP per capita in Europe, contributes more to the European research budget than it receives but its academics are happily accepting that.
“The quality of the research coming from that money is more important than funding more weaker national research projects in nationwide programmes,” Professor Gunnar Bovim, rector of the Norwegian University of Science and Technology, told E&T.
“We encourage our researchers to participate in EU-funded projects despite the fact that, unlike in most European countries, 50 per cent of their paid time is by default free for research as part of the regular government funding for universities.”
Bovim believes that thanks to Norway’s high financial contribution to European research programmes, the country has a decent influence over the research agenda despite not having any decision-making powers in the EU itself.
“We do participate in the shaping of the research programmes,” he said. “We can take part in the committees and we can take part in the juries for the research programme.”
He called for the EU and the UK to find a way forward for future research cooperation despite the political differences because “nothing is as universal as research and education”.
According to Main, it’s up to the British researchers to make sure their voices are sufficiently heard in the pre-Brexit frenzy.
“We shouldn’t be complacent in thinking that just because some countries have achieved the Associated Country status that it follows that the UK can do the same,” she said.
“It really depends on the political environment and negotiations and the settlement that is reached. I don’t think it is an automatic thing, it is a political thing, it is a political debate and that’s why science needs to be present in that political debate because you can’t automatically assume that the deals will be structured in the benefit of the sector unless we are arguing for it.”
...skills and jobs?
On Friday 24 June 2016, the UK electorate made its decision to leave the European Union. The news since then has been rife with expressions of uncertainty, worry and anxiety over what this will mean for the economy and a million other things. As far as engineering and technology recruitment is concerned, what’s the deal? Are UK engineers’ jobs safe? Is there a reason to panic, or is it actually not all doom and gloom for jobs? When it comes to immigration, will the UK be forced to adopt a points system similar to that of Australia?
Some companies are hugely keen to keep an open mind and demonstrate as much positivity as possible. Patrick Flaherty, chief executive of engineering firm AECOM UK & Ireland, said: “As the country faces a period of change and uncertainty, business must play a stabilising role. A positive, long-term focus on the future is required. At AECOM, we have demonstrated our ability to grow while dealing with change and we will work hard to minimise the impact on our UK operations. As a global company, we serve clients all over the world from our offices in the UK. Our strong team, diversification strategy and international outlook equip us with long-term resilience.”
As far as immigration is concerned, it has now become the defining issue of the referendum. It has, arguably, been the main feature of the leave campaign. So much uncertainty regarding immigration has surrounded the referendum pre and post vote. It all depends on what the UK can negotiate with the European Union. Leave campaigners such as Boris Johnson have argued that Britain needs to adopt a points-based system regarding immigration. This is a hugely complicated process to begin, and has resulted in a wave of anxiety across EU immigrants already in the UK. Will they get deported? What if they can’t speak English very well? Will they be able to take up labourer jobs – what if they have no other skills? Conversely, what if they have a tremendous skillset but can’t do anything with it?
Think-tank organisation Migration Watch UK claims that the UK population is projected to grow by 500,000 – roughly a city the size of Liverpool – every year, which is the fastest rate in nearly a century. According to their website, they believe that the government should introduce work permits for EU workers, restricted to those in higher skilled work. Movement for tourism, study and to live self-sufficiently could remain unaffected. The result of this would be to reduce immigration from the EU by as much as 100,000 a year.
NMI, the Industry Association for the UK Electronic Systems Industry & Technology sector is confident that the short-term shock associated with the Brexit vote will have an effect on inward applications from Europe and elsewhere – which will not help the existing skills gap issue we have in the UK. It said: “If the UK’s position is restricted, we would encourage the government to implement a simple, low-cost system to grant visas and remove caps (or increase quotas significantly) for skilled labour in the tech and engineering sector.
“If our agreement reflects Norway/Switzerland [free movement] then the status quo will likely prevail – however if the government takes an anti-immigration stance in this scenario it would likely keep the costly and complex system (for employers) that is currently in place.”
Germany has an efficient blue card system that allows highly skilled workers to obtain a work permit. To qualify for the blue card an applicant must have a university or college degree and an employment contract with a German company that pays a salary of at least €49,600 per year. For occupations that suffer from shortages of skilled labour the salary level is €38,688 per year. This pertains to engineers, qualified communications and technology experts, medical doctors and certain other fields (2016 figures, howtogermany.com).
