What adland really needs to know about the Brexit deal

Now that the Brexit deal has been concluded, opinion is divided on the effect it will have on the UK ad industry and its relationships not only with the EU but also the rest of the world

Is Brexit the devil the liberal creative industry thought?

The deal is done. After four and a half years of bitter negotiations, missed deadlines, a revolving door at 10 Downing Street and fiery exchanges, the EU and the UK finally agreed to part on speaking terms.

Instead of the news being greeted with fanfare, it was more of a damp squib. Even the timing of the announcement fell flat – on Christmas Eve, to a weary nation missing loved ones after 10 months of global devastation wrought by Covid-19.

Adland’s leaders are similarly nonplussed about Brexit’s arrival. Although they acknowledge it is early in the process, most report little change so far. “In the second half of the year, I maintained a brace position, but it’s all been a bit anticlimactic,” Elvis’ chief executive, Tanya Brookfield, says. “Is Brexit the devil the liberal creative industry thought, or is it as inconsequential as it is now?”

The uncertainty of recent years has been a much bigger factor in shaking client confidence. As Josh Krichefski, global chief operating officer at MediaCom, says: “The impact on our business was more likely in the transition period due to the uncertainty around what the Brexit deal would look like, and this did affect some of our clients’ investment decisions. We don’t see significant reductions in client spending connected specifically to Brexit in 2021.”

What’s more, any short-term changes from Brexit are currently being dwarfed by the brutal impact of Covid-19, which is dramatically changing the way the industry operates. As Havas Creative global chief executive Chris Hirst puts it, in comparison, Brexit is the equivalent of “whistling in a typhoon”.

The main significance of the exit deal is that it brings confidence. As S4 Capital executive chairman Sir Martin Sorrell says: “I don’t think, materially, it makes that much difference. But it is a clear signal both by the EU to Britain and Britain to the EU, that they want a friendly relationship and not gunboats going after fishing boats.”

Hirst agrees: “The real risk was geo-political; that we became antagonists. The potential toxicity of the relationship has been removed by the deal. Now parties can get on and work their way around it.”

“Is Brexit the devil the liberal creative industry thought, or is it as inconsequential as it is now?”

But while adland’s leaders feel any short-term changes due to Brexit are surmountable, they are concerned about the potential effect over the medium to long term. The fear is a gradual decline in British influence will lead to a slow leak of talent and business to the UK’s European neighbours or even other global players. Brexit may appear tame at the moment, but there could be a nasty sting in its tail.

The deal, the details

The trade deal focused on the exchange of goods. Most of what was agreed will have only indirect implications for adland. For example, additional red tape around imports and exports will affect some clients, and this may have a knock-on effect for
ad accounts.

Some smaller European retail firms have already stopped selling their products to the UK because of higher costs and increased bureaucracy. Changes such as the EU no longer recognising British professional qualifications will not affect the main business of adland, but will add paperwork. For example, if a piece of business requires legal approval, a company may have to employ a local lawyer based in the EU state in question.

Similarly, VAT will need to be handled on a country by country basis, because the UK no longer has access to the EU as a bloc in this matter.

Some of these issues are expected to be ironed out in ongoing talks between the EU and the UK about financial services. A memorandum of agreement on services is expected by 31 March.

The biggest areas to watch are what will happen to the transfer of personal data between the UK and Europe when GDPR is replaced in six months’ time, and the impact of the new visa rules on accessing and attracting the best talent to the UK (see box, opposite).

“At the moment, it’s in the EU’s hands to validate what the UK regulations will be around personal data. If there is some kind of misalignment there, that could affect how we handle clients’ data,” Andrew Dimitriou, EMEA chief executive of VMLY&R, says.

Meanwhile, fears over the easy transfer of talent may be founded. In January, the Netherlands moved UK citizens who wish to live and work in the country on to its “high skilled migrants” criteria. This carries a minimum annual salary threshold of €57,000 for those over the age of 30. Although this may not faze those who work in law or finance, it’s an unrealistic salary for many junior to mid-level people in the creative industries and effectively prevents this UK cohort moving to Amsterdam.

