Brexit and beyond – the issues that worry a UK tech sector still in shock

Brexit believers will ardently dismiss it but it’s a fact that support among companies, entrepreneurs and workers in the tech sector for leaving the EU has never been high. The belief that the new industries birthed by technology represent the future of the country’s economy just isn’t compatible with the mindset of Brexit which is viewed as fundamentally isolationist.

That’s because it is isolationist, on the surface at least, but as with a lot of political notions this mindset won’t necessarily survive acquaintance with real-world complexities. In the early 21^st century, the separateness of nations is moot, indeed it is the way that events in one country ripple unstoppably across continents that has arguably created a world in which leaving the EU sounds like the lesser of two evils.

The political problem is that voters understand the importance of the EU’s single market but far fewer grasp the even greater importance of the still-emerging digital single market. This is tied to a large chunk of the UK’s GDP and will define the country’s entire economic future. In whatever form Brexit is unpicked, exiting the digital single market simply is simply not on the cards.

There are lots of ways to unpick the implications of Brexit but here are some starting points for discussion: the future influence of EU Cybersecurity policy, the GDPR, the Revisied Payments Directive, the cost of technology, university research funding, public sector IT procurement, mobile network roaming, the startup sector and skills and immigration.

EU Cybersecurity Strategy

The EU’s approach to cybersecurity is governed Network and Information Security Directive (NIS), a framework of principles proposed in 2014 to harmonise the patchwork of Europe-wide approaches to digital security, including anything that might endanger the Single Market.  This was long overdue; in the world where data moves where it needs to go, a weakness to attack, equipment failure or even a natural disaster has the potential to ripple across multiple nations and not only the one in which it might occur.

At the business end, the Directive imposes reporting requirements and defines how states should co-operate with one another. The UK’s has since 2011 been evolving its own cybersecurity strategy, which will continue to guide its actions post-Brexit. However, it’s unlikely that the UK would seek to push back against the EU Directive’s modest requirements and will pragmatically subscribe to its broad principles.  Directives require local legislation so it’s also possible will simply come up with its own law that shadows the Directive.

General Data Protection Regulation (GDPR)

We’ve already covered the implications of Brexit for the GDPR, the EU’s major privacy overhaul, in some detail. There is near universal agreement that the UK will still have to implement its requirements in full if it is to gain access to the Single Market for services, a sector that makes up 78 percent of the UK’s GDP. The UK could agree to abide by enforcement decisions to smooth the path of the GDPR but even without that it the Regulation is set to wield huge influence over the data privacy of large UK organisations come what may.

The ICO optimistically talks up the prospect of UK Data Protection rues somehow shadowing the GDPR but this would simply be the GDPR by another less certain name.

Revised Payment Services Directive (PSD2)

Due to be implemented by member states by January 2018, PSD2 is a follow-up to PSD1 which came into force in 2007 to harmonise payment services across the EU as well as foster competition. New features in PSD2 include better protection for consumers, more structure over pricing and provide an EU-wide structure for emerging trends such as mobile payments.

Banks suppo0sedly don’t like it much because it raises the prospect of greater competition and, in some situations, removes intermediaries that raise the cost of paying for things across international boundaries when using certain systems. It also requires investment.

Brexit has cast some uncertainty over the status of PSD2, but it’s hard to see that a future UK government would want to mire itself in something best left to the banks to sort out. As a de facto standard, it is most likely that Brexit will have little effect on adoption of PSD2.

“Countries like Norway and Switzerland are also not part of the EU but have still decided to implement most EU payments laws. The UK could take a similar course. And considering that the UK has already translated the first PSD and other payment legislation into national law, the country should be expected to continue following EU payments legislation,” according to Ron van Wezel of the Aite Group.

The cost of technology

Since Brexit, the pound has fallen noticeably against the dollar, which will raise the cost of almost all technology imports, the overwhelming majority of which are priced in the US currency. The respected Economist Intelligence Unit (EIU) has since predicted that the slow deterioration in the value of the pound will continue, perhaps levelling off around $1.24, almost a 20 percent fall from where it has been trading in the last two years. Currency hedging will smooth the transition to higher prices but if this prediction is right, technology equipment is bound to increase in price at some point. Software and services – which are priced according to production not currency costs – will stay much as they are.

