Hard Brexit 'could cost IT sector £5.2bn a year'

Britain leaving the single market in services like telecoms and IT without preferential access for companies would -- in the best-case scenario -- hit the country with a 1.4% loss in GDP.

Producing the figure in a report for anti-Brexit group Open Britain, the Centre for Economics and Business Research said the loss would equate to exports reducing by some £25billion.

The figure rises to £36bn (or a 2% GDP loss) in the worst-case scenario, under which a free trade agreement covers only good not services. For IT, it would mean export losses of 15%.  

The technology sector would also suffer the biggest proportional reduction in trade (out of a total of six service sectors), with a GDP loss of between £2.6bn and £5.2bn a year.  

If the latter loss is realised, it could entail export losses of 32%, which are feasible due to IT (and telecoms) services being uniquely subject to “different dynamics”, including EU rules.

More positively, much of Britain’s IT and telecoms trade with the EU is “under-recorded,” and “we doubt if this trade would be directly reduced much if we left the single market.”

The CEBR explained its assessments: “[We] suspect that the high apparent proportionate reduction [estimated for the IT sector] needs to be understood in this context.”

Elaborating in its report, the centre said that because parts of the IT and tech industry is unregulated, “many services…may continue to flow unhindered”.

But in IT specifically, almost more than in any other of the service sectors probed in the report, the “free movement of people is the critical raw input required” for more precise forecasting.

“The free movement of services can also be seen to directly touch on immigration if people are coming to the UK to offer their services as self-employed individuals or if firms exercise their mobility rights while wanting to carry their workforce over.

“A regime that practically tries to draw a distinction between labour and services is likely to encounter difficulties in sometimes distinguishing between a service provider and an employee.”

The centre warns that “this problem may escalate” in the future, given the growth of self-employment in the UK over recent years.

And turning to sum up its outlook for the IT’s sector exports, the CEBR said: “Given the understated and unregulated level of exports, the absolute decline recorded may however still be relevant given that in actual terms it represents a significantly smaller relative decline.”

It added: “While it is true that many of the UK’s exports in this area [IT] will carry on relatively unhindered by the direct impacts of leaving the single market, many of these exports may be understated in the first place.”