One headhunter called it “a kick in the teeth” and said it showed the Dutch government wanted to “make an example of the UK”. If other countries follow suit, the exchange of staff across countries will become very difficult.

As one adlander based in the EU says: “I wish the UK government could see what people think of them in the EU. They hate the UK government. They have been dragging the whole bloc through this nightmare for four years. It has completely frayed goodwill.”

With so much of the detail still to be decided, there are inevitable teething problems. At the end of January, fishing firms staged a protest in Westminster after new customs and veterinary checks caused large delays at the border. Delivery services DPD and Parcel Motel suspended their services for parcels coming from Great Britain into Northern Ireland and the Republic of Ireland. International shipping companies FedEx and TNT have imposed additional charges on shipments between the UK and the EU.

A costly process

“As we have already seen from the ports since the transition period ended, Brexit brings a mix of foreseeable and unforeseeable complications and issues. For creative industries, all of the foreseeable issues add direct or indirect costs. Changes to shoot insurance, working visas, immigration and data laws mean that being a third country is expensive,” Richard Exon, co-founder of Joint, says.

“Every business leader knows the difference between money that is simply the cost of doing business – especially professional fees, licences and insurance – and money that is direct investment in growth, like training, talent and recruitment. Brexit brings much more of the former, which, inevitably, means there is less of the latter to go round, and that’s bad for business.”

Navigating the new environment has also distracted leaders from putting their energy, imagination and cash into the development of new products or growth strategies, he adds.

Sarah Baumann, managing director of VaynerMedia and former director of marketing at the People’s Vote Campaign, agrees: “While the initial impacts are, on face value, thankfully not disastrous, there will be a whole host of bureaucracy and implications that come to light, which will be a distraction and create unnecessary complexity as we get into the run of normal business – for example, shooting in the EU, having to understand the local law of 27 countries, as it relates to permits and visas, and the burden on HR.”

“While the initial impacts are, on face value, thankfully not disastrous, there will be a whole host of bureaucracy and implications that come to light"

She says the changes “and likely damage” will be subtle and gradual. Multinational clients won’t all decide this month to relocate, or to pitch their business to agencies in the EU, but the shifts will happen over time. “If the UK becomes more jingoistic as a nation, talented EU professionals may choose to go elsewhere. Just like the NHS didn’t see an exodus the day after the referendum, but realised in 2019 they’d lost 22,600 EU staff, I suspect 24 to 36 months out, we will be analysing the impacts and seeing just how this has affected our industry,” she adds.

Will the UK remain a global player?

What the UK has in its favour is a longstanding position as the gateway to Europe for international clients. But some worry – and an individual’s level of optimism about the country’s future is closely linked to how they voted in the referendum – that this position may be about to change.

It’s no secret that the UK is in a tough spot. Covid has, rightly, swallowed resources that may have been used to handle any Brexit issues. There is great inequality nationwide. Unemployment is on the rise and inflation, too, is likely to rise to pay off the government’s pandemic debt. At the time of writing, the UK was heading for a double-dip recession. The UK also faces a potential break-up of the union as the SNP intensifies its drive for Scottish independence and support builds for a united Ireland.

All these factors may lead to hesitancy from European and international clients to invest in the UK. Sorrell argues: “I don’t like to say it, but Brexit makes the UK a less attractive place. You are going to see a reticence to invest in the UK. Clients are going to wait and see. At best, Brexit’s impact will be neutral to negative.”

Who Wot Why co-founder Sean Thompson discovered this the hard way: “During a lengthy pitch we were involved in for a global insurance company, the brand’s marketing director was made to halt the whole process. The CEO had to focus on moving the entire HQ to Paris, to mirror exactly what they had in London. The CEO didn’t want to, he had to.

“They were really frustrated. I remember them saying they needed a European hub for everything to work smoothly in terms of finance, legal and the benefits of borderless interactions. No UK agency was to pitch on the business ever again. Thank you, Brexit.”

He adds: “It’s hard to think how London can be the gateway to Europe when another client tells me he can’t even ship his product to Northern Ireland.”

