If the City of London’s financial district became famous for being the UK’s cash cow, the country’s tech sector has become similarly valuable. Digital and tech accounts for 14.5% of all UK service exports, some £30bn in 2016. It is also one of the most vulnerable to a ‘hard Brexit’.
“Brexit is the biggest priority over the coming year. It will understandably dominate all the conversations I have with the community, particularly on immigration, data and data flows, and the digital single market,” Dominic Hallas, executive director of the Coalition for a Digital Economy (Coadec), told EURACTIV.
Hallas, a former official in David Davis’s Exiting the EU department (DExEU), swapped the civil service for running the trade body for tech start-ups last month.
“I’m perhaps more bullish than some, partly because I spent the past year in DExEU. It’s in everyone’s interest that a deal is struck,” he said.
“No deal would be completely catastrophic for the sector.”
Hallas is anxious to dispel the idea that the UK tech sector is merely a London-centric industry.
“There are 800,000 programmers in the UK. Of those, about 300,000 are in London, half a million are outside of London and that’s a story that’s not often told, and is something that could be at risk in relation to Brexit.”
Access to capital is also at risk. Around 30-40% of the sector’s venture capital comes from the European Investment Fund (EIF), the EU agency based in Luxembourg which provides finance for small businesses across the EU.
“It’s a big issue,” said Hallas. “There is substantial uncertainty about the role of the European Investment Fund, and what the UK’s relationship will be with the EIF. We need clarity on that to be honest, as soon as we can.”
In search of adequacy
One question on the minds of tech businesses after the June 2016 referendum was whether the UK would ditch the EU’s General Data Protection Regulation (GDPR). That was answered last August when Digital and Culture Minister Matt Hancock presented a bill that transposes GDPR into UK law.
But that won’t be enough to guarantee data flow in cyberspace across the Channel.
One danger for the UK is being caught in a legal grey area. As a ‘third country’ outside the EU’s single market, the UK will need an adequacy decision by the European Commission, which determines that a country’s data protection regime is robust enough that European personal data can be processed there.
Without an adequacy decision before the UK exits the EU, companies would need to put complex legal clauses in their contracts or terms of service and may need to have these sanctioned by an EU Data Protection Authority.
“It’s essentially a political decision,” said Hosuk Lee-Makiyama, director of the European Centre for Political Economy, himself a former Swedish government diplomat on trade, pointing to the UK’s Investigatory Powers Act as the likely main stumbling block.
“Adequacy is absolutely fundamental to the continuation of a successful technology start-up sector in the UK,” said Hallas.
“€272 billion of economic output relies on data flows in Europe each year. The UK government’s position is adequacy +; adequacy plus the involvement of the UK’s ICO in broader data protection discussions.”
“This is a negotiation, but I would hope that on both sides there is a pragmatic approach. Regardless of the discussions around security, it is a huge economic priority for UK, French, German firms that data continues to flow freely across Europe.”
London is unlikely to be deposed by a European rival, said Hallas, who warned that Europe’s tech community would suffer collectively from a chaotic Brexit negotiation.
“London is very important as a hub for the tech community in Europe but the whole point is that it is an eco-system and having the ability to continue to work together is really important.”
He pointed to King Gaming, the inventor of Candy Crush, which was founded in Sweden and is now headquartered in London, with an Italian CEO at the helm.
“There are a million and one such cases. London has consistently played the role of being a free-flowing hub of talented people.”
“There’s a lot of conversation, from President Macron in particular, talking about how France wants to be at the forefront of bringing in new start-ups and attracting talent across Europe, and that’s all well and good but a lot of the best talent from the UK in terms of AI and new innovative industries won’t necessarily go to Paris, they’ll go to Silicon Valley.
“What you see in the figures is that as well as being the biggest importer of talent from the EU, the UK is also the biggest exporter to outside the EU. There’s a real risk of losing more of that talent if we have a punitive deal,” Hallas said.