The technology sector has been identified as one area of the economy that stands to benefit from the government’s planned post-Brexit immigration policy. The sector typically attracts highly qualified migrants from both within the European Economic Area (EEA) and beyond, notably from India and the US.
As such, the proposed salary threshold of £25,600 for migrants coming to work in the UK, lowered in the case of those holding PhDs, is unlikely to pose a significant barrier to entry for potential tech workers.
So far so good. But when we look more closely at one of the largest sectors that employs technology workers, financial services, some of the potential challenges in the implementation of the proposals become apparent.
Technology skills have been growing in importance in finance for some time. This has been driven by changes in the nature of financial markets themselves, particularly the rise of derivatives trading that has stimulated a growing demand for graduate hires with advanced mathematical skills.
However, from the 2010s onwards, the demand for tech sector employees has been driven most acutely by growing activity at the crossover between technology and financial services – the so-called fintech sector. Put simply, fintech is the use of computer programmes to support or facilitate banking and financial transactions.
As with any part of the financial services sector, there are a range of different types of firms, services and customers.
It includes challenger banks, like Monzo, aiming to take on existing high street banks; specialist fintech firms that work on particular types of financial transactions, such as the payment provider Klarna; and tech firms who are increasingly entering financial services, most notably in payments technology such as Apple and Amazon pay.
Established banks such as Goldman Sachs and JPMorgan Chase are also increasingly interested in the digital delivery of financial services.
The growth of fintech in the UK has enjoyed strong government support, including, for example, the publication of a Fintech sector strategy by the Treasury in 2018 that seeks to ‘preserve and extend the UK’s international edge in Fintech’.
Together with a conducive regulatory environment for fintech innovation, the ready supply of capital to finance fintech start-ups and the availability of labour working in the finance, tech and innovation sectors, fintech has grown significantly
This growth is concentrated in London and the south east, particularly around Old Street in what is now referred to as Tech City in Islington, north east London. However, there are also notable clusters in other cities that have sought to attract fintech as part of wider regional economic development plans, particularly in the Midlands.
Access to specialist labour with technology, financial and or innovation expertise has been critical to the development of fintech. And this labour has by no means exclusively come from the UK – hence the importance of the planned new immigration policy to the sector. For instance, fintech in the UK is estimated to employ 76,500 people of which 42% are from overseas (28% from EEA countries and 14% from non-EEA countries).
However, just because would-be fintech entrepreneurs could come to the UK under the new proposals, this of course does not automatically mean that they will.
Migration decisions are always wrapped up in a whole host of wider political, economic and cultural factors and these could yet pose challenges for securing the talent pipelines that fintech growth in the UK, and London in particular, has relied on.
The development of fintech is not only driven by supply side factors such as labour, regulation and talent. It also relies on demand for its services.
In this respect, the fact that UK-based financial services firms will no longer be able to supply customers in the EU without having an EU base is significant. And there are already signs that this may be having an impact.
For example, the German based challenger bank N26 announced in January that it would be withdrawing from the UK market in April 2020, citing Brexit as a factor.
And in February, the fintech bank Revolut announced that it would relocate its European payments activities to Dublin. However, in a sign of continued uncertainty surrounding financial services at the end of the transition period, it intends to retain London as its head office.
And there are risks for the sector on the supply side in relation to labour, even though the lower than initially suggested salary threshold for workers coming to the UK announced in the plans will be welcomed.
In particular, whilst migration policy permits an individual to come to the UK, this is not the same as a worker actually choosing to come to the UK, and other significant barriers remain.
For example, the UK’s visa fees are amongst the highest in the world and these up-front costs could be particularly off-putting for fintech entrepreneurs at the early stages of their career.
Moreover, there are clearly other global locations beyond the UK, particularly in California, that will continue to attract fintech talent. China has also developed into a significant fintech player.
This competition is reflected in the fact that the majority of international fintech labour currently coming to the UK comes from the EEA rather than the rest of the world. This suggests a degree of caution is needed when discussing the possibility of a ‘Global Britain’ after Brexit, at least in the case of fintech.
The fintech sector itself is aware of these challenges. It has increasingly turned its attention to how the UK education system, which is often criticised for the lack of numerate and entrepreneurial graduates that it produces, could be reformed to improve and diversify the domestic supply of fintech labour.
Nevertheless, the case of fintech reminds us that migration policy needs to be considered alongside the specifics of different sectoral and geographical labour markets in order to better understand its potential implications come January 2021.
By Professor Sarah Hall, senior fellow at The UK in a Changing Europe.