Some businesses, particularly in the financial services industry, have already shifted staff and business to the Continent. But this is not a disaster for British agencies. Agencies that are part of global networks are adept at shifting business between offices without much friction, especially now more companies are operating with one P&L. As Wunderman Thompson’s EMEA chief executive, Ewen Sturgeon, says: “We’re already seeing the emergence of specific centres of excellence dotted across Europe. We connect our clients with the right expertise depending on the brief they’ve got.”

Meanwhile, the rise of remote working due to Covid-19 may also mitigate any border issues by no longer requiring people to be in close proximity. BMB chief executive Jason Cobbold says: “We are an ideas business and, frankly, anyone, anywhere in the world can already contribute, and that has become even easier with remote working. So, of all the sectors affected by Brexit, one would hope ours experiences the least friction.”

“We are an ideas business and, frankly, anyone, anywhere in the world can already contribute, and that has become even easier with remote working"

“The big question is whether people want to be bothered with a country that is not in the EU,” Paul Samrah, partner and Brexit impact specialist at chartered accountants Moore Kingston Smith, says. “If it was the other way around, I suspect that UK companies would try and source locally.”

On the goods side, we may see a shift to more local suppliers and customers simply because of the hassle factor. He adds that tensions between the UK and EU will create opportunities and possibly more competition: “It opens people’s eyes to other areas of the world where they might want to set up, perhaps because taxation might be cheaper, there may not be punitive sanctions and tariffs, or there is greater growth potential.”

But Tammy Einav, Adam & Eve/DDB’s joint chief executive, believes that London has unique factors that drive its appeal. “London’s reputation as the gateway to Europe was founded on many elements: geographical proximity to other centres such as Frankfurt, Rotterdam and Paris; being one of the world’s leading financial centres; easy access to a larger market; the presence of multiple industries and sectors; its incredibly rich culture and history; the benefits of the English language; a convenient time zone for business across EMEA; a large, skilled workforce; and the sort of educational and recreational offers that attract not only workers but also their families. Many of these attributes will remain and will guarantee London’s status for years to come,” she says.

Creating a strong future

So how can the UK boost its chances of future success? The country’s broader economic conditions matter acutely to adland as an industry.

“Marketing services broadly track the economy. It’s the biggest discretionary spend on the P&L so it gets cut first,” Hirst says.

Luckily, many adland leaders are bullish about the future growth prospects of the UK. “There will be more movement in the UK because Brexit and the pandemic are now known. I see pitch activity increasing, and the client budgets that were pared back last year have returned this year. Everyone knows they now have to get on with it,” Dimitriou says.

Einav agrees: “The UK’s post-pandemic return to growth is likely to be faster and sharper than many other places, given the service-based tilt of the economy and the promised speed of vaccinations, as well as its flexible labour market. We may be more resilient than elsewhere in Europe.”

If we are to get the UK firing again, wealth needs to be spread across the nation, and brands can help. The degradation of communities caused by globalisation and the rise of technology has led to the need for dramatic improvements in social infrastructure.

“It’s pretty horrendous in some parts of the UK – we look like a very poor developing country. The UK has to be revamped and levelled up. This has to be done by public-private partnership, not just the government alone,” Sorrell says.

Singapore has been cited as a post-Brexit business model to emulate

The tricky question of what to do with big tech will also come to a head. Some have suggested the UK becomes “Singapore-On-Thames” – aping that country’s model of low tax and low regulation to attract businesses. Indeed, Lord Hill, a Conservative member of the House of Lords, is currently reviewing the London listing rules in a bid to lure tech firms to the UK. Sorrell believes the UK should become “Singapore on steroids”, arguing that creating a favourable environment for business will help attract clients to the UK by mitigating any other concerns about its economy.

“Trying to stimulate activity, whether it be import, export, investment, or FDI [foreign direct investment], has to be the way to go,” he says.

Mercantilism and broadened horizons

Sorrell, whose company S4 Capital made four acquisitions in January alone, believes we need to market British goods and services more aggressively. Brexit’s biggest impact for his company is yet more urgency in trying to expand.