If the UK adopts this strategy to control immigration levels, there’s a chance it could pick and choose which skills are worth more to the country depending on what’s currently in demand, without having to jump through too many hoops. If a system can be implemented that involves as little paperwork as possible, this will be the favourable option among many employers.
It is well known that the UK has a skills shortage when it comes to engineers – or does it? When there is change afoot, it’s always a good idea to take advantage of that change for the better. Britain’s young apprentices have called upon the new government to put skills and qualifications at the very top of the agenda in Brexit Britain; they have even created a ‘five point plan’ to help them do just that.
The Industry Apprentice Council (IAC) report to be handed to Nadhim Zahawi MP, David Cameron’s adviser on apprentices and joint chairman of the Apprenticeship Delivery Board, delivered a damning verdict on careers advice. They are also calling for professional qualification as standard to ensure apprenticeships get the recognition they deserve and quality is maintained.
Semta Group CEO, Ann Watson, said: “Without apprentices, employers across the advanced manufacturing and engineering (AME) sector Semta represents simply would not be able to meet their skills needs.
“With the economy needing 182,000 people with engineering skills every year to 2022, apprenticeships offer a tried and tested way for employers to equip new recruits with the right skills.”
Other countries have taken note of the outcome from Brexit with a possibly increased skills gap. Simon Crosby, CTO and co-founder of US-based computing firm Bromium, said: “The incredible technical talent in the UK just became a lot cheaper for foreign countries to hire. Sadly, they will suffer as their standard of living drops, and their opportunity to live and work in other countries in Europe is restricted.
“There is another longer-term worry: over a third of research funding for universities in the UK comes from the EU. In the absence of new funding from the UK government, there will be a huge impact on university’s ability to deliver highly skilled tech workers to the UK economy.”
A lot remains to be seen from many engineering companies, but judging by what most of them are currently saying they want as little impact as possible on their businesses.
The key word here is ‘negotiation’, rather than ‘uncertainty’. Each company will have its own negotiations to make, and while those are in motion there’s currently no cause for panic or disruption. As we commonly say in Britain – it’s business as usual.
Ahead of the referendum, many in the engineering sector argued that access to the single market was critical. Being in the European Union gives exporters a direct line to 500 million potential customers, the third largest market in the world. And as those customers buy 44 per cent of everything the UK sells abroad, the EU is our biggest trading partner by some distance.
That market is no longer guaranteed. When Britain has a new Prime Minister in place, she must begin negotiations over the terms of Brexit. And several European leaders have made it clear that we cannot expect to keep our privileged market access without giving ground on other issues, such as the free movement of people.
Some commentators argue that the UK is too important for German exporters – particularly car makers – to exclude us from the single market. However, Evelyn Herrmann and Gilles Moec, analysts at Bank Of America Merrill Lynch, suggest another outcome is more likely.
“Should the UK not be part of the EU single market anymore that would not mean the export market would be lost entirely,” they wrote. “Instead, it would mean more complicated trade relations. Trade barriers (if not tariffs, then at least non-tariff barriers) could be put back in place – from the UK on imports from the single market, but equally from the EU on imports from the UK.”
That would make exports more expensive.
Five days after the vote, manufacturers’ association the EEF met with Business Secretary Sajid Javid to seek early assurances on the government’s commitment to protecting the UK’s trading relationships. It wants ministers to hold off on triggering Article 50 – which will begin the countdown to Brexit – until we have “a clear and defined negotiating position”.
“In the immediate aftermath of the vote, it must continue to tread carefully by not triggering Article 50 immediately, reassuring the markets and seeking to shore up business confidence,” said Terry Scuoler, chief executive officer of EEF.
“The next step is clearly for close engagement with business groups and other stakeholders to ensure that emerging signs of manufacturing recovery do not falter in the coming months and to deliver broad agreement on a clear vision for a new relationship between the UK and the EU.”
That vision must maintain tariff-free access to the EU market for goods and services, Scuoler said. Ministers should not look to copy any existing trading relationships; the Swiss, Norwegian and Canadian models do not take into account the “specific relationship” between the EU and the UK.
The EEF’s report ‘Manufacturing Our Future: What Next For Britain And The EU?’ sets out five priorities for access to the single market:
1. A trade deal with the EU must be the number one priority in Brexit negotiations;
2. Current free trade agreements between the EU and 50 partners should be rolled over;
3. No tariffs can be imposed when exporting to the EU;
4. There must be a recognition of EU product standards to ease movement of goods around the region;
5. Free trade in services should be maintained, as “manufacturers are increasingly deriving revenue and competitive advantage from the provision of services”.
