With a post-Brexit drop in the value of the British pound, the United Kingdom is facing a rising cost of using cloud-based software used in managing government operations.

Prime Minister Theresa May’s Cabinet Office has been forced into negotiating with Microsoft Corp. to minimize the impact of a January price hike that could cost the government hundreds of thousands of pounds.

In October, Microsoft announced its cloud services would go up by 22% in 2017 to “harmonize” its prices across Europe following the sharp fall in the pound. Sterling has plunged 17% against the dollar, the currency in which Microsoft books its revenues, since Britons voted to leave the European Union in the June 23 referendum.

The company is now in negotiations with the Common Technology Services division of the Cabinet Office, which coordinates between the prime minister’s office, other departments and the civil service, according to Freedom of Information requests submitted by Bloomberg.

The division “is negotiating with Microsoft in order to secure a pan-governmental commercial advantage for the purchase of some of these licenses,” the Department for Business, Energy and Industrial Strategy said in a response. It said it had no estimate of the impact of the price increases on the department.


Microsoft did not immediately respond to requests for comment. The company, No. 13 in the B2B E-Commerce 300, provides software to some of the biggest businesses in the U.K. as well as government departments, which use products including Microsoft Visio, Office, Visual Studio, SharePoint, Project and CRM Dynamics Online.

The newly created Department for Exiting the European Union was unable to provide details as it is still operating on Cabinet Office infrastructure. The Cabinet Office paid Microsoft 624,570 pounds ($771,000) this year, according to online statements, and said it will be unaffected by the price increases. The Department for Education cited current annual costs of 808,545 pounds for Microsoft services.

The Home Office and the Department for Work and Pensions both declined to disclose current costs or future estimates, citing commercial sensitivity.

Microsoft and its rivals—namely IBM Corp., Alphabet Inc.’s Google and Amazon.com Inc.’s Amazon Web Services—have been expanding their cloud services in the U.K. in recent months as they compete for demand from businesses as well as government agencies.

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