Brexit prospects for the UK digital market are none too rosy

There is a real prospect of Britain leaving the European Union following the proposed in-or-out referendum to be held by the end of 2017. This would have various repercussions, one of which might be that the UK would be shut off from operating in the European Single Digital Market, a European Commission priority.

Our recent digital marketing research found major differences in the attitudes of business and students in different European countries toward the use of digital and social media marketing. If the UK leaves the EU, these differences are likely to widen.

Cutting cost and complexity

The EU Digital Agenda for Europe is a strategic initiative for the long-term prosperity of European member states, which attempts to reduce the challenges faced by the digital economy. For example, companies face a VAT compliance cost of €5,000 per country it trades its digital products in. Costs associated with legal compliance across various member states can reach €9,000 according to some estimates.

These are burdens for small companies, so the ambition of the Digital Agenda is to harmonise these differences and simplify cross-border trading. Even if the UK were outside this harmonisation process it would still benefit from a simpler European market with which to trade.

This would come with restrictions: organisations trading within the market would be more likely to trust each other due to common understanding of tax and legal requirements, for example. The tax issue is also a major challenge – as can be seen by governments' efforts to try (and generally) fail to collect tax from global giants such as Amazon, Google and Facebook (to be fair, Amazon is now at least trying to regularise its tax payments).

In any case, the UK might find companies are more interested in access to the bigger, European-wide markets and so set up shop in European capitals rather than London.

UK compared to its peers

The performance of EU member states is tracked as part of the Digital Agenda, using five indicators: connectivity, human capital, use of internet, integration of digital technology and digital public services.

UK progress is not bad, but is still a long way from achieving the levels found in Denmark and Sweden, for example. Human capital, or skilled labour, is one of the indicators where the UK is performing well – yet, by leaving the EU, the movement of skilled labour would be reduced. It’s worth noting that Norway – which isn’t part of the EU – manages to maintain close links with European Free Trade Association members. For example, citizens of Norway can work in EU without needing a work permit – but this sort of arrangement would undermine one of the main reasons the UK wants to leave the EU.

In addition to the movement of skilled labour, the increasing reach of the internet means that organisations no longer need to be physically located in one country. New business models and ways of working mean that a flexible workforce can be found at the click of a button through crowdsourcing sites such as Fiver or Amazon’s Mechanical Turk.

Digital economy and society indexEuropean Comission

A single digital market would bring benefits: better access to products and services at reduced costs, common data protection laws making cross-border communications easier, and a digital-by-default public sector that could make the use of public funds more efficient and transparent.

This would bring increased acceptance and adoption of digital services and bring European countries closer together. The example of Norway operating outside the EU but in association with it through trade agreements is often used by those who want the UK to exit the union. However, the major difference between the UK and Norway is that the population of Norway is just over 5m; the UK is nearly 13 times the size. There are far more businesses in the UK to trade and engage with Europe that would benefit from staying in the union.

Would London lose its status?

When it comes to innovation, the right environment combining academic research from universities, commercial interests and favourable innovation policies – known as the triple helix of innovation – is of fundamental importance.

The latest EU innovation scoreboard placed the UK among the top, but not a leader. Another report, the Atlas of ICT activities in Europe , suggests that – based on the volume and value of research and development, innovation, and number of businesses – Munich is the place to be followed by London and then Paris.

The Digital Agenda for Europe is a well-financed priority area – some €2.8 billion for research and development – allowing organisations to build knowledge collaboratively by working on joint research and development programmes. As funding is a key element, EU members will be at an advantage compared to the UK in the case of a Brexit. Organisations with access to tech hubs and funding are more likely to grow; if Britain exits the EU it will undoubtedly be a step away from the benefits this digital agenda offers.

Aleksej works for Salford Business School and in partnership with a number of digital marketing companies where he develops a Joint European Masters in Digital and Social Media Marketing (JEMSS). He receives funding from a number of organisations including the European Commission and Innovate UK. He is also a head of the advisory board to the Search Engine Marketing Trade Association (SEMTA).