This article was originally published on the City AM website.
The UK has developed an enviable digital economy, worth £160bn a year according to Tech Nation.
The Harvard Business Review has estimated that the sector accounts for 16 per cent of domestic output, 10 per cent of employment, and 24 per cent of exports.
Yet, despite its size and value, the digital economy was somewhat absent from the Brexit debate. Much more was heard about financial services, manufacturing, agriculture, and fishing. Now that the date for leaving the EU is rapidly approaching, we have to ensure that the UK’s position in this crucial field is enhanced rather than threatened by Brexit.
First, we need to understand from the government exactly what the immigration picture is going to be once we have quit the EU, and how people will qualify for work permits. It is worth noting here that, while almost a fifth of the digital workers in the UK come from abroad, only six per cent are from the EU.
Second, we need to understand how and to what extent the UK will be compatible with the EU’s Digital Single Market (DSM) – one of commission president Jean-Claude Juncker’s key goals.
If successful, the DSM will become one of the largest and most valuable trading markets for global online businesses. The European Commission values a fully functioning DSM at €500bn. If the UK’s digital sector is not compatible with the EU, it is possible that tariffs may be imposed or bans introduced.
Notably, the EU has been looking to tighten up on the content available on the internet, and is introducing tough new rules to stamp out hate speech and incitement. This could pose problems if London and Brussels have differing views on what is permissible under the banner of free speech and what is not.
Third, how data companies treat and manage data will be critically important following Brexit. With the UK outside the DSM, UK firms could face barriers in cross-border online trade.
Firms outside the Single Market are not allowed to process EU customers’ personal data unless there is a special agreement with the EU. Therefore UK-based companies could only participate in the DSM if UK consumer and data protection rules mirrored those of the EU.
In other words, for the purposes of the digital economy, the UK would effectively remain part of the EU without being able to shape the direction of the DSM. This is a scenario both the government and digital businesses need to start considering now.
Finally – and here is the great opportunity for the UK – how tech firms are taxed will need to be confirmed by the government. Under EU plans which currently have the support of 19 member states, companies will be taxed on their turnover rather than on their profit.
The proposal, spearheaded by French President Emmanuel Macron, is being sold as a method to stamp out tax tourism, often used by tech firms to lower their tax burden. If implemented, this method of taxation would damage any startup that has yet to make a profit (it took Amazon years to get into the black), snuffing out small firms’ chances and killing off competition.
Resisting the temptation to follow suit and rejecting any ideas of “click taxes” or similar ways of taxing the internet will keep the UK firmly in the driving seat for the digital economy.