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Still left hanging – How the UK’s digital economy could be hit by Brexit

It’s been nearly 3 and a half years since the British public underwhelmingly voted (by 52% to 48%) to leave Europe.

We posted back then on how Brexit could affect the digital economy.

At the time, it seemed like an immediate, imminent threat.

But the saga continues.

Since then David Cameron and Theresa May have resigned, parliament has done all it can to block progress and Boris Johnston has bounded confidently into number 10 promising ‘to get Brexit done’.

Since stating that he’d rather ‘die in a ditch’ than miss the October 31st deadline, he’s been forced to ditch that promise and called for a ‘do or die’ general election.

Yet, he’s even been denied even this.

The prime minister will now publish a bill that would reduce the level of support for an election from two-thirds to a simple majority. Ominously, however, he would still need support from Lib Dems and the SNP for it to pass.

Brexit is left hung, rather than done

Perhaps the image that most defines where we are at present with Brexit is this one, from a stunt pulled during the 2012 Olympics when Boris was Mayor of London:

In comes Boris, storming through to sort out the Brexit mess, with Union Jack’s waving. He speeds down towards his goal and, suddenly stalls, left helplessly hanging from a wire.

Going nowhere fast.

Is Brexit hung and dry?

Even if there is a general election on Dec 12th, who knows what the outcome will be.

  • Will the Tories increase their bums on seats for a workable majority?
  • Will the whip will be given back to those Tory MPs who had to leave the party for voting against the last ‘deal’ put to the Commons?
  • One thing is certain, the DUP and SNP will certainly not be jumping on board to offer support, nor will the LibDems who are demanding another referendum.
  • Ironically, it is the confused lack of direction within the Labour ranks that may help Boris out if his majority remains slim.

The main concern for the digital economy is that Brexit will end up going through without a deal at all in place.

And the longer we wait, the more likely this outcome becomes.

What would a no-deal Brexit mean for the digital economy?

  • Would it be better than the paralysis the lack of a clear outcome presently offers?
  • Or would it simply intensify the pressures already bearing down investment and growth?

The question is whether a no-deal would free us from dangling helplessly or irrevocably cut the wires that hook us into the benefits of Europe.

What would a no-deal Brexit mean for the digital economy?

Given the gung-ho mentality about getting Brexit done, and the impossibility about getting any deal ratified, a no-deal exit is not unthinkable. If we can’t agree a deal then, perhaps, we can find a majority who simply wish to get the job done.

Things are already looking gloomy.

According to the latest IPA Bellwether Report, UK marketers have recorded a reduction to marketing budgets as economic and political uncertainty around Brexit drains confidence. This represents the first time in seven years that marketers have experienced cuts to their allocated spending.

But things could get worse.

A no-deal Brexit is now very much on the cards – and it looks like a bad hand to be holding.

“Having analysed Brexit preparations by the UK government, the European Commission, EU member states and companies in the 27 areas of the UK’s relationship with the EU that are most important to businesses, the CBI has concluded that no one is ready for no-deal.”
Confederation of British Industry

So, what could a no-deal Brexit actually mean for the digital economy?

It would definitely be a worst-case scenario that would disrupt:

  • Data flow and data protection
  • Business and employment contracts
  • Business confidence for at least 21 months (the minimum transition period for businesses and governments to get their affairs in order)

Let’s break this down a little.

1. Data

While GDPR regulations would still be in place, the EU uses a legal mechanism called data adequacy to allow the transfer of personal data from the EEA to a third country.

The UK government has announced that it will allow the flow of personal data to the EEA regardless of a deal being in place, but the EU has not made a similar commitment.

If we leave the EU without a deal, it is highly unlikely that a “data adequacy” ruling will be in place. Meaning that, if you are based in the UK, data can flow unrestricted to the EEA but not the other way around.

What’s more the Operation Yellowhammer document states that “an adequacy assessment could take years”.

“A no-deal Brexit is antithetical to the interests of the data and marketing industry. It would cause immediate and complete ceasing of UK data-flows with EU countries.
75% of the UK’s cross-border data flows are with the EU.”

Chris Combemale, Group CEO, DMA

2. The Digital Single Market

The policy of the European Single Market, which covers digital marketing, ecommerce, and telecommunications, enables online trading between EU member states. It permits access to online products and services and conditions for digital networks and services to grow and thrive.

Without a deal in place, the UK will leave Single Market and experience a heavy decline in growth through potential investors. Additionally, any UK-based organisations that wished to operate in the EU would need its headquarters to be based in an EU member country.

3. Employment contracts

The UK government intends to end freedom of movement as soon as possible. There will be a confusing transition period before the introduction of a new skills-based immigration system, pencilled in for January 2021.

After Brexit, EU, EEA and Swiss citizens will need to apply for a ‘European Temporary Leave to Remain’ for stays longer than 3 months.

“International people coming to the UK are not displacing jobs for British people. We have a shortage of data and technology skills so demand is ahead of supply.”
Stephen Woodford, CEO, Advertising Association

“We are already seeing much less EU immigration into the UK already and it’s creating a difficult job market. There is definitely a shortage of young staff and skills which creates salary inflation.”
Cecile Reynaud, CEO, Seraphine

4. Uncertainty

As the negotiations over Brexit currently continue, business confidence both in the EU and UK is subject to bi-polar mood swings.

This will be intensified as the machinations to reach agreements continue after a no-deal Brexit.

YouGov research has revealed that 57% of UK enterprise companies are concerned Brexit will have a strong impact on their business – and 49% of EU enterprise companies feel the same way.

Brexit uncertainty is also affecting euro and US dollar exchange rates against pound sterling, with both showing huge volatility reflecting the market’s consideration of the latest Brexit announcement.

The predicted effect on these markets following a no-deal Brexit can best be compared to putting out fire with gasoline.

“If Brexit uncertainty remains entrenched, growth is likely to remain below potential.”
Gertjan Vlieghe, external member, Monetary Policy Committee of the Bank of England

What can be done?

“Falling down is an accident. Staying down is a choice.”
Rosemary Nonny Knight

The outcome is uncertain.

However things break down you can expect some break downs and some train wrecks.

The best thing we, as an industry, can do is be prepared.

And we suggest the Tech UK Brexit Hub as a great place to start. You’ll find advice on the implications of a no-deal and the latest advice on the implications of leaving the EU under current terms.

We may all be hanging from a wire but at least we can prepare a soft landing.

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