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The UK government must urgently outline how it intends to protect the digital economy from the risks of the country’s decision to leave the European Union (EU), according to MPs.
The digital economy is a success story for the UK, said a report by the House of Commons business, innovation and skills select committee, but the Brexit vote is a potential threat to many of the elements that led to that success.
“The government must outline what measures it is taking in the immediate future to support policies connected with the digital economy, in the light of the referendum on the UK’s membership of the European Union, and must ensure that the country’s digital economy remains successful and innovative,” the report said.
The committee highlighted in particular the need for action to protect digital skills, tech startups and access to the EU’s Digital Single Market – as well as calling for better regulation and measurement of the digital economy.
“The government needs to state how tech firms that employ EU nationals will be affected in the short, medium and long term,” the report said. “The government needs to provide clarity surrounding skills, post-referendum, otherwise skills and talent will be lost to other countries.
“The UK is one of the prime destinations in Europe to set up a tech business. The gaming industry making a larger contribution to the economy that is not picked up because of the way in which the gaming industry is measured.
“The UK is a world leader in fintech, with the sector estimated to be worth £20bn in annual revenues. This position could now be at risk as firms will want to be part of the single market of financial regulation. The government needs to set out with urgency how it will address this, to avoid our strengths in fintech being eroded.”
Digital Single Market
The UK has been one of the leading proponents of the Digital Single Market, which aims to establish an open market for digital goods and services across the EU. But Brexit means the UK will lose its “dominance” in European digital policy, the committee said.
“We could have led on the Digital Single Market, but instead we will be having to follow. The government must address this situation, to stop investor confidence further draining away, with firms relocating into other countries in Europe to take advantage of the Digital Single Market,” said the report.
Read more about the tech implications of Brexit
- Brexit and the UK technology sector – read our analysis of the implications.
- The UK IT sector reacts with alarm, tempered by a calm pragmatism, to the British referendum verdict to leave the European Union.
- Although largely ignored in the Brexit debate, network effects will damage the UK’s high-tech industry if Britain leaves Europe.
Many of the issues raised by the committee are expected to be covered by the government’s digital economy strategy, which was due to be published earlier this year but was delayed by the referendum and by discussions between the many Whitehall departments that will be affected by the plan.
The strategy is now due to be published later this year, and the MPs were critical of previous delays.
“We look forward to the publication of the government’s Digital Strategy in the summer of 2016 (six months later than expected), which should explain how the government will build on its success,” the report said. “We regret this delay, and call on the government to explain the reasons for it.
“We hope the digital strategy will provide an overview of present and future government policy on the digital economy, which will be published as soon as possible, and the government must provide us with an update of any changes made to the strategy since it was originally written.
“The government must also explain how the Digital Strategy will be affected by the referendum result. It should also set out in its reply, and in the Digital Strategy, a list of specific, current EU negotiations relating to the digital economy.”
Measuring the digital economy
The committee also raised the issue that existing ways of measuring the UK economy are not always relevant to the digital economy – and that existing regulations can often be bypassed by emerging digital firms, such as Uber and Airbnb.
The newly appointed minister for digital policy, Matt Hancock, has previously acknowledged that new ways of measuring the digital economy are needed.
“Good policy-making, tax policy and the allocation of resources require high-quality data,” the report said. “This does not exist at present in the digital economy, and policy-making cannot therefore be reliably expected to support as much as possible the digital economy, one of the UK’s key drivers of improved productivity.
“The government’s Digital Strategy should be informed by, and policy measures should be driven by, reliable data. We recognise the difficulty of measuring the digital economy, but the government should look to the work of the Office for National Statistics, and explore ways of collecting real-time data in the digital economy.
“We recommend that the government sets out clearly its key objectives for the regulation of disruptive change. Our view is that it should promote productivity, innovation, and customer choice and protection.
“The Department for Business, Innovation and Skills (BIS) must be at the forefront of the regulation debate, with BIS ministers initiating cross-Whitehall co-ordination with colleagues from relevant departments to explore the regulatory opportunities that exist within the digital framework, and to ensure that regulations are in place to take account of new technology.”
BIS was scrapped in new prime minister Theresa May’s Cabinet reshuffle and replaced by the Department for Business, Energy and Industrial Strategy.