“We have a burr under the saddle to go faster,” he says. “A new mercantilism is necessary to get Britain going again because we’re in a very sticky situation. It’s going to take us at least five years to get back to the same growth rate we were seeing before Brexit. We need to get off our backsides and retool the economy and our companies and export aggressively. I think it’s going to be a very difficult few years.”

The Advertising Association agrees. It identified “aggressively” promoting the UK’s reputation for creative and strategic excellence as the top priority for the UK Advertising Export Group (UKAEG).

Of course, to be a global player, the UK needs to broaden its horizons beyond the EU, and not necessarily in the markets that have traditionally dominated thinking. It is unlikely that the EU will continue to account for 52% of the UK’s imports or 43% of its exports, as it did pre-Brexit. “The trading pattern of the UK has to change,” Sorrell says.

Tom Bedwell, managing director of Above & Beyond, a member of the UKAEG, says the US is currently the UK’s largest single export market and advertising is the second-biggest service sector to export there (after computer services). “We need to demonstrate the door remains open and we continue to be a destination for world-class creativity and strategic smarts,” he says.

A creative renaissance?

A look at history shows low points can spark cultural and economic revival. Charles Vallance, VCCP’s founding partner and chairman, points to Black Wednesday, when the UK crashed out of the Exchange Rate Mechanism in 1992. “London was a dump, unemployment and inflation were high and everything seemed gloomy,” he says. But what followed was Cool Britannia, a booming economy and the rise of brands like Orange and Dyson.

Sorrell is sceptical about a Cool Britannia revival and believes enduring attitudes of British creative superiority are dangerous: “There are too many people with rose-tinted spectacles. They think we’re the creative hub of the world – not true.” He points to the strong creative hubs in Buenos Aires, São Paulo, Los Angeles, Melbourne, Bangalore and China among others. “People in our creative industry look down their noses at other countries, but the competition is becoming more and more intense. We certainly have brilliant creative people, but so do other countries. I think we congratulate ourselves too much.”

“There are too many people with rose-tinted spectacles. They think we’re the creative hub of the world – not true”

He does, however, note that Covid-19 has sparked the birth of a series of independent creative agencies. In October 2020 alone, there were six high-profile agency launches. “Maybe we will have a creative renaissance again here,” he says.

Robin Trust, chief executive of The Kite Factory, believes that another “bizarre but beneficial side product” of the pandemic is that the creative industry has become better at agile problem solving, which will help navigate any challenges ahead. “The best course of action for the UK ad industry is to ensure that we are setting a gold standard for thinking and creativity that is recognised at a global level,” he says.

Global perceptions of the UK will be critical to future success. Exon argues that we need to reset the way the rest of the world sees us: “It may be uncomfortable to hear, but we need to recognise the damage the UKIP-led nationalism of the Brexit campaign and result has done to brand GB.”

He adds: “The next few years will be critical in establishing a new post-Brexit narrative for Britain. Our creative industries thrive on openness, diversity, ambition and inclusion. For years the UK has led the world in all of these and we can continue to do so. Anything less would be a failure of imagination that will damage our industry irrevocably.”

The future of the UK is in our hands. If we pull together, make the right decisions and find sustainable ways to overcome problems, the future could be bright. The country is in desperate need of optimism and a positive narrative about its future. It’s time for adland to step up – your country needs you.

Will the UK remain a talent magnet?

The end to freedom of movement between the UK and the EU casts some uncertainty on the future of recruitment

Brexit’s biggest impact may be on the industry’s ability to hire and attract the best talent. One example of the difficulties that may lie ahead is that UK citizens aged 30 and above, who wish to work in the Netherlands (pictured), must now apply as “highly skilled migrants”, which requires an annual salary of at least €57,000.

“That’s not what most 30-year-olds are earning in a creative industry,” Natasha Stark, managing partner for Amsterdam and Europe at DMCG Global, says. “It cuts out an entire part of our industry. It’s going to be tricky for mid-level UK talent to work in the Netherlands. This is not scaremongering, it’s fact.”

