United Kingdom - Country Commercial Guide
Digital Economy
Last published date:

Overview

The digital sector represents an integral part of the United Kingdom’s (UK’s) economy. The accelerated technology adoption process that began with the outbreak of the coronavirus (COVID-19) pandemic will only continue, driven by the increasing use of digital technologies, including cloud computing, artificial intelligence, and IoT.  

The UK tech sector employs over 1.7 million people and adds almost $200 billion to the UK economy every year. Companies in the digital economy are represented across the digital economy stakeholder spectrum, including providers of digital technology, enablers of digital technology, and users/beneficiaries of digital technology. The market has tremendous representation from U.S. tech firms and the UK is often the global or European headquarters for multinational firms. Digital technology spans every conceivable sector in the UK from traditional tech sectors like cybersecurity and telecoms to health, energy, and even consumer goods and food delivery.  

The United States and UK enjoy close and frequent cooperation on issues that affect both countries’ digital economies. In 2023, the two countries held the inaugural meeting of the U.S.-UK Comprehensive Dialogue on Technology & Data, led by four senior officials from the U.S. Department of Commerce, the U.S. Department of State, the UK’s Department of Digital, Culture, Media and Sport (which has since been reorganized and renamed as the Department of Digital, Science, Innovation and Technology) and the UK’s Foreign, Commonwealth and Development Office. The Dialogue covered three major workstreams: Data, Critical and Emerging Technologies, and Secure and Resilient Digital Infrastructure. Since the inaugural meeting in 2023, the Dialogue principals have held several touch-point calls and held a principals-level meeting in 2024 to mark the second year of the Dialogue, with many working-level meetings in between. The Dialogue teams continue to collaborate on deliverables relevant to digital trade, including in areas such as AI, Open RAN, telecoms, and data flows.  

The dialogue has already yielded two major deliverables: First, the UK joined the Global Cross Border Privacy Rules (CBPR) Forum as an Associate (and is the first non-APEC jurisdiction to join as an associate), and second was the completion and implementation of the U.S.-UK Data Bridge marking a major step toward easing the complexity of transatlantic data transfers. The bridge came into effect on October 12, 2023, and forms part of the EU-US Data Privacy Framework, which permits the flow of EU-based data to the United States under certain conditions.  

In addition to the Comprehensive Dialogue on Technology & Data, in 2023 the United States and UK announced the Atlantic Declaration for a Twenty-First Century U.S.-UK Economic Partnership, an agreement designed to build on existing U.S.-UK economic partnership and to partner to build resilient, diversified, and secure supply chains and reduce strategic dependencies. Provisions of the Atlantic Declaration include ensuring U.S.-UK leadership in critical and emerging technologies such as AI, synthetic biology, quantum and Open RAN, and partnering on inclusive and responsible digital transformation.  

Regulation

Digital Markets and Competition Regulation

In the summer of 2024, the UK Parliament successfully passed the Digital Markets, Competition and Consumers (DMCC) Act, which is comparable to the European Union’s Digital Markets Act. The DMCC Act has three areas of focus: consumer protection, digital markets, and competition, and the stated objective is to ensure fairness in digital practices and promote competition in digital markets across the UK. Perhaps most significantly, the Act enhances the UK’s Competition and Markets Authority’s (CMA, the corollary to the United States Federal Trade Commission) ability to promote competition and protect consumers.

In terms of consumer protection, the DMCC Act addresses drip pricing, fake reviews, subscription traps, secondary ticketing, and online interface orders. For all of these new or enhanced consumer protection provisions, the CMA will now be able to directly enforce consumer protection laws without having to take individual cases to court, with the power to impose fines of up to 10% of a company’s global turnover for breaches of consumer law.

The DMCC Act also establishes a new pro-competition regime in digital markets by designating certain tech firms as having Strategic Market Status (SMS), mainly aimed at big tech companies. As part of the new pro-competition regime, the Act also makes statutory the prior (non-statutory) establishment of the Digital Markets Unit, a new regulatory unit under the CMA that will act as a merger control for SMS-designated firms.  The CMA, via the DMU, will be able to impose pro-competition interventions on designated SMS undertakings if the CMA finds that a factor, or combination of factors, relating to a digital activity is having an adverse effect on competition.

