Brexit currently dominates the UK’s political conversation, as MPs begin to debate in detail what form it will actually take. Necessarily so – since there are growing tensions surrounding the government’s position on the customs union, single market access, Euratom and EU citizens’ rights.
The EU’s digital single market (DSM) remains less debated. Yet the success of our country’s technological advancement and much that will drive future growth and prosperity depends on it.
Currently, the UK is the strongest digital tech player in the EU. Comprehensive analysis by Tech Nation says the sector is worth more than £160bn to the country – and investment reached a height of £6.8bn in 2016, 50 per cent more than any other European country.
We have 1.6m employed in the tech field, with an average salary of £50,000. Although Britain lags behind Europe in overall productivity, that is not the case for the technology sector, which is growing two times as fast as the non-digital sector. The tech industry grew 32 per cent faster than the rest of the economy between 2010-14.
A future outside the DSM will clearly bring risks to growth and jobs. The EU is planning to adopt a package of measures to enable unfettered online trade in services, capital and goods between the European Union member states. The new DSM rules focus on removing barriers to cross-border services trade, and harmonising consumer protection rules so that people can be confident of their rights if they purchase goods or services from another member state. They also focus on delivering the rules on, and investment in, cyber-security necessary to make this trade secure.
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 – worth an additional €415bn to the EU economy. That holds the potential to save EU citizens approximately €11.7bn each year in online shopping.
With the UK outside the DSM, UK firms may 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. It seems evident that a “no deal” Brexit would prevent any such agreement. Even if such a special deal were granted, UK-based companies could only participate in the DSM if UK consumer and data protection rules mirrored those of the EU.
Nonetheless, EU citizens might be reluctant to buy online from UK companies if one of the government’s red lines continues to apply. If the UK were not part of the same legal regime, someone in Maastricht who buys what turns out to be a shoddy product from a company based in a UK city will have to try to enforce their rights in a court in that city. Under the DSM, they can enforce their rights where they live.
The DSM is also about making the rules which apply to telecoms providers stricter and more consistent across member states. This is important as telecoms products are the physical links over which e-commerce takes place. More ubiquitous and lower-cost broadband access means more people can participate in the digital economy as both buyers and sellers.
However, the importance of stricter and more consistent telecoms regulation goes wider than the relationship between e-commerce and underlying networks. The entire backbone of global supply chains is based on the ability of computers to communicate rapidly and securely across borders. It’s well known that parts for British car production move back and forth across the Channel before final assembly in Sunderland and Oxford, but that whole process is also dependent on telecoms backbones.
Economists used to think that goods could be exported but services could only be consumed locally. Nowadays, it is widely recognised that services, like telecoms, are deeply embedded in goods production. We are all consumers now of foreign services even when we buy domestic goods.
Brexit does not mean that telecoms backbones cannot continue to communicate. What it does mean is that if the UK telecoms regulatory system or standards start to diverge from the European ones, that it becomes more difficult and more costly to ensure seamless connectivity across the backbone which joins the supply chain. And if that starts to happen, it is another reason for a company to consider whether it’s really wise to invest in the UK.
By breaking down trade barriers online, we will encourage a generation of investors and entrepreneurs to work within the UK, alongside Europe. A European Commission study shows that only 7 per cent of SMEs in the EU currently sell cross-border, while 57 per cent of EU companies say they would either start or increase their online sales to other EU member states if e-commerce rules were applied across the EU.
If the government wishes to harness and attract talent from all over the world and keep us at the front of the pack, it needs to address the issues at hand. The House of Commons Business, Innovation and Skills Committee concluded that we have yet to see what the government’s digital strategy would look like post-Brexit. The longer Theresa May and her team leave these questions unanswered the more uncertainty will creep in and push industry from our shores.
The digital age is upon us, and the single digital market offers the UK the opportunity to be at the forefront of Industry 4.0, building upon our existing leadership within the digital sector and services. A commitment to pursuing a fully-integrated digital single market will guarantee growth for UK businesses, creating jobs across every region of Britain. Leaving the DSM would be a giant leap backwards.