Questions hang over regulation, trade, talent and investment
As the day of reckoning for Britain’s exit from the EU draws ever closer, businesses still face significant uncertainty about what the future will hold, particularly in terms of regulation and trade. Will the UK government strike an eleventh-hour deal with the EU? If so, what will that deal look like? Or will the UK end up leaving without any form of agreement at all?
‘Big businesses are mostly saying: “Tell us what the situation is and we’ll work with it, but we need enough time to make the changes”,’ explains Camilla Alexander-White, senior policy advisor at the Royal Society of Chemistry. Even in the case where no deal is agreed, firms recognise that there will be costs and difficulties associated with the transition, but they will adapt and continue to operate. ‘The sense is it’s not catastrophic, but it will be hard,’ she adds.
‘That’s not the case, we think, for some small and medium enterprises [SMEs],’ Alexander-White continues. If companies don’t know what they have to do, they risk becoming non-compliant with any new UK regulations. ‘That could really hit SMEs hard, and even put them out of business, because they might not be able to sell their products in the UK.’
How Brexit uncertainty affected my research group
In 2016 there were nine of us. By 2018 there were three
SMEs often don’t have the knowledge and capability in-house to follow the regulatory changes, and consultancy expertise is also expensive, so there are significant costs to both getting hold of the information they require, and implementing the necessary changes, Alexander-White explains. However, she notes that government agencies are providing some reassurance, and it appears some grace and support could be given to companies if they can prove they are having genuine difficulties in obtaining the required compliance data.
Nevertheless, many SMEs remain confident that they can minimise the impact. ‘Whatever the future landscape, technology SMEs will be critical to the UK economy post-Brexit,’ says Tim Wright, chief executive of Aqdot – a small company based near Cambridge, UK. ‘Whatever your view on Brexit itself, we’re kind of beyond that now, and our job as a company is to adapt and keep growing for the benefit of all our stakeholders.’
Ignoring anything about the philosophy, the collapsing pound means that the UK is starting to look like a low-cost region of the world, but with spectacular talent and capability
But while individual companies work to find their way through the maze of uncertainty around Brexit, the decisions they make will have far-reaching consequences, as Tom Bowtell, chief executive of the British Coatings Federation, explained at a meeting on policy priorities for UK chemicals regulation post-Brexit, held by the Westminster Energy, Environment and Transport Forum (WEETF) in February. ‘I think the worrying thing is that may not always be in the best interests of UK PLC,’ he said. ‘[Companies will] put themselves first, that’s what businesses do, and they’ll find a way to survive. What we want is for that to work for the UK as well.’
If a deal is struck, there will still be major changes to the way UK and European businesses operate. The current draft withdrawal agreement contains no concrete details of what the relationship will be, only a commitment to work something out during the transition period. In many ways that simply prolongs the uncertainty for companies.
Out of Reach
One of the biggest sticking points comes around Europe’s regulations on registration, evaluation, authorisation and restriction of chemicals (Reach). Overwhelmingly, the call from industry is that the best outcome would be for the UK to remain within the jurisdiction of Reach, and somehow associated with the European Chemicals Agency (Echa) that oversees it. However, a no-deal situation will require the UK to implement its own, parallel set of regulations. To begin with, existing EU Reach registrations would be ‘grandfathered’ into the new UK Reach. However, companies would be required to re-submit all the necessary information to the UK regulators within specified timeframes, which could cause issues for those who have relied on sharing data generated by other European companies for their EU Reach submissions, as they may not be inclined to share that data further, or they may charge for the privilege. Any new products would then need to be registered separately in the EU and UK.
On top of that, UK companies wanting to maintain their EU registrations would need to either establish an operating base within the EU, or transfer their registrations to a nominated ‘Only Representative’ within Europe. For Aqdot, this has meant setting up a subsidiary in Ireland. ‘Part of the value we’ve created in our technology is taking it through the Reach process – it’s a new entity, so we’re keen to retain the value in the ownership of that,’ says Wright. ‘And it’s not just a case of having an address in a different country so you can put your Reach stuff there, you need a genuine entity operating. Clearly there’s cost involved, and perhaps we’ve gone for that international approach sooner than we might have done otherwise, but that will hopefully be a benefit in the long term.’
The UK’s Department of Environment, Food and Rural Affairs (Defra), Health and Safety Executive (HSE) and Environment Agency, have spent significant time and resources working on preparations for a no-deal Brexit since the referendum. Putting together the necessary plans, mechanisms and IT systems (which are not yet completed) to create UK Reach, all the while hoping that they will never actually need to be used.
But regulation doesn’t stop at Reach and Echa. Many other products – for example pesticide residues in foods – are regulated by the European Food Safety Authority (EFSA), and there is significantly less clarity in the political documentation about how those activities will be affected under different scenarios.