After the DMCC Act received Royal Assent in May 2024, the CMA opened a consultation on the draft digital markets competition regime and on the mergers reporting requirements. The consultation closed in July 2024, and most of the provisions in the DMCC Act should come into effect in Fall 2024.

Data Privacy and Data Flows

International data transfers and the need to move both customer and company details from one country to another are an inescapable part of modern global business transactions. In 2021, 93% of the UK’s services exports were data-enabled, meaning the trusted flow of data between countries is rapidly becoming an important contributor to economic growth.  

In October 2023, and as a deliverable under the U.S.-UK Comprehensive Dialogue on Technology & Data, the U.K. Extension to the EU-U.S. Data Privacy Framework (DPF), which was recognized as providing adequate protection for UK personal data by the U.K.-U.S. Data Bridge, was completed and fully implemented. Under the U.S.-UK Data Bridge, businesses in the UK can transfer personal data to U.S. organizations certified to the “UK Extension to the EU-US Data Privacy Framework” (UK Extension) under Article 45 of the UK General Data Protection Regulation (GDPR) without the need for further safeguards such as those set out in Articles 46 and 49 of the UK GDPR.  

In addition, the UK has become the first jurisdiction in the world to join the Global Cross Border Privacy Rules (CBPR) Forum as an Associate. The Global CBPR Forum facilitates the Global CBPR System, a government-backed, multilateral data privacy certification mechanism that companies can use to demonstrate compliance with internationally recognized data privacy protections. The Forum works to facilitate cross-border data transfers between member jurisdictions, safeguarding standards on data protection and privacy and promotes accountability and enforcement cooperation. Associate status in the Forum allows the UK to participate in Forum activities with member nations including the United States, Canada, Mexico, Japan, the Republic of Korea, the Philippines, Singapore, Chinese Taipei, and Australia to prepare for potential participation in the Forum as a Member. Many large multinational businesses have already been certified under the framework including Apple, IBM, and Mastercard, and aims to support the secure flow of data across multiple countries, remove barriers, and become a multilateral mechanism that provides common baseline data transfer standards.

In April 2022, the original members of the APEC CBPR System launched the Global CBPR Forum to expand the benefits of a multilateral, scalable certification mechanism beyond APEC. Before the UK’s official participation was confirmed, the UK co-hosted a multilateral Forum workshop in April 2023 in London alongside the United States to explore how the Global CBPR system can work alongside the data privacy regimes of different countries and explore the benefits of participation.

AI Regulation

In the Fall of 2023, the UK hosted the first global summit on AI safety which brought together leading AI nations, technology companies, researchers, and civil society groups to discuss the safe and responsible development of frontier AI around the world. In total, 28 countries attended and signed the Bletchley Declaration of AI safety, which aims to address the urgent need to understand and collectively manage potential risks through a global effort to ensure AI is developed and deployed in a safe, responsible way. Later, in April 2024, the U.S. and the UK signed an official Memorandum of Understanding for the U.S. and UK AI Safety Institutes to cooperate on developing tests for advanced AI models. The MOU sets out a plan for the bilateral collaboration, which will lead to shared frameworks and best practices, joint testing for AI safety, and sharing of expertise between government and personnel.  

The UK’s Tory government had previously published a policy paper titled “A pro-innovation approach to AI regulation”, which set out a pro-business approach and commitment to work with business on safe and responsible innovation. However, in July 2024, the Labour Party successfully defeated the Tories in a national election, and with the change of power came a potential change in the UK’s AI landscape. On July 31, the UK’s Department for Science, Innovation, and Technology (DSIT) Secretary Peter Kyle and the UK’s Chancellor Rachel Reeves met executives from U.S. tech firms including Google, Microsoft, Apple, and Meta to discuss what the new Labour government’s plans were to legislate Artificial Intelligence (AI). Potential legislation could focus on making voluntary agreements between companies and governments, such as those made at the Bletchley Park AI Safety Summit, legally binding. This is in line with the Labour government’s manifesto, which makes clear its intention to introduce binding regulation on the “handful of companies developing the most powerful AI models,” and also banning the creation of sexually explicit deepfakes.  

