What are the implications of Brexit for Tech firms operating in the UK?

by Shomik Panda on 04 Jul 2016

More than a week on from the UK’s decision to leave the EU, the political vacuum at the top of both main UK political parties means that the country’s policy priorities and future direction remain unclear. However, against an uncertain background, some potential implications for the Tech sector can be foreseen:

1. Uncertainty over Tech recruitment and access to specialist Tech skills

The first practical consideration for Tech firms operating in the UK will be to determine the status of employees who are non-UK EU citizens. Britain is unlikely to leave the EU before October 2018 so, until then, EU citizens will still have the right to live, work and start businesses in the UK. However, thereafter the ease with which EU workers can move to and gain employment in the UK will depend on the nature of the deal that the UK and EU negotiates. Businesses are likely to have to contend with recruitment challenges as skilled EU migrants will have to apply for UK visas, most likely under a new and stricter immigration system. This could make the recruitment of foreign nationals much more expensive and exacerbate IT skills shortages in the UK.

2. A potential shift in the direction of EU Tech regulation

EU initiatives such as the Digital Single Market (DSM) Strategy and Single Market agenda will continue – but without the UK’s participation. Legislation emerging from these EU initiatives will not be applied to the UK. Additionally, the UK, which has often been at the heart of the pro-Tech lobby in Brussels, will no longer be able to shape the spirit of future Tech related regulations across the Union’s 27 remaining Member States. While the current Juncker Commission has proven to be more supportive of EU jobs and growth and less instinctively interventionist than previous Commissions, it can be expected that future EU Tech regulatory architecture will be less business friendly as UK influence is removed and other more instinctively interventionist Member States drive the EU forward on Tech related dossiers.

3. A question mark over funding for UK Tech start-ups

While the funding environment for Tech companies has been slowing down regardless of Brexit, the UK vote to Leave may have consequences for the amount of funds that are channelled into UK start-ups. Companies are in for a period of uncertainty, which is typically unhelpful for those seeking investment and for investors seeking exits. Fewer new companies may be funded, and others may be unable to grow from seed stage to profitable enterprise. In addition, the European Investment Fund, based in Luxembourg and currently the largest investor in UK venture capital firms, is likely to stop funding UK firms once the UK pulls out of the EU.

4. Potential new trade tariffs for Tech firms

A new EU-UK trade deal is expected to take years to agree and it will not be as beneficial as current arrangements unless the UK retains full access to the single market. If the UK has not struck a deal before it has left the EU, it will have to trade with the EU in the interim period under World Trade Organization (WTO) rules - UK exporters would pay new EU import tariffs, and face other fresh barriers to trade. The UK would also have to renegotiate over 50 free trade deals that the EU currently has with other countries.

5. An end to EU research grants for UK Tech institutions

The EU funds numerous research grants which British technology institutions and companies have benefited from. Between 2007 and 2013, the UK paid 5.4 billion euros into the EU research budget but received 8.8 billion euros back in grants that funded public research by British labs. This gap will have to be filled by the UK government in the future if research funding is not to be cut.

6. A pause in UK Technology related legislation and policy

Government business such as the Better Markets Bill, Modern Transport Bill and Digital Strategy, which would have touched various elements of the Technology sector, are now likely to be delayed or altered as Brexit preoccupies government business and politicians and civil servants’ assess what the priorities for regulatory reform are in the context of the UK’s withdrawal from the EU.

7. Uncertainty over data regulation

Post Brexit, it is unclear how Tech firms should handle data from UK firms and citizens, in particular how it should be processed and where it can be stored. Firms operating in the UK will continue to be bound by EU regulations and agreements, at least while the UK remains in the EU, but after that it is unclear which regulations will apply.

The UK will no longer be covered by the new EU-US Safe Harbour agreement, Privacy Shield, and so will have to negotiate its own data-sharing treaty with the US. In addition, firms operating in the EU have until June 2018 to comply with the new General Data Protection Regulation (GDPR), which introduces changes to how organisations handle personal data. The UK will have to decide whether to adopt a regulatory framework for data similar to that of the EU or to create a new set of rules.

8. Potentially new net neutrality rules for the UK

New EU net neutrality legislation came into effect in April. The regulations require internet service providers to treat all traffic equally as it is directed over their networks, although they can block or throttle the delivery of content requested in certain circumstances, such as to preserve the integrity and security of their network or combat network congestion. These regulations apply directly in all EU countries and will continue to apply to the UK until it leaves the EU. At this point the UK may set out its own net neutrality guidance.

9. A new regime for Intellectual Property Rights

Legal experts have said that, as a result of the UK's vote to leave, the EU businesses that own EU trade marks or design rights might have to re-register those rights with national registry offices across Europe to retain protections.  A consequence of the UK leaving the EU is that, while the core scheme of protection for these rights is unlikely to change, rights which cover all EU Member States will need to be transitioned to a new regime which either transposes EU rights into national rights or requires rights holders to start afresh the process of securing IP protection in the UK and other Member States.

10. Conclusions: The UK to continue as the EU’s Tech capital?

The UK has long been a springboard into Europe for many overseas Tech companies, in particular those from the US due to the close ties between the two countries. The UK’s decision to leave the EU throws into question whether it will still be the right place from which to access the European market in the future. However, the UK starts from a position of strength. Many Tech companies have already made huge investments in the UK and would rather not have to turn elsewhere to start afresh. How the UK responds to the Brexit decision will be critical to whether it retains its position as the Tech capital of Europe.

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Photo via Flickr

Topics: European Union, UK politics, Technology

Shomik Panda

Written by Shomik Panda

Shomik is an experienced adviser on EU and UK digital issues and the founder of Inline Policy.

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