How to make a success of Brexit: the House of Lords talks digital and tech

A Parliamentary hearing into Brexit’s impact on the organised digital professions provided valuable lessons for the unorganised web industry to follow.

The House of Lords’ EU Internal Market sub-committee has been holding a series of public hearings as part of their ongoing inquiry into Brexit’s impact on future trade between the UK and EU in goods.

One particularly fascinating hearing took place on 20 October and featured testimony from representatives of three digital and tech industry bodies:

The issues they covered included

  • The undercounting and miscounting of the digital sector in the UK’s absurdly outdated economic taxonomies (previous rants are available)
  • The future of the UK within the EU Digital Single Market strategy, including the possibility that the DSM could be used against the UK after Brexit
  • Data protection, including data flows, post-EU adequacy certifications, and interim arrangements
  • How Brexit removes the UK from some European technical standards agreements
  • How an inadequate regard for data protection and privacy could expose the UK to European legal risk after Brexit
  • Migration, freedom of movement, and skilled labour, including talent and leadership
  • The possibility of continuing to trade in the EU market with on a WTO-style basis
  • What the government should take to the Brexit negotiations from the digital industries

Typically, the hearing was the one Parliamentary session from that day not transcribed to Hansard. Because of that I have had to transcribe it myself. (I do have a life. Really, I do.) I have not transcribed the entire session, nor have I entered a verbatim record of the testimony. Rather, I have focused on the areas most relevant to digital agencies and web professionals. I have also added links to references I thought might be helpful.

If you want a full and faithful record, you can watch the full video of the testimony here.

To read the full testimony, scroll down. It is long.

This is not denial

Over and above the testimony itself there were three key points made during the hearing.

First, Antony Walker from TechUK told the committee “Businesses across the board fully accept the outcome of the referendum.” This is not merely stating the obvious. This is retorting the Government’s current public relations strategy on the Brexit negotiations.

I have watched both of the Secretary of State for Exiting the EU’s full statements to the House of Commons so far (last week’s statement here). His “statements” are neither statements nor are they constructive exchanges. Both have been vapid displays of mockery, sneering, and denigration. When MPs ask for clarity, they are accused of not respecting the outcome of the referendum. They are accused of trying to sabotage Brexit. They are accused of being in denial. They are accused of seeking to “undermine the decision of the British people.”

That is bullshit, and the Secretary of State for Exiting the EU knows it. It’s a stalling tactic to gloss over the unavoidable fact that the UK government has no clue, has no direction, and has no strategy.

By reminding Parliament that his trade body’s members fully accept the outcome of the referendum, as Antony Walker did, the bombast and bluster from the Secretary of State is more clearly visible for what it is.

Put up or shut up…

The second and third takeaways pertain to what I have been saying for quite a while regarding professional organisation, or the lack of it, within the web industry.

In one exchange, Jo Twist from UKIE told the Committee about her members’ concerns on freedom of movement and migration. A member of the Committee replied: “And you are making those representations to the Department for Exiting the EU?”

This is important. Representing her industry’s position in a conversational committee is one thing. Submitting those opinions into the only process that actually matters – the negotiations that the Department for Existing the EU will be carrying out over the next few years – is quite another. The Committee member was reminding all of us that if we are not formally conveying our industries’ needs to that department, in the way the department wants, through the process the department wants, we are not conveying our needs at all.

…then grow up

In another exchange, after being asked what her members want to see in future, she replied “we’re about to engage on a nationwide tour to meet with our members to dig into these issues.”

Because guess what? That’s what organised industries pay their representatives to do. It’s her job to get out from behind a computer, physically go to her members’ offices, engage with them, and feed their needs directly up to government through the recognised voice of an organised trade body. The gaming industry is smart enough to know that.

We’re not. Without an organised industry body, the makers of the web will continue to vent their spleens about Brexit, and the laws and policies that will shape the future of our work, through tweets, rants and memes read only by like-minded individuals in our cosy little echo chambers.

Look where that’s gotten us this week.

Partial transcript, House of Lords inquiry into Brexit and digital, 20 October 2016

Committee: What are the impacts of Brexit on your sectors? To what extent, in terms of trade policy, are tariffs an issue, given the interaction between services and goods? Does the recent information technology agreement stuck at the WTO, attempting to eliminate tariffs on 200 IT products, change the benefits of being inside the EU single market, or in any way complicate a transition to an external situation? What are the non-tariff barriers that concern your sectors immediately?

