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Analysis

Don’t let Brexit choke UK’s roaring tech sector

by Clare Maclure | 16.07.2019

Making the UK “the world’s most innovative economy” was the declared aspiration of Theresa May’s government, which has looked to the tech sector to lead its industrial strategy.

On the face of it, that’s a solid plan. The UK’s dynamic and growing tech sector “punches well above its weight in the world” and is a “critical hub in the global tech ecosystem”, according to a recent report by Tech Nation, a national network for tech entrepreneurs. The report found that UK tech attracted £6.3 billion of venture capital in 2018, more than any other European country. Investment in “scaleup” companies – those with 10 or more employees and 20% a year growth over three years – hit £5 billion in 2018, ranking the UK fourth globally behind the US, China and India.

But Brexit could undermine the sector’s efforts to be a world beater, affecting its ability to attract investment, recruit staff, transfer data across Europe and influence the European regulatory environment. If UK tech does stall, that’s a whole load of good-quality skilled jobs that will go elsewhere.

The UK’s pioneering work in artificial intelligence is a great example of a potential tech success story threatening to hit the Brexit buffers. But despite the government’s ambitious vision for AI, the sector is concerned. 

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In November, Tech for UK, a group set up by 100 tech companies, wrote to the government declaring that leaving the EU “will not serve the interests of the UK tech industry”. It warned that companies fear a “brain drain” with talent leaving the UK. Innovative startups are looking to relocate to cities in mainland Europe because of uncertainty about the future. The letter also stressed that companies will be adversely affected should access to European research and enterprise funding end.

55% of overseas tech leaders wouldn’t expand their businesses into the UK as a direct result of Brexit, a survey of 8,000 tech experts by Global Tech Advocates found, and 25% would not choose to invest in a UK tech company in the coming year.

Signs of jitters are everywhere: companies are putting off investing in technology upgrades to the detriment of their tech suppliers; tech companies working in finance industries are already applying for licences to operate in other European countries; big banks are starting to move their data centres out of the UK; British firms are stockpiling spare parts.

The government hasn’t helped the situation. Even if May had got her deal through, it was clear the UK would also leave the EU’s digital single market. This ever-expanding initiative is designed to dismantle regulatory barriers and create an EU-wide rulebook for the digital age. Firms’ access to staff, data and consumers is all enhanced by being inside it.

On data, for example, the impact of Brexit is unclear. EU data about people or businesses can flow freely to and from the UK and other EU countries today as each has the same rules on data protection. May’s government already promised that it will continue to consider EU countries as having adequate protections. However, no data agreement has been done on data flowing from the EU to the UK. And in future, the UK may have to adapt UK law to be deemed “adequate” by the EU. The likelihood of that depends on whether we have a crash-out Brexit or not, and who is running the country.

Even with the best will in the world – which is far from certain right now – there’s no guarantee UK and EU digital rules won’t diverge in future. Why would firms want to innovate and invest in a place where easy access to the huge European market is unclear. Staying in the EU is the best way to secure our promising tech sector and the British jobs it can create in the future.

Edited by Luke Lythgoe

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