AI presents a ‘Brexit opportunity’ for Britain but there are risks

Good afternoon. While Brexitland was consumed by 2019-style Tory factional infighting on the right of the Conservative party in Westminster, back in the real world there were actually some interesting things going on.

On the home front, the Spanish Chamber of Commerce published its annual investment barometer — Spain is a big investor in UK telecoms, financial services and infrastructure, investing €9bn in 2022 — and the mood was improved.

Compared with 2021 and 2022 I felt the ministerial exchanges at the event were warmer and the outlook stronger, although Brexit continues to rankle, particularly on improving business mobility issues. 

Spain’s ambassador José Pascual Marco said his country wanted a professional mobility deal with the UK next year — either bilaterally or under European Commission auspices — and made little effort to hide his impatience. Brussels watch out.

Still, Spanish business remains unhappy with Brexit. More than three-quarters of firms (77 per cent) said Brexit continued to have a negative impact, and over half said these impacts were either “high” or “very high”, which is an indication of the persistence of Brexit issues.

Álvaro Nadal, the head of the economics section at the embassy, listed three things that Spanish business wanted to see improved: 

• limit divergence from EU rules

• improve mobility for business and young people 

• stick to long-term strategic plans in areas such as nuclear energy, transport (HS2 rail project) and levelling up.

Regulating AI

And speaking of divergence, over in Brussels the EU has reached a deal over its Artificial Intelligence Act for the regulation of AI technologies — setting out a prescriptive regime that was attacked by French President Emmanuel Macron as a potential innovation killer. 

You may wonder where the UK’s equivalent legislation is, and the answer is that it’s still in gestation, with Michelle Donelan, the secretary of state for science, innovation and technology, confirming that a response to the government’s AI White Paper consultation has been delayed until the new year.

Given how foundational AI is to the future of everything, it’s fair to ask whether this field, finally, presents a real “Brexit opportunity” for the UK — to regulate the industry in a more flexible and agile way that attracts investment and fosters innovation.

As always, the answer is complicated, but speaks both to the opportunities and the challenges of the UK’s newfound ability to self-regulate outside the orbit of Brussels.

This piece for the UK in a Changing Europe think-tank by Huw Roberts, research fellow in AI at the University of Oxford, neatly sets out the fundamental difference between the EU and UK approaches.

To summarise, the EU approach is “horizontal”. It grades AI applications at four different risk levels and regulates them accordingly. As Roberts observes, the “rigidity” of the EU framework means it struggles — indeed, has already struggled — to absorb new developments, such as ChatGPT.

By contrast, the UK strategy is “vertical” and argues that, given the cross-cutting nature of AI applications, existing regulators in different sectors should be left to manage AI in their jurisdiction, with what Donelan described as a central “support function” in the science, innovation and technology department (DSIT).

What could possibly go wrong? 

Joël Reland, the author of UKICE’s quarterly divergence tracker, reckons the UK faces two big challenges in making this work to its advantage.

First, the dreaded Brussels effect. Even if the UK has potential to do it better, tech companies will have to abide by the EU (and US) regimes in any case in order to access those two massive markets. 

Given this reality, it’s not clear how different a UK regime can really be, since — as the Vallance review of new technology pointed out — ultimately, after the sandbox stage, regulatory harmonisation is the route to securing market access. 

In a sign of the risk of isolation for the UK, the EU and US have a joint Trade and Technology Council that is co-ordinating on the future of the internet. The UK doesn’t have a seat at that table, despite trying hard to get one.  

Second, the gap between theory and practice. There is still little clarity, warns Reland, on how the UK regime will work. Flexibility can quickly shade into chaos if businesses find themselves with multiple and conflicting messages from different regulators. 

The DSIT central hub is meant to address this, but Katherine Holden, the head of AI at TechUK, the industry lobby group, said that while members broadly supported the UK approach, they were worried about implementation. Given the struggles of post-Brexit UK regulators to date, that is not unreasonable.

“We feel it’s the right approach, but there are concerns from members that individual regulators and the new central function being created need significantly more resources in terms of funding and staffing to ensure they can fulfil the new roles,” she said.

She notes there are more than 95 regulators in the UK and while the big ones, such as the CMA and Ofcom, are well across their AI briefs, there are smaller ones that Holden says need more support to determine how AI affects their remits.

The danger is that if something goes wrong, the public will rapidly lose confidence in the government’s ability to regulate a technology that will change all of our lives, from getting jobs and mortgages to the way we interact with the government, police and healthcare.

Holden believes, per Vallance, that the UK does have an opportunity to attract investment, particularly among developers, if it has a more flexible regime. The public will need to be reassured that “flexible” doesn’t mean risky or more permissive.

The ability of regulators to deliver the vision in a way that empowers rather than frustrates business will play an important part in determining the UK’s attractiveness to investors, as will ensuring the international interoperability of the UK regime and the products that emerge from them. 

Ultimately, if the current polls are right, the management of this is going to fall to a Labour government. And as the shadow DSIT minister Peter Kyle put it to me, the UK will have to take the middle road. 

“The answer must be to regulate in the UK in a way that reflects the broad trend between the US and EU markets, but which gives certainty while lessening the compliance burdens on small companies.”

There’s lots to play for, but in practice the wriggle room between the EU and US regimes might not be as great as is sometimes portrayed. 

Brexit in numbers

This week’s chart comes courtesy of a YouGov Eurotrack study that surveyed European publics on their attitudes to Franco-German proposals for a new, four-tier Europe that have emerged in recent months.

The four tiers of membership reflect different levels of EU integration ranging from an “inner circle”, with deeper ties even than now, to a much more distant membership of a European Political Community (EPC) that is already up and running.

The findings reminded me of reporting from northern Italy soon after the Brexit referendum where it was striking how many Italians (many supporters of the populist anti-immigration Lega leader, Matteo Salvini) were jealous of Brexit.

A lot of conversations went along the lines of: “You’re so lucky, we’re handcuffed to Brussels, but if we Italians had not joined the euro we’d have voted to leave by now too.”

All talk of Italexit and Frexit has now receded, but what is striking about the findings of the YouGov Eurotrack poll is how closely attitudes to tiers of EU membership in France and Italy mirror those in the UK. 

In all three countries, only about 15 per cent want to be in the inner circle, with roughly the same proportion opting for the other tiers and 15 per cent wanting to be outside altogether. 

For Charles Grant, the director of the Centre for European Reform think-tank, the findings show that Euroscepticism is “alive and kicking” in France and Italy. And that can also be seen in the dominance of eurosceptic parties in the Italian government and the fact that Marine Le Pen is favourite to win the next French presidential election. 

As Grant observes, such attitudes beg a much deeper question about the viability of EU enlargement: “All this bodes ill for the Franco-German plan that the EU should enlarge in parallel with reforms to make the institutions more integrated. A majority of French and Italian voters do not want a more integrated EU, which means that one must question whether enlargement will really happen.”

Britain after Brexit is edited by Gordon Smith. Premium subscribers can sign up here to have it delivered straight to their inbox every Thursday afternoon. Or you can take out a Premium subscription here. Read earlier editions of the newsletter here.