Jo Twist: As far as the games industry goes we are a globally recognised, highly successful sector and a key driver of the creative industries and the digital sector, globally worth about $100bn by next year. We have a very strong consumer market, are the 6th largest global consumer market in the UK, the 2nd in Europe, consumer spend is over £4bn. The biggest homemade franchise, Grand Theft Auto, is still the fastest, biggest selling entertainment product of all time globally.

However, the size and nature of the games industry, as a digital industry, is not effectively measured or reflected in existing statistics, and I think this is an important starting point for the conversation as we look into the future. We know that the current system to understand exports in a digital world is based on SIC codes. These are not fit for purpose in a digital age. They do not reflect the true size of our industry, and DCMS and ONS fully recognise that. We took a “big data” approach to try and solve this with NESTA recently to try and solve, and launched the UK Games map, which identified over 2,000 games businesses active in the UK from Dundee to Cornwall. Most of their exports and games they are producing in a digital world are not reflected or counted. This is a problem.

For the games industry primarily our concerns are around non-tariff based trade barriers. In the creative industries you cannot have trade without people. Those highly skilled people, and the diversity of workforce, is what fuels our innovation and creativity across the DC. One of the other major trade based barriers we foresee is around the free flow of data.

Antony Walker, TechUK: Digital tech sector counts for 10% of GDP, which is the largest proportion of any advanced economy. Turnover in the sector grew 32% faster than the rest of the economy in the first half of this decade. It employs about 1 1/2 million people across the UK. The UK tech sector has the highest level of productivity of any of the UK’s sectors, and when you look at the sectors that become the most digitised, you also find high levels of productivity in those sectors.

Sir Charles Bean, in his recent report on UK economic statistics, made the very clear point that we are probably massively underreporting the size and scale of the UK tech sector within our official data. To quote him in his report, “if the digital economy was fully captured within official statistics, it could add between of 1/3rd and 2/3rds of a percentage point to the growth rate of the UK economy. That’s really significant. So the sector is big, it’s probably bigger than we think it is. It’s about the future, because the tech sector is the agent of change in a modern digital economy.

To put all of that into context, what does Brexit mean. Most digital products and services are actually services. They’re digital goods. It’s important to recognised that the single market itself, and the whole acquis that sits within the single market pillar, is actually a mechanism to reduce the number of non-tariff barriers to trade across the EU member states. So when you’re thinking about trade in services, you have to think about the totality of European law that applies to the single market. The single market was designed to do two things: to eliminate non-tariff barriers and to deliver harmonisation. Tech and digital is all about scale. A big harmonised market with low non-tariff barriers to trade is a positive thing for what is, and what we hope will be going forward.

Jo Twist: Can I just build on Anthony’s comment about the single market. For us, we have a difficulty in determining what it means now in a 21st century economy to trade in a single market, particularly what it means to digital software, online services, and games, that are sold through online platforms such as Apple Store and Steam. These are very often based outside the UK, as platforms and shop fronts, and sometimes outside EU. So where exactly is the single market, and how does that fit when we are talking about these issues?

Lord Mawson: The DSM strategy seeks to reduce the number of non-tariff barriers to trade .. While leaving both the EU and EEA would give the UK more sovereignty over the policy, diverging from EU rules could also increase the number of non-tariff barriers to trade in services that the Digital Single Market strategy was supposed to reduce. To what extent is this the case? Are there some policy areas in which we can change policy and ignore EU rules without adverse consequences for business, or are there areas in which we must align ourselves with the single market?

Antony Walker: As I said, the SM and the DSM in particular are very focused on trying to reduce barriers to cross-border trade across the EU. Actually, right now, there is a tremendous single market package that is being debated and discussed at EU level which could be very beneficial to the UK if it harmonises the market and makes it more accessible, given all the strengths the UK has in terms of our digital economy. Europe should be a very good export opportunity for the UK.

However, it’s also possible that a body of legislation is developed and proved at European level , and that opportunities could be taken to make that market less accessible to the UK once the UK exits the European Union. One of the things we’re very concerned about is that the UK, whilst still a member of the EU, continues to play a very active role in setting out that DSM package, because the risk of not doing so is that you end up with a whole set of issues that could be very problematic when trying to negotiate some sort of alternative arrangement. Generally we think DSM is a good thing. We wanted to see the UK driving the directive of the DSM. I know of tech companies across Europe that are concerned that the UK will have less influence, as they saw the UK as a very positive influence driving that agenda, but we need to be very careful that the DSM cannot be used against the interest of UK based companies in future.

