Nearly half of exports from UK tech companies go to Europe

As Brexit looms, new data shows how close the ties are between UK tech innovation and Europe.

And now what? For the UK tech sector, Brexit extension means more uncertainty A new 'Brextension' delays the UK leaving the European Union until October. But the continued uncertainty around Brexit is leaving many in the technology industry confused, frustrated - and losing out on business.

Nearly half of exports from the UK's digital sector go to the European Union, according to new government figures.

The new data shows how closely connected the UK's growing tech ecosystem is to the European market. The UK is currently due to leave the EU on its 31 October Brexit deadline, with or without a deal on how to govern trade, data protection and many other key areas of cooperation.

SEE: The Brexit dilemma: Will London's start-ups stay or go? (TechRepublic cover story)

Exports of services by the UK digital sector to the EU stood at £19.4bn in 2017, according to the report from the UK government's Department for Culture, Media and Sport (DCMS). It said the "computer programming, consultancy and related activities" sector was the largest exporter: industries in this sector exported £9.1bn worth of services to the EU. More than 40% of services exports by the UK digital sector go to the EU. 

What happens to the rules governing the export of digital services after Brexit is a big worry for UK-based tech companies because this was not covered by any of the so-far failed attempts to come up with a Brexit deal that can be agreed by both the UK parliament and the EU. That would mean that even if a deal was reached, companies selling services may have to deal with two competing regulatory regimes and being unable to guarantee that services can be provided on the same terms to customers in different locations. All of this would make it harder for UK firms to compete in Europe.

In terms of individual countries, exports of services to the US stood at £10.9bn in 2017; after the US, Germany, Ireland, France and the Netherlands (all in the EU) were the countries to which the UK's digital companies were most likely to export.

The UK digital sector covers businesses involved with everything from the manufacture of computer hardware through to software development and consultancy.

The DCMS Sectors Economic Estimates 2017: Trade report also showed that over half of goods exported by digital sector companies go to the EU. It said the UK exported £9.3bn of digital sector goods, of which £7.6bn was from the "manufacturing of electronics and computers" sector, and £3bn of creative industries goods.

As a country, the US was also the biggest source of digital sector services imports, at £7bn, followed by Ireland, France, Germany and India. But again, as a trading bloc, Europe was the biggest source of services imports. Digital sector companies imported £14.6bn of services from the EU, and companies in the "computer programming, consultancy and related activities" sector were the largest spenders, importing £5.1bn of services from the EU, just over 40% of the total.

China is the biggest single source of imports for the digital sector, accounting for £9bn, followed by Netherlands, US and Germany.

But again, as a trading bloc, the EU was the largest source, accounting for £17.5bn of digital sector goods, of which £16.2bn came from the "manufacturing of electronics and computer" sub-sector, over 40% of the total.

The report found that the digital sector exported services worth £44.8bn and the creative industries – which also covers some tech businesses - exported £32.8bn in 2017. Nearly 10% of the UK's total exports came from these businesses. 

The data emphasises the scale of the risk to the UK tech industry that a no-deal Brexit could pose. For tech companies, the worst-case no-deal Brexit could see data flows between the UK and Europe cut or significantly curtailed, significant problems with both recruiting staff from Europe and sending staff to Europe to work on projects, as well as problems with importing products and spare parts.

Tech companies have warned that if there is no agreement with the EU over trade it will be much harder for them to do business: 70% of tech companies who responded to a survey late last year said a no-deal brexit would have a 'very negative' or 'fairly negative' impact on their business.