Drugs also fall under the authority of the European Medicines Agency, which has almost completed its move from its former home in London to a new site in Amsterdam, the Netherlands. While again, existing products approved in the EU will be translated to the UK, decisions on whether new medicines can be marketed in the UK will fall to the Medicines and Healthcare products Regulatory Agency (MHRA), which means duplication of assessments.
People want a feeling of long-term safety and welcome to make the decision to go to the UK rather than another EU country
‘The EMA moving to Amsterdam is an enormous loss. It has an impact on many people, not only the hundreds of employees working directly for the EMA, but also the whole supportive industries, ranging from drugmakers, law firms, insurance companies etc that serve the pharmaceutical industry,’ says Paul-Peter Tak, a venture partner at investment house Flagship Pioneering, and board member of several SMEs in the healthcare sector. ‘We’ve seen already that other companies are moving to Amsterdam from the UK, many of which are relevant for pharmaceuticals.’
The impact of leaving these regulatory structures is not just mechanical, however. There is the issue of losing influence over the way regulations are made and implemented. Regulatory decisions are based on complex and sometimes incomplete data, and the UK has traditionally provided a pragmatic voice within the EU, observes Alexander-White. ‘Those sorts of discussions are really important, but there’s always license to have a subjective view on things, as to how much risk you’re prepared to accept for your society, and that’s what causes disagreements. The UK is more open to seeking a balance – accepting small risks for the benefit of innovation and economic growth, but at the same time providing high levels of environmental and health protection,’ she says.
The loss of influence extends beyond regulatory discussions. Tak, who moved from the Netherlands to the UK to take a series of senior immunology positions at GlaxoSmithKline, points to projects like the EU’s Innovative Medicines Initiative (IMI), in which UK researchers and companies have played significant roles, and secured the lion’s share of the available funding. ‘IMI has also provided an extremely important network for collaboration. Money is one part, and the UK government can say, “well, we’ll just compensate you for it”, but it’s critical for research to work together to create networks where you can have a free flow of ideas, and where people can exchange talent, so it becomes attractive to move from one country to another, as I did.’ If the UK is excluded from those networks, Tak says, there will be huge impact on UK scientists’ ability to help define the international research agenda, and their level of access to other scientists across the world.
Maintaining an open and attractive atmosphere for foreign scientists to come and work in the UK – either in industry or academia – is crucial for the future health of industry, says Tak. And that’s as much a psychological problem as a political one. ‘I still love the UK and that’s why I still live here, but I’m starting to sense a change in sentiment, even where I live in Cambridge, which is not the most pro-Brexit area in the UK! It definitely shouldn’t be underestimated. People want a feeling of long-term safety and welcome to make the decision to go to the UK rather than another EU country, or to the US because then suddenly it’s all equal.’
Beyond the blue
But while there are undoubtedly significant challenges and pitfalls to overcome, the prospect of the UK leaving the EU also presents opportunities. ‘Personally I think Brexit is a stupid thing,’ says Mark Gilligan, chief executive of chemical technology group Blacktrace. ‘But ignoring anything about the philosophy, and whether or not Brexit makes sense, the collapsing pound means that the UK is starting to look like a low-cost region of the world, but with spectacular talent and capability.’ He observes that average UK salaries in his sector are around a third to a fifth of the equivalent in, for example, Switzerland, but the skill base is at least as good.
Blacktrace recently compared the cost of developing a new product from its base in the UK versus San Francisco, US. ‘To do exactly the same thing, we needed 10 times more money in California,’ says Gilligan. He points out that the base salary for a fresh graduate software engineer in San Francisco is $125,000 (£96,000), whereas in the UK it would be more like £20–30,000, and the ancillary costs, such as medical insurance, are also significantly higher in the US. All of that extra cost needs to be recouped through sales revenue, he explains. So if it takes the same time to develop and launch the product, say two years, in the UK you might be able to get to the point of profit in three years, whereas in California it might take five. ‘All that accumulated cost before the break-even point translates into a pile of cash you need to have as investment. You can change the assumptions in different ways, but it always ended up being about 10 times more money to do the same thing.’
That makes this a potentially interesting time for the UK, he continues. ‘We could end up pulling manufacturing here in a way that nowhere else in Europe or the US can do, because it’s too expensive. We’ve had this period for the last 20 years or so where everything’s left the UK and gone off to be manufactured in low-cost regions of the world. But everyone who’s done that understands what the challenges are, and China’s costs are increasing fast.’
There are also opportunities in regulation. For the purposes of UK–EU trade, it’s important to maintain close alignment with EU rules. However, the UK could be freed to develop its own decision-making frameworks that are perhaps less burdensome on industry, or more strongly led by science, with less political influence. ‘The current EU process is unclear, confusing, grossly repetitious and wasteful of resources for both industry and the authorities,’ Janet Williams, head of regulatory science at Bayer, said at the WEETF meeting. ‘Good stewardship and best practice are key to a healthy environment. This is a genuine opportunity to recognise these as part of the regulatory process. We need to develop a scientifically and economically efficient process for the review of active substance approvals and product authorisations,’ she added.