“Maintaining access to the single market is of paramount importance,” agreed James Selka, CEO of the Manufacturing Technologies Association. He remains upbeat about the chances of the sector emerging from negotiations with “the best possible deal if we can leverage UK manufacturing’s reputation for innovation and flexibility”.
Some sectors are more at risk than others. Chris Richards, senior business policy adviser at the EEF, has looked at the latest trade data to see which sectors of UK manufacturing are most exposed to potential uncertainty from customers and suppliers in the coming months.
Altogether 51.6 per cent of total manufactured exports by value went to the EU in the year to April. “When taking into account the export intensity of each sector, the most exposed sector for exports to the EU is the mechanical equipment sector, the least is paper and printing,” Richards says.
Although now operating in 22 countries worldwide, Penny Hydraulics is still owned by the same family. The business makes load handling equipment for commercial vehicles, factories and shops, employing 83 at its base in Clowne, Derbyshire. General manager Jess Penny says being in the EU has been good for business.
“There’s no doubt that the single market has fuelled Penny Hydraulics’ growth,” she said. “It has helped to remove existing barriers to trade within the EU and promotes a business and consumer-friendly environment through transparent rules, which helps give us legal certainty and clarity.
“The stability, support and opportunities that the EU has brought over the years has enabled our company to grow and become the profitable organisation we have today.”
Being part of the single market also enabled the firm to import goods more easily. Its range of hydraulic PH Cranes includes more than 470 models imported from an Italian manufacturer.
This range is a key component in Penny Hydraulics’ strategy for growth, but since the Brexit announcement, “we saw a 13 per cent increase in the cost price of our new crane range overnight due to the exchange rate of the euro”.
That’s a pattern likely to be repeated elsewhere. As the Sterling drops, exports become cheaper but imported components and commodities get more expensive. Around a third of manufacturers’ inputs are imported.
With 12 distributors throughout the EU – key markets being the Netherlands, France and Hungary – Penny Hydraulics’ current success and future strategy is bound up with the single market. Jess Penny is pessimistic about what a post-EU landscape will mean.
“We project a loss of turnover of at least 15 per cent. We traded with 22 countries last year and they all accepted our EU manufacturing standards with no import tariffs imposed on our goods even outside the EU. We now have to negotiate new standards and tariffs with these countries, and whether we like it or not Britain is not a superpower and does not hold great sway in the world.
“Will the EU want to help us if we have just left? Will the combined weight of the EU put pressure on the rest of the world to get more favourable trade terms than us? Most would in their position so this will directly affect us and indirectly affect us via our customers suffering in the same way.”
What about a pan-global business? Global Navigation Solutions provides navigation systems to commercial shipping, covering everything from bulk carriers to super yachts. And the scale of its operations appear to be insulating it from the worst shocks of Brexit.
From its UK HQ in North Shields, Tyne and Wear, GNS is present in major shipping hubs worldwide. EU countries outside the UK are responsible for the management of 8,500 vessels operating worldwide, “which is about 15 per cent of the total market – so it’s clearly a very important market for anyone that provides support services to shipping”, said GNS’s head of product and marketing Hayley van Leeuwen.
So what is his reaction to the decision to leave the EU?
"How Brexit will impact UK access to the European market is still unclear. However, with our global network of offices, and partners both within and outside of Europe, GNS is well placed to continue to meet the needs to our global customer base so we don’t envisage an issue as a result of the vote.”
Investment in its products and services will continue unchanged, with the EU market being serviced from its offices in Germany and Greece, van Leeuwen said. However, “if the vote leads to a period of prolonged uncertainty that clearly won’t be good for UK business generally”.
At Siemens, the firm’s UK CEO Juergen Maier said they were “totally committed” to their 13 factories here. What has been put into question is future investment “certainly in terms of new activities to export business where we don’t know what the trading arrangements are”.
One example is the wind turbine blade manufacturing plant Siemens is building in Hull. The planned 1,000 jobs it will create are unaffected by Brexit. “But actually, the really big prize was to start exporting that technology,” Maier told BBC Radio 4’s ‘Bottom Line’.
“Not just our blades, but to build a whole new industry around Hull and the Humber, to be exporting technology for offshore wind turbines. And that is now going to be much more difficult to achieve in the short term.