Another headhunter based in the EU says Brexit negotiations have soured relations. “The UK has become a real pariah over the past four years. There’s a sense that the European countries want to make an example of the UK. They want their jobs to go to EU citizens who are going to build families and communities,” he says.

Of course, keeping its own talent should be a positive thing for the UK. But if there are better job opportunities in the EU, some of the best EU talent may stay on the Continent, especially if the UK’s new points system for immigration is difficult to navigate.

Recruitment firm Grace Blue’s EMEA chief executive, Sarah Skinner, says her business has seen clients moving their headquarters to the EU, and EU talent showing reticence to move to the UK straight after the referendum. But she adds that the UK is still an attractive place to work and sees more EU nationals who want to stay in the UK than return home.

Indeed, while MediaCom has noted a slight decrease in staff asking to relocate to the UK, it remains the most requested market to work in globally.

The Covid-19 pandemic has eased some border issues. As a direct result of the business world’s adoption of remote working, “a couple of clients who are headquartered in the EU have said they are now open to talent that wants to stay in the UK”, Skinner says.

Covid-19’s acceleration of digital transformation has also led to increased demand for digital talent, including in UX, design and technology. “We’ve got European clients who see the UK as one of the best training grounds in these areas. If somebody has worked in the UK, it’s hugely attractive,” she adds.

Agency leaders point out that much of the UK’s top talent already comes from outside Europe, including Brazil, Australia or the US. “It’s not like I’m interviewing people from Germany every day for jobs,” Hirst says.

MediaMonks London’s managing director, Martin Verdult, agrees: “On talent, we now have to view the EU as we do the rest of the world. We’ve always hired the best professionals across the globe, wherever they are.”

Hirst argues that the real damage will come if Brexit decreases people’s desire to work in the UK: “The UK needs to work out how to attract more than its fair share of the most talented people.”

He believes that if the UK continues to have a rich cultural environment, this will continue: “I don’t think Brexit is so profound on a global level that it stops a 29-year-old from moving to a thriving city. How many people in China and the US are really going to be talking about Brexit in five years?

“We want to be the place that people come to make their name. Fewer people from the EU may now come to do that, but that’s not a fatal blow for the UK.”

Always read the small print…

Here is a digest of the most relevant points of The Trading & Co-operation Agreement, compiled with Paul Samrah, partner and Brexit impact specialist at Moore Kingston Smith.

• The deal provides zero tariffs and zero quotas on many goods. Businesses must prove their products meet certain requirements.

• There will be a memorandum of understanding on services by 31 March. For now, mutual recognition of professional qualifications has ended. This includes accountants and solicitors. “You will have to use a local solicitor to regularise paperwork,” Samrah says.

• To apply for pre-settled status before the deadline (30 June), EU citizens must already be in the UK.

• A points-based system for immigration was introduced on 1 January 2021. UK employers looking to recruit from the EU must now apply to be a sponsor, and the candidate must meet certain skills criteria.

• UK short-term business visitors may travel to the EU for 90 days in
any 180-day period.

• There is a temporary agreement to keep data flowing between the EU and UK until 30 June 2021. Both sides have agreed to uphold high levels of data protection standards. The Advertising Association is advising agencies to insert Standard Contractual Clauses into contracts to minimise disruption.

• The AA warns that roughly half of the EU states require an economic means test for Contractual Service Suppliers. Self-employed, independent professionals should review local rules.

• The UK will no longer benefit from Country of Origin rules under the Audiovisual Media Services Directive. The AA says this will have an impact on UK-based broadcasters carrying UK advertising. Previously they relied on Ofcom rules and licensing to broadcast EU-wide. Now, without an EU licence, they will be subject to host state rules. This will affect the type of advertising they can carry.

• Intellectual property that existed before Brexit will stand. But any new IP will need to be registered both in the UK and the EU.

• The VAT Mini One Stop Shop has been withdrawn, so agencies need to register for VAT in every EU member state. “This is a potential headache for agencies to deal with,” Samrah says.

Pictures (Dover, Singapore and Amsterdam): Getty Images