What effect will Brexit have on the ICT industries and professions?

This blog post is part of our Essential Guide: Brexit and the UK technology sector - read our analysis of the implications

After the meeting of the European Council next week we will have a clearer idea of whether the Brexit vote will lead to a positive relationship with a reformed European Confederation. If Juncker’s public statements are to be taken at face  value, we face an acrimonious quicky divorce to stop the contagion spreading. By contrast Cameron’s measured timetable should facilitate a friendly separation, reducing the risks to ALL, not just the UK. We should note that the French (7.9%), German (7.9%) and Spanish (12.7%) stock markets all fell by more than London (FTSE 100 2% and FTSE 250 7.2%). In both London and the US the biggest losers were the Banks. This may indicate an expectation of turmoil. But it could also reflect the perceived opportunities for UK Fintech to leapfrog into the world of accelerating global dis-intermediation, shredding the business models assumed by inward-looking Pan-EU regulation. There is much to play for. It should be noted that while Lord Hill has resigned, like the Prime Minister’s resignation, his is also the rapid announcement of a phased hand-over.

The President of Luxembourg became the improbable “President” of Europe because the leaders of the member states did not make the effort to bring him to heel at the time of the Lisbon Treaty . They did not believe he could do much damage. He has proved them wrong. His firm and vocal opposition to reform if the UK had voted to remain pulled the rug on the “hold your nose and vote remain” strategy which caused me to vote remain. According to one analysis, it was deliberately designed to tip the balance in the referendum. Last week I listened to a former senior civil servant with twenty years of experience negotiating in Brussels. He believed that a vote for Brexit, followed by constructive negotiation, was now the only way of getting the reforms necessary to stop the decline and death of the European “project”. In a post-Brexit tweet that ended “reform or die”, the French Ambassador to Washington was clearly of a similar opinion. He said it was now up to the leaders of the member states to seize the initiative and stop the Union falling apart.

Short term we can expect a delay before the many financial services legacy system re-write projects put on hold, pending the outcome of the referendum, go ahead. These will now be designed for “regulatory neutrality”, as opposed to intra-EU demands. The length of that delay will depend on how long UK regulators take to get their heads round the new world. It should, however, be remembered that global banks like HSBC and Standard Chartered have long had to live with semi-incompatible national regulations around the world. London’s expertise in doing so is one of the reasons the US Banks tend to base their international operation in London not New York or San Francisco. London’s competitors are Hong Kong, Singapore and Zurich, not Amsterdam, Frankfurt and Paris.

A bigger problem will be improving the supply of indigenous skills, if we erect barriers against attracting the brightest and best of talent from across the EU as part of the attempt to stop low skilled immigrants depressing UK wages and adding to the pressures on hospitals, housing and schools. Hence the importance of projects like the London Cyber Security Skills Partnership so that when demand picks up we have the skills pipeline to meet it.

Action on public sector IT skills will be equally important because of the massive load in unraveling regulation and re-writing systems, unless we are going to tamely accept EEA status (thus losing all the putative benefits that Brexit is supposed to bring) as opposed to negotiating bilateral agreements as Switzerland has done. All this will have to done in the context of another, and more stringent, round of budget cuts because UK borrowing costs will rise sharply in the short term. The key will be to train existing staff, including users, to undertake incremental change, particularly with regard to using smart phones to strip out overheads and enable front-line staff, from careworkers to policemen, community nurses to housing officers, to spend more time with public and less on paperwork and reporting.

The impact on investment in broadband and data centres, will again depend on how Government responds to the opportunities, not just challenges. BT is right to be worried about the impact on its investment plans because Deutsche Telekom is by far its largest shareholder and it has yet to organise the rights issue to help fund its take-over of EE. As evidenced in a recent article in Computer Weekly, its rivals are, however, far more sanguine. The increased pressure on public sector finances will put pressure on making the best use of new technologies to cut operating, not just investment, costs when it comes to supporting broadband roll out. Fibre networks not only cost less to build they cost far less to operate and maintain. Well over half the cost is now access and wayleave charges.  This puts a premium on co-operation between landlords and network builders to agree the provision of  future (and flood) proof fibre to their tenants at a fraction of the cost currently being quoted by incumbents saddled with national, “arms length” agreements as well as pensions and football rights to fund.

Brexit could also lead to a boom in investment in shared data centres. It is often forgotten that the UK already has over 200 of these, over 70 in London alone – where growth to date has been limited mainly by the cost and fragility of the capital’s power suppliers.  Whether it does so or not will be determined by whether the UK is willing to take the actions necessary to become a globally trusted data haven where the privacy and security of personal data (including against organised crime and big data resellers) is taken as seriously as in Switzerland.  One of the areas where action is indeed urgent will be to organise informed debate what those actions should be. I was already collecting speaking engagements to brief audiences on the implications of the DCMS Select Committee report . I now anticipate questions as to whether we should to drop implementation of the GDPR because data breach notification is now part of the problem, helping phishermen more than victims. There is, of course, more to it than that but too much of the directive is to do with liability avoidance, the ability to ignore consumer choice and exemptions for those who most of the public do not trust.

The agenda for next Tuesday’s meeting of the Digital Policy Alliance Digital Single Market Group, chaired by Malcolm Harbour CBE, former chairman of the Internal Market Committee of the European Parliament, has been changed to look at the implications of the referendum vote and the opportunities it should present to help accelerate reform. Whatever our precise relationship with the Union, (in or out, EEA, EFTA or otherwise), the future of the UK, like its past, is bound up with its role as an entrepot between Europe and the rest of the world. Our prosperity therefore depends in no small part on the peace and prosperity of the rest of the continent. We should not give up on the necessary reform programme just because we have been temporarily manoeuvred out by the enemies of transparency, reform and democratic accountability. We must also, however, make good use of the opportunities given by Brexit in our own interest. I look forward to meeting those who agree at future DPA meetings – so that I can enjoy my retirement (it is now nearly five years since I stood down and become only an unpaid advisor) knowing that the future is indeed in better hands than mine.