University research funding

It’s no secret that the UK higher education sector viewed Brexit with incredulity and with good reason – according to the European Research Council, the EU distributes £687 million in annual research funding to UK institutions. This will no longer happen and will have to be made up by the UK Government. The worry is that a future government, faced with budget limitations or simply one that sees higher education as a lower priority, might be tempted to cut this in real terms.

The UK also has a healthy stream of EU-based students who might no longer choose UK institutions f they are being asked to pay UK tuition fees. In terms of research recruitment, it’s not clear how the UK will continue to attract talent when the so-called point-based visa system is barely sketched out let alone implemented.

Unless the UK Government commits to ring-fence higher education funding, Brexit could yet have a be seen as a disaster for UK universities.

Public sector IT procurement

Not an issue that was top of mind during the referendum, but Brexit has introduced uncertainty to rules governing how companies bid for business, including IT contracts, in local and national government. The EU imposes rules on the procurement process that would almost certainly need to be accepted by the UK simply because so much of this business operates across borders. If UK IT firms wish to bid for contracts abroad they will have to submit to the same rules when EU firms bid here.

“It is therefore unlikely that even in the distant future that there will be no requirement for competitive procurement and in fact, whilst at a European level procurement law is about opening up competition, at a national level, it is of course also about delivering value for money,” Stuart Cairns of legal firm Pinsent Mason was quoted as saying.

Mobile networks and roaming

EU mobile roaming surcharges are estimated to cost UK phone customers an estimated £350 million a year, something that has been reduced over time thanks to EU tariff caps. From 2017 these charges were due to be abolished completely. It’s the sort of market regulation that only works if it is done at scale and would never have happened had it been left to national governments.

“I don’t know what would happen if we leave the EU, and that’s the problem,” UK minister for education, culture and sport told the BBC in April and therein lies the issue.

Some think it will be impossible to wriggle out of the abolishment of fees – the political repercussions would make life unbearable for any UK Government let alone the image of the industry itself – while a few still see no compulsion for the industry to impose a Regulation that would not apply once Brexit has been finalised.

Even if roaming charges are abolished it is uncertain whether future regulation of the mobile industry would apply in the UK. Faced with industry lobbying, the pace of change in the consumer’s favour could easily slow.

Startups and the tech sector

Tech startups were another sector that was heavily for Remain. For the vast majority, Brexit has always looked like a way of creating unhelpful barriers in divergent regulation, unintended trade barriers and costs, not to mention the possibly greater difficulty of attracting specialised skills in a country suddenly obsessed with curbing immigration.

Listen: UK Tech Weekly Podcast: The impact of Brexit on UK startups

Some of these concerns are sector-specific, for instance the booming FinTech scene that depends in a large part of the importance of London as a financial hub. Regulation and uncertainty are major worries for th4se companies and could drive some of them to relocate. Most startup entrepreneurs will be hoping for a ‘soft’ Brexit where the UK remains part of the Single market and allows free movement to attract European entrepreneurs to continue setting up in the UK.

Brexit and beyond –  skills and immigration

Once a post-Brexit UK Government is in place it can expect to be lobbied hard to implement a ‘smart’ immigration policy although precisely what that amounts to varies depending on who you ask.

That won’t be easy. The UK currently attracts more immigrants from outside the EU than from within it and many of those come with badly-needed skills the UK failed to create within its own education system. Anything that stands in the ay of that flow will be economically negative but each sector, including tech, will see itself as the priority. Meanwhile, having promised change the next Government will be under populist pressure to bluntly reduce immigration headcounts come what may.

In the next two years, the biggest issue is simply that companies don’t know which rules will apply to international recruitment.

On the other hand: “The ability of the UK to allow in more migrants from outside of the EU, without exceeding any immigration quota, will also be something to keep an eye on. By no longer having to give preference to EU workers, opportunities open up for those coming to the UK from India, China and beyond. This is surely great news for those seeking STEM candidates,” suggested Phil Foster, managing director of Love Energy Savings.