Services and Servers: How Brexit may impact on London’s tech sector
27 June 2019
If you were to binge watch the hundreds of hours of debate and discussion surrounding Brexit, you would likely get a very odd picture of what the UK economy looks like. Politicians have obsessed over fisheries, agricultural tariffs and the need for a Customs Union. We’ve had live pictures from car parks in Kent and car plants in Sunderland. The discussion on goods has dominated many people’s understanding of Brexit and, as a result, of the importance of goods to the UK economy.
Yet the reality is entirely different. The UK is a highly services-based economy (80%) with the service sector contributing 45% towards exports. For London, services are even more important, accounting for 91% of the city’s economy and 80% of its total exports.
Underpinning an ever increasing proportion of those services is the tech sector. While London is home to some of the world’s leading tech companies in their own right, tech is now also part of every other aspect of the Capital’s economy. Finance, media and even high fashion all rely on digital technologies and data as integral to their business models. That’s even before we consider new industries created by the integration of tech with established sectors, such as fintech or medtech. Indeed, tech, and industries heavily reliant on technology, now make up around 46% of UK services exports.
One key example of this digital foundation is the cross-border movement of personal data. As part of the EU the UK has become a hub for data. 11.5% of all global data flows go through the UK. 75% of those data flows are with the rest of the EU. The UK’s strong position means, for example, many US banks operating in the EU bring their data into UK- for analysis, before transferring it to the USA. This again has helped solidify the UK’s role in the global financial services industry.
In order to continue to be able to move personal data easily between the UK and the EU post Brexit, the UK will need to secure an “adequacy agreement”- a test of whether the UK offers the same standards of protection for citizen’s personal data as the EU. The adequacy process is designed to look at both how private businesses and the public sector (including security services) treat personal data, in order to ensure that any data from EU citizen’s that is transferred to the UK is treated properly. Getting an adequacy agreement could take several years- and cannot be agreed until after we formally leave the EU. That makes the “transition period” really important to prevent there being a gap during which personal data could not easily and legally transfer between the EU and the UK
Data protection is just one area where how we align with the EU will be important. As rules and regulations governing the tech sector develop, businesses want to avoid having it comply with different laws in different countries. That is why a majority of techUK members say they prioritise regulatory alignment, with the ability to access and trade freely in the EU market over the supposed ‘flexibility’ the UK could have over its own rules post Brexit.
How do we achieve that market access and alignment? The simplest way is, without doubt, to retain membership of the Single Market. However, assuming the Government continues to oppose this approach, it is likely that UK negotiators have go through almost every regulatory issue facing the tech sector and seek to agree with EU negotiators that, by being aligned, UK tech companies should have market access. That is no straightforward task and shows the reality that is still yet to dawn on many politicians, that the second “future relationship” phase of Brexit will be far more complicated than the first. The question for many tech companies is exactly when, or if, we will ever reach that stage.