Matthew Evans: The issue of divergence is of particular concern to the telecom sector, because the EU is currently consulting on proposals for a European electronic communications code, which is a reform package. That has the potential to significantly alter the rules which have allowed UK based telecoms operators to export to the EU, particularly around open market access, which has been the main facilitator for trade around electronic services into the EU. We would echo Anthony’s point that this is a key area for the UK that the government has to play a guiding role as much as possible over the next few years, as this would likely come into force across the UK from 2019. Telecoms is likely to be one of the first guinea pigs, should we choose to follow the changes Europe is making to its rules, or whether we stick within our current framework which to be fair has served the UK well in terms of delivering on competition and investment.

Baroness Noakes: Could I ask what in particular are you thinking of in terms of interests that could work against the UK?

Antony Walker: (after a brief discussion into issues around the divergence of technical standards) Data protection and the free flow of data, which is being debated at European level, could set out and require certain kinds of data and activities to be hosted within the European Union. It would mean that therefore there are services that could not be made available to the rest of the European market from here in the UK. If you wanted to attract digital businesses away from the UK and require them to locate within the EU, that would be a mechanism by which do it.

Baroness Noakes: So these things are not specific to the digital market? This is a generic point about the UK being engaged in EU lawmaking?

Antony Walker: Yes, but it happens that those are things being debated as part of the digital single market at the moment.

Jo Twist: I’d like to echo that. Our pro-business approach within EU negotiations particularly within DSM was welcomed and extremely important. Losing that voice, or that negotiations position around the table, can be damaging, particularly around data protection. We need to ensure we are balancing the consumer protection rights of citizens with the needs of growing and innovative businesses. The free flow of data is going to be increasingly important to every sector, not just the digital sectors we represent. I quote Mr Ansip, “Data has to be able to move freely across national borders. If it does not, the growth potential of our digital economy will be limited. That will affect businesses and industry as much as it will consumers, who have so much to gain from digitisation. So this is an absolutely critical point for us, and that is an example of a non-tariff trade barrier, in terms of data localisation, in terms of enforced handing over of source code if you want access to certain markets if you are outside the EU.

Baroness Noakes: We covered some of the aspects of statistics earlier, when Dr Twist covered the inadequacies of statistics, which we are aware of. What services should we be focusing on, and what are the most important forms of trade in those services? What are we talking about in the digital and telecoms sectors in terms of what we should be looking for?

Antony Walker: This is where the data lets us down. It’s hard to categorise the sector, nevermind the outputs.

I’d also make another point which complicates it a little bit, in that in this process of digitisation we’re going through on a global level of a “serviceisation” of products. A car used to be a mechanical product that was produced at the end of a manufacturing line and sold. Whereas now a car has a huge amount of computing capability within it, and we’re now in the process of connecting that to networks that are changing the nature of that product. The product is becoming a service that requires data to flow to it on a real-time basis. In terms of the IOT which is about the serviceisation of products, what we’re seeing in the digital sector is that everything is becoming a service. In the absence of really good data, that breaks down exactly what the components of trade are today, most of the outputs of the sector going forward are going to be services or have a service element. So things like data protection and the free flow of data become fundamental to enabling those services to flow across borders.

Jo Twist: Likewise with games, we’re trying to fit these things into quite old boxes now. Out of the 2000 UK companies, only 41% of which were counted within the right SIC codes, you can have small teams of 5, 10, 30 people; you can have large teams of 400 people working across the world on a game for 4 years, or 6 months.

You can either stream games, you can download games, you can have a free to play game on a mobile phone and pay for microtransactions. Essentially they are products in a digital world that have been created by people and rely on the free flow of data. Data is very much about giving the consumer a service which is constantly improving and giving them even more value for money. Data in the sense of how the games industry uses data is very innovative and it drives our ability to serve the consumer and the customer best.

Antony Walker: The Bean review was so important and it’s something we’ve been saying for the last ten years. In terms of ONS statistics, we know a lot more about jam production in the UK than we do about digital services.

Lord Aberdare: What might happen if the UK does leave the EEA on data flows between the UK and the EU? How might that impact your sectors? How important is it in that any deal we secure something around the lines of the ‘data passporting’ that Tech UK have been proposing as a part of this?