However, there is some skepticism surrounding UK regulators’ bandwidth to cover AI and how the UK Government will coordinate AI regulation across various industries.

Online Harms Regulation

The UK’s Online Safety Act was passed in 2023, and the UK is currently in the implementation stages of the Act. The OSA, comparable to the Digital Services Act (DSA) in the European Union, is a new set of regulations that shield UK users from online harm via a range of compliance requirements on user-to-user and search platforms, making the companies themselves ultimately responsible for the safety of users online. The regulator responsible for enforcing the OSA, the Office of Communications (Ofcom), estimates that more than 100,000 online services, ranging from the large platforms like Meta, Tiktok and Google to micro and small and medium-sized businesses, will be within scope of the new rules. It is a tiered system with three buckets for companies, meaning there are additional obligations for companies in proportion to their size and societal impact. Companies are expected to implement systems and process to reduce online harms risks, risks of the services used for illegal activities, and taking down illegal content when it does appear. The Act does not specifically describe how companies should comply, but rather provides safety requirements the companies must meet per their own technologies and business models.  

The strongest protections in the Act have been designed for children with the goal of making the UK the safest place in the world to be a child online. Platforms will be required to prevent children from accessing harmful and age-inappropriate content and provide clear and accessible ways to report problems online when they do arise. The Act will also protect adult users, ensuring that major platforms will need to be more transparent about which kinds of potentially harmful content they allow, and give people more control over the types of content they want to see.

Ofcom is currently in the process of setting out steps providers can take to fulfil their safety duties in codes of practice. It will have a broad range of powers to assess and enforce providers’ compliance with the framework. Providers’ safety duties are proportionate to factors including the risk of harm to individuals, and the size and capacity of each provider. While safety measures will need to be put in place across the board, Ofcom is seeking to ensure that small businesses with limited functionality are not burdened to the same degree as larger corporations with more potential for harm and more resources to comply. However, even with costs to small business in mind, the UK’s OSA differs somewhat from the EU’s DSA in that the UK places greater emphasis on a platform’s risky functionality and not just on potential numbers of users who could be harmed. In other words, a small platform that reaches a small number of users but has extremely risky functionality may face a more stringent set of compliance measures than a platform that reaches many people but whose functionality is limited in risk of harm.  

If a company fails to comply with the OSA, company executives can be held criminally liable for the violations. Moreover, noncompliance can lead to fines of up to £18 million or 10% of annual worldwide revenue, alongside a range of other enforcement powers granted to Ofcom which included powers to block access to sites.

Digital Trade Barriers  

The UK does not have major relevant digital trade barriers. The UK economy is highly digitized and technologically enabled and UK citizens have broad access to internet and adoption of advanced technology in day-to-day life, including operating as a largely cashless economy. Occasionally data localization concerns may arise in small, far-flung localities but those are generally quickly ameliorated.  

Digital Services Tax

Enacted in 2020, the United Kingdom’s Digital Services Tax (DST) is a 2 percent tax on social media platforms, internet search engines and online marketplaces with revenue in excess of 25 million pounds derived from UK users. The United States and the UK are among the 137 member jurisdictions to have joined the October 8, 2021 OECD/G20 Inclusive Framework on Base Erosion and Profit Shifting Statement on a Two-Pillar Solution to Address the Tax Challenges Arising from the Digitalization of the Economy, which called for all Parties to commit not to introduce digital services taxes (DSTs) in the future. On October 21, 2021, the United States, Austria, France, Italy, Spain, and the UK issued a joint statement “on a transitional approach to existing Unilateral Measures while implementing Pillar 1.” According to the statement, DST liability that accrues to Austria, France, Italy, Spain, or the UK during a transitional period prior to implementation of Pillar 1 will be creditable in defined circumstances against future corporate income tax liability due under Pillar 1. In return, the United States terminated the existing Section 301 trade actions on goods with respect to each country and committed not to take further trade actions against each country with respect to existing DSTs, provided that the country follows through on the agreement described in the joint statement, until the earlier of the date the Pillar 1 multilateral convention comes into force or December 31, 2023. The arrangement set out in the October 21 joint statement was extended to June 30, 2024, according to a joint statement issued on February 15, 2024. In coordination with the U.S. Department of Treasury, USTR continues to monitor implementation of the political agreement and the transitional approach as provided in the joint statement.  

