TechUK says lost access to European skills and markets could be far worse than is appreciated

Britain’s booming technology sector risks being forgotten in the rush to cushion traditional industries from the impact of Brexit, business leaders have said.

A day after the government launched an unusually interventionist industrial policy designed to protect what it perceives as key areas of the economy, a group representing 900 tech companies said their lost access to European skills and markets could be far worse than was appreciated.

Research commissioned by techUK reveals that British employers in digitally intensive industries are particularly reliant on overseas talent, with 45% of recent vacancies filled by foreign-born workers.

In software and computer services, nearly a quarter of UK workers were born overseas, and the share from European Union countries has grown fastest due to more restrictive immigration rules for foreigners from elsewhere.

The sector is also far more exposed to potential new trade barriers than the rest of the economy, with a relatively high dependence on EU service sector exports and common European regulatory standards on data sharing.

The techUK report singles out the importance of negotiating a free trade agreement that can adequately replace this single market access, especially in a World Trade Organisation (WTO) framework that remains almost exclusively focused on industrial and agricultural goods.

“There is no sector more dynamic, more innovative, more resilient than tech, but that doesn’t make it immune to Brexit,” said Jacqueline de Rojas, the trade group’s president and the UK managing director of the software firm Sage. “As this report makes clear, there are real risks that need to be understood and addressed.”

Michael Keegan, chair of Fujitsu UK, said: “Companies will be looking for a robust legal basis for cross-border data flows, that the UK remains open to the very best global talent, and that British businesses are able to compete fairly across European markets.”

The report says technology companies are behind 24% of UK exports and 3 million jobs.

The government’s new industrial strategy focuses heavily on traditional manufacturing sectors such as a car-making and aerospace. The Japanese carmaker Nissan has already benefited from secret assurances from the government about the impact of Brexit, while British farmers have been promised a series of concessions by the agriculture secretary, Andrea Leadsom.

On Monday the business secretary, Greg Clarke, insisted the “new active role” for government would not mimic “fatally flawed” protectionist approaches in the 1970s but would focus on new products such as electric cars. “Too often they became strategies of incumbency,” said Clarke of the old approach.

Though the government is also a vocal champion of digital technology, the sector’s leading companies are concerned that it remains less visible than some and should not taken for granted during the Brexit process.

“Our sector is more diverse and hard to define,” said Julian David, the chief executive of techUK. “It does not have one big obvious factory and it’s a bit less well understood. They aren’t doing it out of malice, but it’s complicated.”

Relatively low WTO barriers for electronic products and the industry’s historically strong links to the US may also have encouraged false hopes that technology will easily weather Brexit.

“There’s been some relief that the sector would not be too heavily hit by tariffs,” said David, who warned that non-tariff barriers in the service sector were far more of a concern.

So far the EU has shown little appetite for extending current open access to countries outside the single market. “The EU would need to be willing to enter into negotiations on subjects that is has traditionally not engaged on in the context of trade discussions with countries outside the European Economic Area,” says the report. “For example, audio-visual and media services are specifically excluded from the EU’s free trade agreements.”

Recent decisions by big US investors such as Facebook and Google to maintain European headquarters in London had buoyed hopes that the industry would remain resilient.

But techUK, which counts both internet giants among its members, says it would be a mistake to assume such highly publicised moves indicate an industry that is relaxed about the changes that might follow Brexit.

“Companies are taking are taking a bet that the UK will remain a good place to do business, but they are concerned,” said Antony Walker, deputy chief executive of the trade group. “They are taking the government at its word that it will maintain access to European markets and skilled workers.”