Digital Economy Bill

Written evidence submitted by the Cicero Group (DEB 75)

This submission is not being made on behalf of any clients of Cicero Group, the views and positions represented in this submission are Cicero Group’s own.

Background

1. Cicero Group is an independent integrated communications agency principally owned by its directors and staff. Our fifty-strong team has a simple mission: to help clients deliver communication strategies that achieve their objectives, manage their corporate reputation and maximise their return on investment. 

2. Founded in the UK in 2000, we now work with over 200 clients from our wholly owned offices in London and Brussels. Our team includes experts in government and stakeholder relations, corporate PR, digital strategy and research.

3. As part of our digital strategy division in particular we are working with financial service organisations to actively develop their digital operations. Clients to date include Barclays, HSBC and the FCA where we have helped enable in-house capabilities as well as progress online and social media capabilities.

4. The experience and expertise of Cicero’s consultants combined with the insights gained through client work means Cicero are well placed to consider the potential impact of the Digital Economy Bill as well as offer a view on where the Bill’s scope does not go far enough.

Overview

5. While a number of the Bill’s intentions are laudable, with measures such as the Universal Broadband Obligation, set to bring the UK in line with expected standards on digital services and connectivity, the Bill, in its current form, also presents a missed opportunity.

6. The UK benefits from a thriving digital economy with a burgeoning Fintech and technology sector in London, Cambridge and Manchester. A recent government report finds that the digital sector accounts for 7.3% of the UK economy with over 2 million people employed through the digital economy [1] . Over half of European Fintech unicorns are also based in the UK, including firms such as TransferWise, Funding Circle and GoCardless [2] .

7. In recent years, the Government has sort to encourage the digital economy and technology sector in the UK through a number of initiatives. Thanks to government intervention, technology start-ups are supported as they grow through the work of Tech City UK; emerging Fintechs are able to attain the regulatory licenses they need and get to market quicker with the support of the Financial Conduct Authority’s (FCA) Project Innovate; and the government’s Digital Catapults have helped Britain’s SMEs grow and upscale through digital transformation.

8. Cicero also welcomes the Government’s recent amendment to the Bill which introduces digital skills training for adults to learn essential computer skills. Such measures are crucial as approximately 5.3 million people in UK have still not used the internet.

9. Above are just a few examples of the measures the government has already taken to support the UK’s digital economy. However, despite these positive initial steps, the pace of digital and technological developments, and the uncertainty of Brexit, means the government must continue in its support.

10. In line with the recommendations provided by the Business, Innovation and Skills (BIS) Committee through their report, The Digital Economy, in July 2016, Cicero believes that the government must take steps to [3] :

1. Address the uncertainties of Brexit to the UK's status as a world leader in Fintech;

2. Make provision for robust regulation for disruptive technologies, such as Distributed Ledger Technology, that supports growth and protects users; and

3. Ensure that future generations are equipped with adequate digital skills enabling them to operate and flourish in the growing digital economy.

11. The Digital Economy Bill is an ideal opportunity and legislative vehicle to bring about such measures. Ensuring that, in this time of uncertainty, the UK’s tech sector can continue to thrive.

Recommendations

The uncertainties of Brexit and their effect on the UK’s status as a world leader in Fintech

12. As noted in the BIS Committee report, the UK is a world leader in Fintech, with the sector estimated to be worth £20 billion in annual revenues [4] . However, in the wake of the vote to leave the European Union (EU) and the uncertainty regarding Britain’s future status with the EU single market, particularly with regard to passporting and rules around the migration of foreign talent to the UK, this status is now potentially in jeopardy. If not properly addressed, the UK risks losing its enviable position, as the place to do Fintech business, to its European competitors in Frankfurt, Berlin or Tallinn. The Digital Economy Bill offers the government an opportunity to make targeted interventions that will shore up the sector in this time of uncertainty and allow the UK to also benefit from the potential opportunities of Brexit.

13. The introduction of greater incentives for Fintech investors, such as making Fintech investment more tax efficient through relief or funding support schemes, would go a long way to encouraging more capital into emerging Fintechs. As highlighted in the 2015 Ernst and Young report, UK Fintech, the UK lacks the mature pools of investment capital needed to take emerging firms into a growth stage. While the work of the Digital Catapults and TechCityUK have helped bring Fintechs together with investors, the UK still falls behind investment levels of the established tech centres in California and New York. The Government should look to introduce such schemes through this Bill.