Digital Trade Opportunities

Because the UK is an advanced and mature market in just about every conceivable market sector, any market sector that includes digital opportunities and growth will be relevant to the UK. This includes cross-sector enabling technologies, communication technologies, advanced computing, artificial intelligence, quantum, 5G and 6G, financial services related technologies (including digital assets and cryptocurrencies) cybersecurity, software services, etc.  

Cybersecurity

The rapid development of digitalized services has been accompanied by significant growth in cybercrime, leading to greater spending on security in both public and private sectors and driving demand for more sophisticated and bespoke cyber solutions. Cybersecurity is the one of the most active ICT subsectors in the market, with U.S. cyber companies and technologies very well perceived in the UK. The impact of cybercrime is difficult to quantify but is estimated to cost the UK roughly $35 billion per year. Organizations’ IT footprints are becoming increasingly complex, driving demand for more sophisticated and customized cyber solutions. Over the last year, businesses and organizations in the UK reported hundreds of cyber incidents to the National Cyber Security Centre (NCSC), 63 of which were significant enough to require a national level response. The incidents included a range of malicious cyber activity such as ransomware, reconnaissance, malware and network intrusions, data exfiltration and disruption of services and systems.

Software, SaaS, and Cloud Services

About 100,000 software companies operate in the UK, including all major U.S. tech giants. The rising tide of software as a service has created an industry of products and services that require subscription-like recurring payments. The mindset of UK consumers has shifted from one-off purchases to active, recurrent purchases by many customers. Also, the vast majority of UK enterprises rely on the mobile connectivity of its workforce, which is an ideal setting for SaaS and cloud providers. Additionally, the UK datacenter market is the largest in Europe, generating new sources of demand for ICT providers.

Cloud computing offers significant growth opportunities: almost all software companies in the UK are using cloud, and opportunities exist in both the public and private sectors for companies offering cloud or linked services. The UK government strongly supported the adoption of cloud technologies, with G-Cloud frameworks allowing the government to buy directly from suppliers after reaching an agreement on basic terms of use.

Artificial Intelligence (AI)

The UK is committed to creating an economy that harnesses artificial intelligence (AI) and big data, providing opportunities to U.S. tech companies. The UK AI market is valued at over $21bn and it is estimated to grow to over $1tn by 2035. The UK is the third largest AI market in the world after the U.S. and China. The UK has one of the strongest AI strategies in the world with significant government funding for AI, considerable research activity in the field, major VC funding and AI startups, and substantial enterprise adoption of AI.

Artificial intelligence and machine learning also present substantial prospects, with the UK being home to some of the biggest names in the business and with key players opening their first office outside the U.S. here. In April 2023 the UK Government pledged $125 million in funding to set up a taskforce responsible for accelerating the UK’s AI capability and support the broad adoption of safe and reliable AI. This funding is in addition to the $1.1 billion announced in the Spring Budget in March 2023 to invest in the next generation of supercomputers and a dedicated AI Research Resource. In addition to public funding, industry is also providing funding for AI solutions, with global AI powerhouses having invested significantly in developing the UK AI market.

The current uptake of AI in the UK varies significantly by sector and within sectors. Businesses and sectors that have digitized operations and services took up AI more easily and effectively than those that have not. The digitalization of banking, insurance, healthcare, and business services in the country is the key driver for the growth of the AI in the country. AI is also being deployed in addressing complex UK public sector challenges, including improving efficiency in mainstream public services, with applications in the processing of processing tax, benefits, visas, passports, and other Government licenses. For example, the UK Government Digital Service (GDS) works with the Pensions Regulator to improve efficiency using predictive algorithms for future pension scheme behavior and His Majesty Revenue and Customs (HMRC) uses AI to help identify call center priorities. AI solutions for data management and analysis are most prevalent in the UK, followed by natural language processing and generation, machine learning, AI hardware, computer vision and image processing and generation.

Digital Economy-related trade events

Digital Economy-related trade events 

Infosecurity Europe 

London Tech Week 2025 (2025 dates not yet posted) 

Innovate Finance Global Summit 2025 

Resources