United Kingdom Information and Communications Technology
After Brexit, the impact upon the UK’s Information and communication technology sector largely depends upon what model the UK adopts for its relationship with the EU.
The UK is one of the world’s largest information communication technology (ICT) markets, with the country being in 2nd place in the ranking of ICT spending per head (U.S. is #1). The UK digital technology turnover in 2018 amounted to over $240bn. About 100,000 software companies operate in the UK. The UK is the number one destination (often serving as EMEA HQ) for U.S. ICT businesses in Europe. Despite the looming Brexit uncertainty, the UK ICT sector attracted more venture capital investment in 2018 than any other European country.
After Brexit, the impact upon the ICT sector largely depends upon what model the UK adopts for its relationship with the EU: if the UK remains in the European Economic Area then the changes may be minimal; if the UK joins the European Free Trade Association and negotiates sector specific access to the single market then the landscape depends on the exact nature of that relationship; if the UK distances itself further from the EU then the changes may be more extensive.
- Digital Single Market (DSM): Currently, the UK’s largest export market for digital services is Europe and the DSM enables access to European markets. Post-Brexit there is a risk that UK-based service providers may lose their passports to EU markets. From another perspective, the removal of EU state aid rules could remove an obstacle to additional Government investment in infrastructure to support isolated areas and to bring forward next generation network services.
- Digital Service Tax DST: The UK DST proposal has been through several consultation exercises, which led to draft legislation being published in July 2019, with a commitment to introducing it into effect in 2020. The UK proposal is very similar to the European Commission one for an EU-wide DST but the UK is set at a lower rate relative to the EU’s proposal (2% as opposed to 3%). In normal circumstances, a measure such as the DST might expect a smooth passage onto the statute book. The UK is, however, in anything but normal circumstances and the DST would be on the table in any trade negotiations with the U.S.
- Data Flows: As a member of the EU the UK enjoys access to the EUs common framework for data protection. Underpinned by GDPR this allows businesses to transfer personal data within the EEA. In the event the UK leaves the EU without a deal the UK will lose access to this common data protection framework at the point of exit. As a result, UK-based business with cross-border data flows with the EEA will need to review their business contracts to ensure that the recognized ‘appropriate safeguards’ are included. 43% of total UK exports are services-related with more than one- third of these with European partner. And the majority of trade in services are underpinned by cross-border data flows. Therefore, interruptions to data flows and extra requirements on business to allow them to continue to transfer personal data will have a large impact on the UK economy.
- Network & Information System Directive (NIS): Once the UK leaves the EU, NIS will no longer apply to the UK. However UK-based relevant digital service providers providing services to EU Member States must continue to comply with the Directive and must appoint an EU-based representative to fulfil the local legal requirements in each country. This representative will be under the jurisdiction of the Member State.
For more information contact Claudia.Colombo@trade.gov