Antony Walker: Data needs to flow across borders. It effectively needs a legal basis to do that. That data is subject to various rules and regulations, and in particular, rules around data protection and privacy. There was an excellent case study of the challenges here, which was Safe Harbor in the US. The data passport that allows data to flow between the EU and the US was based around this concept, which basically says the protection afforded to this data in the US was equivalent to the protections afforded in Europe, and therefore there was a safe mechanism by which that data could flow. That Safe Harbor mechanism was challenged and found to be inadequate, which suddenly meant there was no clarity on what the right legal basis could be for data to flow between the two jurisdictions. What you saw was a very anxious time across the sector, and legislators and policymakers scrambling to find a policy solution on both sides of the Atlantic, which led to the Privacy Shield agreement. Because this happened quite recently this immediately came to the mind of the technology sector post-referendum, that something similar would probably be required between the UK and the EU in the case that the UK is outside of the EEA and the single market.

The challenge here, and one of the subtleties that was less understood in the referendum debate, was that when you are member of the EU and single market, the ECJ has no jurisdiction over security matters. Member states are able to set out their security arrangements as they see fit and appropriate. When you are outside of the EU, the ECJ does have to take account of any adequacy arrangements in terms of data protection requirements. Given that this is the moment when the UK has avowed all of its surveillance powers through the Investigatory Powers Bill, it means we have more regulation on statutes than virtually any other country. It does mean that potentially the UK could be open to challenge by European privacy campaigners, that a case could be brought to the ECJ.

We need to find a solution to that. If we don’t have some sort of adequacy arrangement, some kind of data passport, there is a real data that data can’t flow, and that means services can’t flow. That has to be a really central issue within the process of negotiations

Jo Twist: We absolutely support the proposal on data passporting that Tech UK has put forward and agree it is quite urgent that we get an adequacy declaration from the EU. Data is the lifeblood of every single sector, not just the digital sector, and will continue to be so. When we are talking about small companies in particular who have the potential to scale and potentially create the next big whatever it is, we don’t want to damage our global competitiveness and our standing as the UK has at the moment in the digital economy.

If the UK leaves the EEA we will have no existing agreement with the EU allowing businesses with operations in the UK to transfer EU citizens’ data to and from the EU, and as mentioned previously data is absolutely critical to the services we are now creating and giving consumers at a click of a button across the world.

Other non-EU countries such as Switzerland, Canada and Israel have adequacy declarations from the EU that they provide adequate data protection standards, and Norway has adequate data protection standards due to being a member of the EEA.

Lord Green: Access to skills is a priority, but of course, if we go for hard Brexit, there will be curbs on free movement as well as reduced market access and increased non-tariff barriers for UK businesses. To what extent do you think that in that scenario, the downside could be reduced by a reformed visa system which could give similar results to the present arrangements for skilled people, and how much bearing do you think it will have on London’s ability to remain the European capital of digital tech and startups in particular?

Jo Twist: This is the number one issue and concern. We can’t have any trade or trade deals unless we have the people that fuel the products, services, whatever you want to call them, in the future. We cannot have innovative creative globally successful competitive products and services unless we have a diversity of people, meaning a diversity of perspective as well as a diversity in all sorts of different meanings of people making those products.

We rely very heavily – we surveyed our sector – 74% of respondents in the games sector use or employ non-UK EU nationals to fill high skilled posts. We also know that that is between 20% and 30% of their workforce is made up of non-UK EU. They also have global talent. While we are absolutely working with government – we led the Next Gen skills campaign to get computer science on to the school curriculum. We now push forward STEAM skills so that we have that real pipeline of talent coming through our system that’s home grown – we also need to fill the gap in the short term. IT isn’t just about high skilled jobs, it’s about diversity as a whole. It’s about graduates in programming degrees, which we are not keeping up with the demand side in this country yet, but it’s about people with business skills who have the ability to lead an organisation and innovative and creative companies. That is the number one concern of the industry.

Our industry is very highly mobile in that they could just up sticks and move to Berlin. That is a real concern. Even though we are working very closely to identify the opportunities post-referendum, the companies are nervous. The existing EU nationals do not feel welcome. That is going to damage our creativity, our innovation, our economic success.

Lord Green: You are saying the same as the university sector is saying. Do you think some sort of visa deal for the highly skilled would work?

Jo Twist: The fact of the matter is that for highly skilled people, 20% to 30% of people’s staff is made up of non-UK EU, that is going to add an administrative and costly barrier, particularly to small companies who are crying out for this to scale, and they need these people to scale. Regardless of any kind of visa system it has to be friction free, cheap, and quick. We are talking about really fast moving companies who will be disadvantaged competitively globally.