“I’m hoping we’ll find ways to do it in the long term, but right now it’s a little bit uncertain.”
There is little doubt that the single market has been good for the sector. “Engineering contributes at least 20 per cent of the UK’s gross value added and accounts for half our exports,” said Dame Ann Dowling, president of the Royal Academy of Engineering.
In the aftermath of Brexit the academy is leading a project, agreed by all 38 organisations representing the engineering profession, to “gather evidence, analyse the risks and opportunities and produce advice to underpin a strong negotiating position and a positive result for the UK”.
If engineering is to thrive outside the single market, Dame Ann argues that it must “work with partners both within and outside of the European Union to make the UK a leading nation for engineering innovation, and to help address the global challenges of our time”.
Britain’s tech start-up scene, which has been thriving in recent years, has been severely shaken by the Brexit result.
High-profile companies are threatening to pull out or slow down plans to enter the UK market; international employees are second-guessing their immigration standing, and investors could cut new funding that is the lifeblood of young tech firms.
Market researchers are predicting a sharp slowdown in UK technology and advertising spending and the longer-term threat that sizeable portions of these budgets will move to the continent.
“Nothing’s changed yet, but everything’s changed,” said Taavet Hinrikus, Estonian CEO of cross-border money service Transferwise, which is based in London.
London has become a magnet for tech entrepreneurs looking to do business in the EU and a global launch pad for firms aiming to compete with US and Asian web giants. Half the founders of London’s top tech start-ups come from outside Britain.
The tech sector is particularly dependent on accessing talent easily. A 2015 survey by Wayra found that one-third of employees in tech start-ups in Britain are from outside the country, and one in five comes from another EU nation.
Additionally, one-third of recent European investments by venture capitalists, who are often drawn to tech startups, were made in Britain. In the first quarter, UK firms drew in £984m in funding, while the rest of Europe took £1.65bn, according to research firm CBInsights.
“The two main benefits of being part of the EU are access to talent because of the free movement of labour and the fact that you can ‘passport’ regulation so if you’re regulated in the UK, you’re regulated across the EU,” said Hinrikus. “We don’t know what’s going to happen with either of those.”
The Transferwise CEO now says “it’s too early to say” what the company may do, but did say before the referendum that his company could scale back further investment in London and consider moving its headquarters if Britain voted to leave the EU.
The obvious place to relocate could be Berlin if the German political body, Free Democratic Party (FDP), succeeds in its attempts to woo British start-ups to Berlin following the UK’s vote to leave the EU.
The FDP has hired an ad-van emblazoned with a billboard aimed at enticing companies to move to the German capital in the wake of the referendum result.
The Berlin branch of the FDP, a junior coalition party to Angela Merkel’s Christian Democrats between 2009 and 2013, recently drove the van across London ahead of a key regional election in September.
The billboard read: ‘Dear start-ups, Keep calm and move to Berlin’ and has been pictured across central London on social media.
Sebastian Czaja, FDP candidate in the Berlin election, said the move was an attempt to make the city the “capital of start-ups in Europe”.
Czaja said the appeal was launched “in light of Brexit” and added he wanted to “significantly reduce the barriers for start-up companies in Berlin”.
London-based tech start-ups have already started to see funding dry up in the wake of the referendum result. Netz, which provides data to financial companies, saw five investors suspend hundreds of thousands of pounds in promised money within 24 hours of the vote. The firm also faces the risk of not being able to tap enough talent as Britain’s departure from the EU could make it more difficult to hire from the bloc’s other 27 countries.
Duedil, a financial technology, said it is growing too quickly to have the luxury of waiting for Britain’s relationship with the EU to be clarified over coming months. As a result, it has drafted a plan for a European office and is set to decide in the next few weeks whether that will be in Berlin, Dublin or another European city.
Matt Smith, director of StartUp Britain, a campaign group aimed at helping people set up and grow their businesses, was more hopeful. “Berlin is a great city. But London is the true European home of entrepreneurial schöpfungskraft (creativity),” he said.
“Part of our capital’s attraction is its gateway status – indeed, London is a global city located in Europe. That hasn’t changed because it cannot change: it is an historic and geographic fact. London is where European entrepreneurs come to go global.
“Here are the ideas, the talent, the funding and the subsidiary services, a pull force without parallel in any other city around the world. No amount of wishful thinking – or even lobbying – can remove that.”