Establish "future-proof" regulatory regimes for disruptive technologies, such as Distributed Ledger Technology

14. Disruptive technologies are revolutionising sectors from car hailing to the food delivery market. The proliferation of such technologies has the potential to bring greater efficiencies, cost-savings and help deliver the services consumers expect.

15. Distributed Ledger Technology (DLT), such as the Blockchain technology underpinning many virtual currency networks, is an example of a disruptive technology that has the potential to transform elements of financial services. From post-trade settlement and clearing to back office functions through the use of smart contracts, DLT could bring increased security and efficiency to many of the arcane functions within the sector, while bringing cost-savings and increased transparency for regulators.

16. While the potential rewards of DLT for the sector are clear, without proper regulation these benefits will be slow to fruition [5] . The highly-regulated nature of financial services means firms are reluctant to embed DLT too firmly in their business models for fear of future regulatory action or retrospective enforcement. The void of appropriate regulation for DLT and its continuingly ambiguous status in the minds of regulators is holding back its development. DLT is a primary example of a disruptive technology where, for its success, it is imperative that regulators and developers work together.

17. In line with the Government’s own report Distributed Ledger Technology: beyond block chain, published in January 2016, which contends that "effective governance and regulation are key to the successful implementation of distributed ledgers", Cicero believes proper regulation is essential if DLT is to flourish in the highly-regulated financial services sector [6] . Given the fast-paced development of DLT and its changing locus within financial services, any regulatory regime around this technology would need to be sufficiently "future-proofed" to ensure it was adapted to the future uses of DLT.

18. The Government should build on its early work on DLT and use the Digital Economy Bill to make provision for a Regulatory Delivery Body for DLT. This group would be charged with the development of an appropriate regulatory regime for DLT and should include all relevant Government departments and sector regulators, such as the FCA and Bank of England in consultation with developers, users and the financial services sector itself.

Digital skills

19. The success of the UK’s digital economy hinges on the ability of individuals to operate, programme and design digital-based systems, networks and functions. To this end, the UK must strive for more than a basic level of digital-literacy. For the UK to be a true world-leading digital economy, not just today but long into the future, it is essential that we have the adequate skills and continue to educate future generations.

20. As the Government’s own report, Digital skills for the UK economy, concludes, the persistent shortage in suitable digital skills for digital jobs in the UK labour market is a major risk to business growth, innovation and broader societal development [7] . In its report, the Government, calls for action to be taken to re-skill the workforce continuously to ensure that new market segments that require digital skills can be exploited. To achieve this, the Government identified three key areas where greater digital skills are required:

1. Basic digital literacy skills: skills needed by every citizen to become ‘digitally literate’;

2. Digital skills for the general workforce: skills needed in a workplace and generally linked to the use of applications developed by IT specialists; and

3. Digital skills for ICT professions: skills needed to work across the diverse IT sector. They include digital skills linked to the development of new digital technologies, and new products and services.

21. While the Government’s recent amendment to the Bill, which introduces digital skills training for adults to learn essential computer skills, is to be applauded, such measures do not go far enough and only tackle the most basic skill deficiencies listed above.

22. Through the Digital Economy Bill the Government has the opportunity to intervene to give a reform and boost digital skills. Cicero recommends that the Government make interventions through the Bill which tackle the skills gap identified above, particularly point 3 "digital skills for ICT professionals", which is a crucial area for the future growth of the UK’s digital economy.

Conclusion

As shown in this short submission, Cicero fully supports the Government’s intentions through this Bill. However, we believe the Government has the opportunity to make a number of carefully targeted interventions to give a boost to our nascent fintech sector. The Bill represents an opportunity to shore up the UK digital economy today while ensuring that it continues to grow and develop into the future.

We would be happy to discuss this submission in further detail with you.

October 2016


[1] Official Statistics, Department for Culture, Media & Sport, 26 January 2016, www.gov.uk/government/publications/digital-sector-economic-estimates-january-2016/digital-sector-economic-estimates-2016-key-findings

[2] The Digital Economy, Second Report of Session 2016-17, Business, Innovation and Skills Committee, 18 July 2016, www.publications.parliament.uk/pa/cm201617/cmselect/cmbis/87/87.pdf

[3] ibid

[4] ibid

[5] www.bloomberg.com/professional/blog/banks-testing-blockchain-need-clarity-on-regulations/

[6] Government Office for Science, Distributed Ledger Technology: beyond block chain, January 2016

[7] Department for Business, Innovation & Skills, Digital Skills for the UK Economy, January 2016

 

Prepared 1st November 2016