Antony Walker: If you want to be a global hub for tech, you have to be a global hub for tech talent. It is so fundamental. It’s one of the reasons why salaries and remuneration are high in the sector. It’s a by-product of the fact that the sector is growing as quickly as I described. There is a shortage of talent. While I agree there is far more that we can and must do to improve our own talent pipeline, that doesn’t solve the short term problem companies have. 20% of our membership across the board are non-UK EU, and in the UK has benefited enormously from a brain drain and talent drain across the EU over the past ten years. Yes, it’s in particularly specific areas, but the team bits are also important. It’s not about having the technology, it’s about having the ideas of what you can do with the technology. People with a creative background are just as important as the data analysts. It’s when you bring those people together that you drive really exciting innovation.

Across the board, companies of every size are really concerned about this issue. They’re concerned about their existing staff, about how they retain and reassure them about their future in the UK. They’re concerned about the short term pipeline. If you’re a short company that’s growing very fast, you will move your company to where the talent is. If you can’t find it on your doorstep you will relocate to find the talent. That means those potential high growth companies leave if they can’t get access to the talent, but it’s the larger companies as well. They need to remain competitive, and to do that, they need people.

Jo Twist: We already have a skills gap of 600,000 tech vacancies in the UK. That will rise to one million by 2020.

Lord Green: Given that we’re leaving the EU, I imagine you would say the next best option is to be a part of the EEA and stay within the Single Market. If that didn’t happen, and we ended up with an WTO basis for trading with the EU, what impact would that have?

Jo Twist: WTO does not provide free movement of labour. WTO does not provide for the free movement of personal data within the UK and EU, so we would need adequacy declarations. It would be negotiations on an unprecedented scale.

Antony Walker: It would be an extraordinary amount of uncertainty for a lot of businesses, and it would have a lot of consequences for their decision making. It’s highly unattractive option from the perspective of the full breadth of UK tech.

Matthew Evans: We are at the start of another investment cycle. The uncertainty we already have has the potential to impact some of those decisions in telecom. What government needs to start doing quite quickly is narrow down the uncertainty so we know some of the potential options that are on the table.

Jo Twist: The games industry has benefited from a stable regulatory environment in the UK, a very pro-business approach from government, and it really has enabled our innovation and our creativity to flourish. Maintaining that stable regulatory environment is absolutely critical.

Baroness Noakes: As we go into negotiations for leaving the EU, could you give me your top two things that we should take into those negotiations?

Antony Walker: The reality is that the sector is underpinned by a very complex set of rules and regulations that have been created at EU level over many years. Most of the sector is younger than the EU (1973-74) and has grown up with that, and taken membership for granted. The job of any negotiation will be to go through that body of law, directive by directive, regulation by regulation, and try and determine what the implications of each piece of legislation really are for the UK, and how it can best work with and be at least interoperable if it’s not fully harmonised with the EU. You have to go line by line through each regulation to understand particularly in terms of, for example, what’s the process for resolving different views across member states. I don’t think there’s anything other than a very hard slog to go through

If you did have a scenario where the UK was leaving the single market, there will have to be some kind of interim arrangement that gives time for those negotiations, because those negotiations will not happen quickly.

Jo Twist: For us, any trade agreement would have to ensure the free flow of highly skilled talent and the free flow of data.

Matthew Evans: Access to the single market as tariff-free, and having an absolute focus on non-regulatory barriers as well. In the interim I fully support what was said on the prolonged nature of these negotiations. Government has to provide as much certainty as it can to industry. Government can do things, particularly in the telecoms world, around standards, as they tend to be governed by international standards but we’ve relied on the EU to do a lot of the work and interaction around standards bodies. It’s really important that government works to increase activity in this area.

If you’ve read this far, yes, that’s nearly 4000 words I transcribed for this post. Show some sympathy for my swollen fingers by buying me a book off my wishlist. Or hire me.

About the author

Heather Burns is a digital law specialist in Glasgow, Scotland. She researches, writes, publishes, consults, and speaks extensively on internet laws and policies which affect the crafts of web design and development. She has been designing and developing web sites since 1997 and has been a professional web site designer since 2007. She holds a postgraduate certification in internet law and policy from the University of Strathclyde. Learn about hiring Heather to write, speak, or consult.