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Giles Derrington

Head of policy - European exit, techUK

What does the Brexit “flextension” mean for the tech sector?

It is almost fitting given how many times the risk of a no-deal Brexit has been brought back from the dead, that the new official date for leaving the EU is 31 October.

For tech businesses, the majority of whom view no-deal with a level of horror usually reserved for Michael Myers, the new delay at least means that the imminent threat of no-deal on Friday is no longer a reality. As techUK’s member survey earlier this year revealed, just five per cent of digital firms think a no-deal Brexit would have a positive impact on their business, with 69 per cent saying it would negatively affect them. A six-month delay is, therefore, in one sense a welcome step back from the cliff edge.

There are of course some other positives to the October deadline. Many energy-intensive businesses, such as data centre companies, would not have thanked politicians for agreeing a December deadline, given the heightened damage of a no-deal Brexit during the high energy cost Winter months would have done.

But, the reality is that the decision not to agree a longer 12-month delay is deeply disappointing. For those business producing hardware, a six-month delay means writing yet another cheque to stockpile components and spare parts. And those delivering digital services across EU markets will find little solace in another half a year in which they are unable to provide clarity to prospective clients.

Perhaps most worryingly, rapidly growing new UK tech businesses seeking investment are likely to find securing funds increasingly difficult as uncertainty wears on. Just yesterday, KPMG presented figures showing that venture capital, the lifeblood for many budding tech companies, has fallen by 57 per cent in the first three months of 2019 in large part due to investor concerns over the lack of progress on Brexit. While more established tech firms continue to be able to secure later stage investment, the impact of an uncertain market also gives founders pause as to whether the UK is the right place to locate. What that does to the ecosystem and start-up clusters that are critical to the digital economy only time will tell.

There is another concern that is also surfacing in the minds of many company leaders. While MPs remain unable to agree a path for exiting the EU, the clock on the second (and significantly more complicated) phase of the Brexit negotiations – on the future relationship– is already ticking. The so-called transition period that businesses worked hard to secure in the deal runs until 31 December 2020. When the UK was set to leave on the 29 March this year, the idea of negotiating everything from our market access to a data flows agreement already looked overly ambitious. Now, with the possibility that those negotiations could be limited to just 13 months, such an agenda looks impossible.

Even with the ability to extend the second phase for a further year, it is increasingly clear that the time available will be inadequate to deliver on the needs of the tech sector. For example, when it comes to data flows, the fastest ever adequacy agreement negotiated by the EU took 18 months. Any attempt to end the transition phase before reaching an agreement allowing the free flow of personal data, would be catastrophic for the UK’s role as a global hub for data-driven businesses.

The solution to these problems is that parliament doesn’t wait until October to break the Brexit deadlock. Rather than seeing the new delay as an opportunity to sit back, MPs must work harder than ever to find a solution to the mess we are in. For the tech sector, that means parliamentarians finally recognising the role of services in the UK economy, and thinking again about the option of the single market. It also means all options, including a further public vote, being on the table for consideration. For the businesses who have already spent millions of pounds and thousands of hours planning for Brexit, anything other than a complete commitment by MPs to achieving a breakthrough as soon as possible would be a dereliction of duty.

Giles Derrington is the Brexit policy lead at the trade body techUK