Management

Will the UK Digital Industry Benefit from Brexit?

On June 24th, 2016, the UK has voted to leave the EU by 52% to 48%. This result was much discussed since, as this case is unique and opens political discussions about the destiny of the Kingdom (would it remain united by the way?) and the negotiation of the conditions of the so-called Brexit.

The last train to Waterloo will leave on Friday 29th, 2019 at 11 am. Except for that departure date, many options remain on the table Alex Hunt and Brian Wheeler, two BBC journalists explain.

The last move was on the digital field, when British PM Theresa May has confirmed, on March 7th, that the UK will leave the European Union’s Digital Single Market after completing the Brexit process.

On digital, the UK will not be part of the EU’s Digital Single Market, which will continue to develop after our withdrawal from the EU. This is a fast evolving, innovative sector, in which the UK is a world leader”. British PM Theresa May.

Let’s discuss whether the UK digital industry will benefit from Brexit or not.

The Digital Single Market

In April 2016, the European Commission (EC) took the initiative to “open up digital opportunities for people and business and enhance Europe’s position as a world leader in the digital economy”. For this Marshall Plan, the EC will invest €5bn by 2020 and expects a tenfold investment by the Member States, Regions, and industry. All these investments will contribute to the development of a coherent European approach in co-investments, to the support of digital innovation hubs (€100mln investment per year) to help the companies, especially SME to develop the necessary skills and to the set-up of a regulatory framework.

Two years after Mariya Gabriel, European Commissioner for Digital Economy and Society acknowledges that key actions for the digital future of Europe have been delivered so far, even if the potential €110 billion of additional annual revenue for our industry until 2020 remains mainly untapped.

By leaving the Digital Single Market, UK digital industry will not benefit from this European initiative. Does it matter for a world-class Fintech ecosystem as defined by E&I?

The UK Digital Industry

The UK Parliament defines UK digital industry as “telecommunication, computer and information services, which includes trade in a computer, news agency and other information provision related service transactions, and telecommunications services including the broadcast or transmission of sound, images, data or other information”.

The report continues: “In 2015, The UK had a digital services trade surplus with the EU of £1.6 billion. Such trade is also growing, now accounting for 7% of the UK’s global services exports. Within this sector, the EU was the destination for 43% of exports and the source of 56% of imports.”

The UK Digital industry greatly benefits from the European markets. Can it stand alone against all?

Any benefit from the Brexit?

In a policy paper published in 2017, the UK government gives a list of commitments that can be turn for some into arguments: UK will remain the best place to create digital business, building world-class digital infrastructure for the UK, over £1bn investment to develop faster the digital activities, making the UK the best place to start and grow a digital business with a additional £4.7 billion by 2020-21 in R&D funding and adding digital skills and careers in National Citizen Service programmes.

Another benefit will the to break free the EU constraints which have proved itself consistently hostile to tech innovation: “Brussels has long had a problem with disruptive web innovators, running endless investigations against the likes of Apple, Google, and Amazon — while seeking to protect the slothful old European businesses whose models are threatened. Freed from that interference, the UK can be a regional hub for the world’s tech leaders” explains the Institute of International & European Affairs.

There May Have Some Limits

As the UK Parliament states in its report, EU is a critical export market for the UK Digital Industry. Another point is the preservation of the free flow of data across borders, as seen by the industry as critical to the future of UK digital services.

The UK Parliament also warns about the lack of regulation: “In the absence of a UK-EU FTA, we heard grave concerns from the digital services sector about trading under the WTO”. This is not true: free trade agreements (FTAs) only relates to goods not services (see note below).

As a conclusion

Actually, nobody, except people who can read into the future, knows whether the UK Digital Industry will benefit from Brexit. The key issue would certainly be the negotiation about the Brexit. A soft Brexit will enable to negotiate a partial or a full negotiation on four points:

– 50% of the inputs for digital goods and services in the UK are imported,

– almost a fifth of the digital workers in the UK are foreign, with 6% of the sector’s talent from EU countries,

– half of all trade in services is digitally enabled and reliant on data flows,

– application of the GDPR after the Brexit.

 

 

Note: As a rule, the tariff part of free trade agreements (FTAs) only relates to goods. Goods attract tariffs. Services do not (usually) attract tariffs. Services are controlled by non-tariff barriers. Further reading on http://www.consilium.europa.eu//media/33458/23- -art50-guidelines.pdf

Source: Alex Hunt and Brian Wheeler BBC News 2018. « Brexit: All you need to know about the UK leaving the EU ». [ONLINE] Available www.bbc.com/news/uk-politics-32810887. [Accessed on March 18th, 2018 News Desk 2018. « British PM May confirms EU Digital Single Market exit». [ONLINE] Available https://bdnews24.com/business/2018/03/07/british-pm-may-confirms-eu-digital-single-market-exit. [Accessed on March 18th, 2018 European Commission 2018. « Digitising European Industry: 2 years after the launch of the initiative. [ONLINE} Available https://ec.europa.eu/digital-single-market/en/news/digitising-european-industry-2-years-brochure. [Accessed on March 18th, 2018 UK Parliament 2017. « Brexit: trade in nonfinancial services Chapter 5: Digital services». [ONLINE] Available https://publications.parliament.uk/pa/ld201617/ldselect/ldeucom/135/13508.htm#footnote-217. [Accessed on March 18th, 2018 EY. 2016. UK-FinTech-On-the-cutting-edge. [ONLINE] Available http://www.ey.com/Publication/vwLUAssets/EY-UK-FinTech-On-the-cutting-edge/%24FILE/EY-UK-FinTech-On-the-cutting-edge.pdf. [Accessed on March 18th, 2018 Government UK. 2017. Policy paper UK Digital Strategy 2017. [ONLINE] Available https://www.gov.uk/government/publications/uk-digital-strategy/uk-digital-strategy. [Accessed on March 18th, 2018 . 2016. Brexit presents both opportunities and challenges for Ireland’s digital sector. [ONLINE] Available at: https://www.iiea.com/brexit/brexit-presents-both-opportunities-and- challenges-for-Ireland-digital-sector/. [Accessed on March 18th, 2018].

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CyrilleLerolland

CyrilleLerolland