Will The Tech Sector Take A Brexit Beating?

Brexit House of LordsIt is slowly becoming clearer what Brexit will mean: the UK won’t pay into the EU and will curb the free flow of people. So how will this affect the tech sector?

The House of Lords select committee on the European Union recently published its analysis (PDF). There are a few things you should be aware of.

Digital services are growing and are an important part of the UK economy. In fact, the UK had a trade surplus with the EU in digital services of £1.6bn in 2015. There is also said to be a chronic skills shortage in this sector which is hampering growth. EU-born workers represent 6% of employees in the digital sector. This is a small proportion but they disproportionately drive growth. Introducing restrictions as part of Brexit could lead to staff shortages and even businesses setting up outside the UK. We’re seeing that already in the finance sector. This could make it harder for the UK tech sector.

UK unable to prevent anti-UK measures

Many are concerned at having to trade under WTO rules if the UK does a “hard” Brexit. Some of this is undoubtedly fear of the unknown and it doesn’t automatically mean the UK would be much worse off. The UK’s continued access to the Digital Single Market is important though. Even if the UK retains access, Brexit will mean it has little influence over its ongoing development and may be unable to prevent the adoption of anti-UK measures. If the free trade negotiations don’t go well, we could see the imposition of tariffs and charges and the re-imposition of roaming charges. This could make it more expensive to sell into the EU. Then again, if the Pound suffers or at least fluctuates in the short term, this might balance out new tariffs.

UK will need a data “adequacy decision”

The EU Commission recently published its mid-term review highlighting the importance of the data economy.  The House of Lords also recognises that the free flow of data is critical. As I’ve said before, Brexit won’t affect GDPR: GDPR becomes enforceable in May 2018 and Brexit won’t occur until April 2019. Brexit will likely mean the UK leaving the general Single Market and leaving Data Fortress Europe. In that case, the UK will need an “adequacy decision” from the EU Commission to preserve data flows to and from the EU. The Safe Harbour arrangement failed because of the US government’s broad snooping powers. This led to the Privacy Shield, which is also coming under scrutiny. Some have expressed similar concerns over the broad snooping powers in the UK Investigatory Powers Act. Matt Hancock MP, DCMS Minister doesn’t share these concerns:

“We are very confident that the Act is consistent with both the GDPR and the fundamental rights of the EU.”

We shall see…

UK Supreme Court vs European Court of Justice

Although the EU is criticised for the amount of regulations it produces, most agree it would be better to have a single set of compliance costs rather than several. So, it would be better for the UK to continue to comply with GDPR for all personal data, rather than have GDPR-lite for non-EU transfers. Where does this leave UK sovereignty? Could the UK Supreme Court conceivably take a contrary decision to the European Court of Justice on the same (EU) legislation? That would certainly be an interesting development in our relationship with the EU!

Sort out your contracts

Finally, you should try to address this in your business contracts. Could your “force majeure” clause help? Would an unfavourable Brexit arrangement really count as an act beyond your reasonable control? If you have a material adverse change clause, that might cover it. Maybe you would be better off inserting a special “Brexit clause” into your agreements dealing with adverse outcomes.

One thing is clear, it’s time to plan for what Brexit could mean to your business.

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