Brexit - time for cool heads in the UK cloud industry

Profile picture for user pwainewright By Phil Wainewright July 22, 2016
Emotions are still raw after last month's Brexit vote but Britain needs cool heads and calm thinking to find the best outcome for its cloud industry

UK flag Brexit stormclouds from EU balloons below © meatbull -
A month after the UK's momentous vote to leave the European Union, passions are still running high on both sides of the debate. That's not good news at a time when Britain needs to calm its nerves and make a cool, rational assessment of its next steps.

This week, I had the opportunity to chair an informal discussion of what Brexit means for the UK cloud industry, in my capacity as chair of EuroCloud UK. The demographic of such a group inevitably skews to the remain side of the debate — voices supporting the leave side were remarkably thin on the ground.

But the frustration and raw emotion of remainers who are still deeply disappointed at the result of the vote isn't conducive to clear thinking. While it may be true that, at least in the short term, there's much that is going wrong, falling into despondency won't help embrace the opportunities that may yet arise.

As one participant observed, we need more information and less ill-informed fear. So in that spirit, here's a summary of the key points that emerged from the discussion.

1. Most regulation will stay unchanged

It's been calculated that 80,000 pages of UK legislation has been created under the auspices of its EU membership, says guest speaker Emily Jones, partner at law firm Osborne Clarke. With Brexit due to happen within a two-year timescale, don't expect any of this to go into some regulatory bonfire. There simply won't be time to revisit any except the most critical, such as those relating to the financial services industry.

Frank Jennings, partner at commercial lawyers Wallace LLP, suggested it was likely the UK will follow a similar legal process that former colonies adopted when they became independent from the UK. With no time to replace all the colonial laws that were about to lapse, they simply passed a single law that automatically preserved all the existing legislation that hadn't been expressly revoked.

In 2019 there will be a fresh new UK with its own set of regulations ... [but] I don't think a lot of things will change.

2. Cloud providers must make their case

If there are critical issues that do need to be dealt with urgently during the Brexit process, then it's up to the cloud industry to make a fuss to push them up the priority list. No one should expect the newly appointed minister for Brexit, 67-year-old former defence secretary David Davis, to champion the cloud industry's interests without prompting.

The industry must work quickly to identify what actions it needs, build a compelling case and then co-ordinate a campaign to put it across so that it doesn't get drowned out by others with more lobbying clout. It's likely Davis will look most favorably on initiatives that will help the UK present itself as a leader on the world stage post-Brexit.

3. What happens to data protection needs clarity

The EU is in the process of harmonizing a fragmented landscape of data privacy regulations into a single General Data Protection Regulation (GDPR), which is due to be enacted before the UK formally leaves the EU. That means it's likely to be among the legislation to be preserved, says Jones:

The UK regulator says these new rules are needed. It's unlikely this will be rowed back from ... There will be a very big incentive for the UK government to comply.

The whole basis of the GDPR is free movement of data, which is fundamental to fulfilling the aspiration of a 'digital single market' across the EU, she explains. Complying with the GDPR will be a prerequisite for any cloud supplier wanting to do business in the EU, so there's a competitive advantage in having the same rules in place in the UK. It's worth noting that this is why US suppliers have lobbied long and hard for the harmonization that GDPR represents, even if they have disliked certain aspects of how it's been enacted.

There's a need for informed debate on this question, since any attempt to move to a UK-specific version of GDPR might threaten existing cloud contracts with European businesses. On the other hand, taking a more international perspective on data privacy may open up new opportunities on the global stage. This needs careful, cool-headed evaluation.

4. The EU isn't the only reason businesses come to the UK

Many participants were concerned that inward investment to the UK will fall as a result of Brexit. US companies have long regarded the UK as a "beachhead into Europe," said Jones. While Brexit removes one advantage, other factors remain, such as the common language and similar business culture, along with more liberal employment laws than other countries in Europe.

Another concern is what will happen to all the digital talent that's come to the UK, especially into London. The ease of setting up a business in the UK compared to other European countries is a factor that won't change, but many EU citizens now feel uncertain about their future here as a result of Brexit. And as one participant pointed out, these growth technology businesses are often finding success through trading across borders within the EU. For these businesses, Brexit has introduced uncertainties and barriers that didn't exist before.

Some are hopeful that leaving the EU will open up new opportunities for more trade with Commonwealth countries, which include Canada, Australia, New Zealand and India, as well as global growth markets including China, Russia and Brazil. Meanwhile the US remains an important partner especially in the technology field. These opportunities need to be calmly assessed and quantified.

5. Funding gaps must be closed

Some businesses face an abrupt loss of funding because they are involved in research projects or product development that is funded by the EU. The multi-year lifecycle of these projects means some are already being excluded from bids for new funding as Brexit looms. These businesses need urgent answers to difficult questions — can they still participate as subcontractors of former partners, or must they seek new sources of funding with new partnerships in other countries?

There's also anecdotal evidence that the general climate of Brexit uncertainty is impacting availability of venture capital for UK startups.

The UK government must work quickly to establish what it needs to do to help plug these funding gaps, whether from its own resources or by rapidly facilitating new relationships with research bodies and venture investors around the world.

My take

For all kinds of reasons, it seems like an apposite moment to quote Rudyard Kipling:

If you can keep your head when all about you
Are losing theirs ...

Whatever your views for or against Brexit, there's no question that last month's vote has induced a crisis in which cool heads and calm thinking are at a premium. It's going to be all too easy over the coming months to make matters worse with rash decisions and ill-informed judgments.

Britain's relationship with Europe's digital single market and GDPR are going to be crucial issues for cloud providers. The industry must work quickly to arrive at a stance it can credibly argue for, and get this on the government's agenda.

Meanwhile Britain must get used to its new place in the world. Far from withdrawing into its own borders, Brexit means the UK has to open up relationships with trading partners across the globe. For many in the cloud industry, that's no different from what they've always done. It's time now to keep calm and carry on.