The fuse is lit and UK tech sector is ready to exploit the Brexit bombshell

Britain must forge a path between protecting the public and driving innovation, writes Hannah Boland

The day after the UK voted to quit the European Union, Baroness Martha Lane-fox’s reaction was like much of the rest of the tech sector’s. “I was very upset,” she says. “It made me feel … uncomfortable.” As an industry, technology overwhelmingly opposed Brexit. At the time of the vote in 2016, around 90pc of those in the sector came out against leaving the EU. Three years later, it’s time to move on, says the Lastminute.com founder.

While politicians have been wrangling over clauses, exit dates and transitional arrangements, behind the scenes the technology sector has been coming to grips with life outside the EU. And now, while many entrepreneurs may not have voted for Brexit, they are starting to recognise the opportunities the historic break presents.

“It’s a chance for us to reset the regulations,” Rob Kniaz, a partner at venture capital firm Hoxton Ventures explains.

A chance, he says, to find the “sensible middle ground” between onerous – but pro-privacy – EU regulations and the innovationfriendly – but reactionary – US approach. “The UK will be wellpositioned to do this, being outside the EU,” Kniaz says.

While any agreement between the UK and EU, and their future trading relationship, has yet to be determined, the Government has already indicated there will be a “bonfire” of red tape following the split.

It would hardly be a surprising move. European rule makers have themselves recognised that many of their laws are arduous, adopting a “one in, one out” approach to regulation in past years.

This hasn’t really worked, says Nesta’s Harry Armstrong. In truth, the policy has ended up being “quite an ineffective mechanism”, creating new tasks for people to try to identify which rules can be got rid of, to then be replaced.

The most onerous EU rules are said to have cost the UK economy more than £33bn a year and, although there is some debate over the benefits of these rules offsetting this cost, there have certainly been some which have hampered British innovation in new, developing fields.

One of these fields is biotech. The UK is behind only the US and China in terms of its biotech ecosystem, developing some of the most ground-breaking drugs and innovative gene therapy tools in the world.

But to get them to market requires long development times, money needs to be spent and losses inevitably pile up.

It is an area that would seem ripe for government grant funding – given that ventures may be risky but could yield huge results.

But here, EU state aid rules present a hurdle.

They dictate that any company that accumulates losses equal to more than half of their share capital should not be awarded grants by its government – cutting off some of the most needy companies from a vital funding pool.

For years, sources suggested, the UK had not been applying these rules as strictly – but recently the EU is rumoured to have been putting pressure on the UK funding agency to clamp down, and a number of biotech companies that previously received grants have had applications denied.

“The rules are really hopeless, actually,” Sir John Bell, the Government’s life sciences champion says. “They’re really bureaucratic. It takes forever to do anything, and you’re limited in a lot of the stuff you can do.”

Sir John says it isn’t yet clear what Brexit would mean for these rules but it is certainly something the Government is thought to be alert to.

“I wouldn’t be surprised if they did change them,” Sir

John says.

This, he says, “would make a massive difference” for the biotech sector, helping to create a more conducive environment for businesses to make vital scientific discoveries.

But it is not just biotech that presents opportunities to free British companies from increasingly cumbersome rules.

Fintech, the industry combining financial services with new technology, is an area in which the UK has established a reputation as a leader and that could also reap benefits from being outside the EU.

Compared with the rest of the EU, the sector is well-developed – venture capital cash into Britain’s fintech companies hit

$4.9bn (£3.7bn) last year, putting it only second to the US for investment, and it is the home to names such as Monzo, Revolut and Starling Bank.

One of the UK’S leading companies in the field, peer-to-peer lender Funding Circle, says a big part of this is because the regulator, the Financial Conduct Authority, is “very much on the forefront, and other regulators looking towards them for best practice”.

Not only has it taken an interest in protecting competition, but it has also developed “innovation sandboxes”, where new products can be tested to get them to markets sooner – and which have been copied by other EU financial regulators.

“We have gone from country to country, to Germany and the Netherlands, in terms of the regulations we have taken on,” explains Lisa Jacobs, UK managing director of Funding Circle. But recently, the EU has begun moves towards regulating on a bloc-wide basis. “The regulation proposed in Europe is not as supportive of models like ours, and it won’t enable as much innovation in the space,” Jacobs says. She is hopeful the UK deal with Europe will mean it “gets to set its policy and doesn’t have the EU regulation per say” – freeing it up from any new wider rules.

The EU is also looking at introducing new regulation over the huge, emerging field of artificial intelligence.

The need for this is something all companies working with artificial intelligence see as important – from the Googles of the world to the smaller start-ups.

In fact, there have even been calls for “international alignment” over rules – something the EU move could be seen as part of.

But in Germany – a country that is widely deemed an indicator of the direction in which the EU is travelling – “there’s regulation being talked about which seems to be fairly poorly constructed”, Marc Warner, the boss of UK AI firm Faculty, says. “What seems to be coming down the line in the EU is them regulating AI as AI. It seems to me a bad idea to regulate AI as a single technology.” After all, he says, we regulate cars in a specific way, but “that’s all done very specifically for cars”.

“If you start regulating that all vehicles need headlights, then you’d start putting headlights on boats or aeroplanes or something.

“It’s only in the context that you can make the very thoughtful trade-offs”.

For him, the UK has the AI “expertise” required to make that thoughtful, good regulation; the mass of companies; the research and development capability; the money; as well as the drive to try a collaborative approach for regulation, getting companies, government and regulators around the table.

Rather than getting behind bad, blanket regulation, there is an opportunity for the UK to set a gold standard here. One thing is certain. Across all the new and emerging industries, Britain has already managed to carve out this position between the US and the EU: protecting the public, but also driving innovation.

Now, as Brussels seeks to take a firmer grasp of member states’ rules, and agree a way forward for the UK outside its reach, that position has never been more important.

‘The rules are really hopeless, actually. It takes forever to do anything, and you’re limited in a lot of the stuff you can do’