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April 5, 2017

The UK will need EU based migrants post Brexit for the 9.7% of GDP represented by the Flat White Economy. Best start by guaranteeing the positions of those already in the country

The UK economy’s fastest growing sector is that mix of tech and the creative sector that I named in the eponymous book ‘The Flat White Economy’ (the updated version was published in paperback by Duckworth in March 2016). New data released by Cebr today show that the sector grew by 9.8% to reach 9.7% of GDP in 2016, a strong acceleration from even the buoyant figures for the previous four years (see chart). Since 2011, this sector’s share of GDP has increased by a fifth and it is now, other than construction, the largest single sector of the whole UK economy.
As the economy adjusts to take account of its increasing dependence on this digital economy, there are implications.

 

 

The sector’s property requirements are different from those of the big financial and commercial corporations who have traditionally dominated demand for office space. In recent years big financial, legal and other commercial organisations have tried to combine staff in single huge office blocks, generally fitted out in client impressing style. By contrast, in the Flat White Economy businesses tend to be smaller and to require more flexibility. In addition, whereas in finance, for example, the focus is on impressing high margin clients, in the Flat White Economy the focus is more on encouraging staff retention (Can you cycle into the building? Are there built in exercise facilities and chill out rooms? Are there good staff facilities like shops, coffee houses and bars/clubs nearby?). Because the Flat White Economy has higher ratios of staff to value added than either the City or the top professional services companies, the cost of accommodation per square foot is more of an issue and high priced accommodation is uneconomic – hence the companies generally avoid the highest priced areas in the City and the West End of London.
There are policy issues also. Critical is the supply of talent. When I last updated The Flat White Economy in 2016, I calculated that just under 40% of the increase in employment in the sector since 2008 had reflected EU migrants compared with 28% for the City of London. Although Brexit is unlikely to have a major net effect on the markets for many of the services and apps produced by the sector, it does risk disrupting the flow of talent which is the sector’s life-blood.

 

 
From a policy perspective, the critical need is to guarantee the position of existing migrants from elsewhere in the EU. Without certainty their lives are complicated – they will have difficulty getting mortgages or even in some cases signing long rental leases. Without a guarantee many will start to look elsewhere. The next step is to ensure that the post-Brexit migration arrangements allow a sufficient flow of talent for the UK’s digital businesses to keep growing. These businesses are footloose and if their growth is stunted they will move elsewhere.

 
It is vital that the UK enables this crucial sector to keep growing. Had it not grown in 2016 and everything else had been unchanged, GDP growth would have been 0.9% rather than the 1.8% recorded. The sector has already played an important role in preventing Brexit from leading to an economic downturn. Now the government needs to return the favour to the sector.

 
Douglas McWilliams, President

 
dmcwilliams@cebr.com +44 7710 083 652

 

 

 

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