...As JFK once famously said in 1963. Whilst that was made against the backdrop of highlighting the problems with communism, there is a certain amount of irony in using the words to describe the status of the UK and UK tech now.
For those of you who read my previous musings on UK tech and the problems it is facing, you'd be forgiven for thinking I'd dismissed entirely Berlin in favour of Frankfurt when looking at what I consider the major competitors for the UK's tech market crown. Not so; my last musings were with one eye firmly on FinTech and, whilst I think Frankfurt is still the key city to keep an eye on, Berlin certainly can't be overlooked.
Let's look at Berlin's positives: a vibrant, fun city with a relatively young population. It's got tech roots and is known for its innovation. Furthermore, it's got a quick-minded and formidable senator at its helm in the shape of Cordelia Yzer. Looking more widely, Germany and, in particular, Berlin is a melting pot of different cultures and that can only attract a variety of talent. Unlike the majority of Brits, the majority of Germans can claim to be multilingual and many speak English and, looking at the wider picture, the German legal system is well ordered, it's lawyers are smart and, by and large, pragmatic (being someone who has worked with a huge number of German lawyers on many occasions, they are an impressive bunch) and its economy is strong; it's a serious threat to the UK, there is no mistaking it.
Whatever your stance on Brexit, the UK Is now where it is. There won't be a second referendum, so all the UK public, it's businesses and the government can do is to look at the best ways to deal with, and manage, the fallout - and take advantage of any situation that presents itself; the success or failure of events such as this often come down to seizing opportunity. Whilst solving its own problems is paramount, the UK also needs to focus on dissuading businesses, workers and similar from migrating to other EU countries. So with that in mind, let's look at the disadvantages of setting up shop in other countries for a second:
- Tax - corporation tax, in a number of EU countries (Germany included) is, when aggregated with other taxes levied at the same time, is higher than the UK. This drives up the cost of business in the long run, meaning more money is needed to cope with the additional expenditure requirements. This in turn results in higher cash burn. In contrast, the UK has a competitive and comparatively low corporation tax rate at the time of writing;
- Income and capital gains tax - again, in many other EU countries this is higher than that of the UK. When you lump into the equation entrepreneurs' relief at the capital gains tax rate of 10%, this continues to make the UK the pre-eminent place for entrepreneurs to achieve best exit;
- Other tax breaks - the UK, unlike many other EU countries, has a wide range of other tax incentives; R&D rebates; SEIS and EIS and the patent box to name just a few. On SEIS and EIS, which were reformed due to European rules earlier this year to arguably make them less favourable to the UK, the UK should perhaps look to re-engineer these to ensure that they do not become less attractive and continue to attract huge amounts of "angel" investment, which is, in my opinion, a massive factor in the success of the UK's tech scene to date;
- Employees - hands up who has been involved in the dismissal of workers and other employees in other EU countries? For those of you who have, you'll recall that this is perhaps a more painful process than that in the UK (and let's not even get started on dismissals in France, where employees have a number of additional rights making dismissals even more difficult and costly). Leaver provisions are key in tech deals to ensure that the all important management team is incentivised to remain with the business for as long as possible. These provisions aren't as easy, or as straight forward to enforce, in other EU countries as they are in the UK so let's not underestimate their importance and the importance of being able to manage and, where relevant, dismiss employees/management when such a time is needed;
- Language - it's true that a vast number of other countries speak English and it is common for English translations to be completed when producing corporate and other documents in another country (sitting alongside the native language). This obviously is a point in their favour. This being said, English is still not the national language of other EU countries and this is important. People understand the English language and inherently feel more comfortable having their documents in English than in another language. Similarly, the English legal system and the principles underpinning it, are particularly well trodden, well respected and well known; that can't be said for all of the legal systems in all other EU countries; and
- Commercial contracts - considerations when negotiating commercial contracts reflect many of the points highlighted above...the world understands English law, principles and similar and feels inherently comfortable in negotiating English contracts that are subject to English law: this is even the case in some instances where none of the parties to the contract are actually based in England. Conducting commercial deals on a non-UK law basis, or having another jurisdiction as the key governing law can be a gamble...one that some will be unwilling to take.
Over the weekend, while German Chancellor Angela Merkel was hurriedly convening a meeting of European leaders to assess the aftermath of Britain's choice to leave EU, Cordelia Yzer was on the phone. The Berlin senator for Economics and Technology was not chatting to fellow politicians, but with start-ups and global funds, who, in the wake of Brexit, are now considering Germany's capital as their base.