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Government policy should be to support 'disruptive innovation', says tech start-up body

Out-Law News | 04 Sep 2014 | 4:37 pm | 3 min. read

The next UK government should actively support "disruptive innovation" in its policy making, a group representing technology startup stakeholders has said.

The Coalition for a Digital Economy (Coadec) said that the next government should articulate its "philosophy on innovation" and act on it. Policies should support disruption to existing business models but also provide help to those "negatively affected by innovation", it said.

Coadec, a policy think tank on technology issues facing digital startups, was set up by technology entrepreneurs and is also backed by venture capitalists, developers, angel investors and technology companies, including Google. Its views on disruptive innovation were contained in a new 'startup manifesto' (52-page / 497KB PDF) it said the next UK government should implement.

"It should be government policy to support disruptive innovation, making clear that the role of the state is to encourage innovation and competition, with the minimum red tape needed," Coadec said. "The state is also rightly there to create an environment where people and businesses can adapt to change. This should include help those who are negatively affected by innovation, for example people whose jobs are made redundant by automation – including through opportunities for retraining and upskilling."

IT contracts expert Bridget Fleetwood of Pinsent Masons, the law firm behind Out-Law.com, said that both businesses and the UK government view the need to innovate as a major priority.

“Driving innovation is a now a priority for businesses as the economic climate improves and organisations are looking to grow and differentiate their proposition,” Fleetwood said. “The UK government is also looking to innovate in order to transform public service delivery and reduce its costs – particularly as part of the digital by default initiative."

"Engaging SMEs has huge appeal but harnessing the fresh ideas, innovation and agility of tech startups and other SMEs is a challenge for large corporates and public bodies. Traditional contracting models don’t lend themselves to this and customers have concerns over their financial standing and ability to scale. We know that government is looking at ways to streamline procurement processes and encourage innovation and SME participation – and this is being taken up in the private sector where we are seeing a number of different approaches to engaging talent, including partnering and joint ventures, acquisition and acqui-hiring," she said.

In its report, Coadec said that the next UK government must provide continued support for innovation in financial services technology. It praised a number of existing initiatives in this area from the government and UK financial services regulators, including the Financial Conduct Authority's 'Project Innovate' scheme, which helps businesses understand how regulatory requirements apply to new technology or new innovations.

However, it said more should be done to support businesses operating in the financial services technology space, including "reviewing the major barriers around fintech innovation".

"This should include looking at the regulation of cryptocurrencies such as Bitcoin," Coadec said in its report. "HMRC should take the lead in being one of the first tax authorities to establish a framework relating to tax, VAT and other compliance requirements related to cryptocurrency. The government should also look at how anti-money laundering and 'know your customer' rules affect digital businesses, and how regulations should change once digital proofs and secure online identity assurance are the norm."

Among its other recommendations, Coadec called on the next UK government to encourage businesses to try out new ideas in a live environment without "having to seek a licence or prove that it wouldn’t cause harm first". It said it was encouraged by the existing government's plans to allow testing of driverless cars in some UK cities.

"We are not calling for an absence of regulation, but for government to strive to create the conditions for permissionless innovation where possible," Coadec said. "It should not jump to regulate a new technology, and should try to create the space for innovation rather than taking a precautionary approach in all instances. This can be in the form of geographical spaces set aside for pilot schemes or innovation zones – for example, the recent announcement of a competition to find cities that will pilot driverless cars is to be welcomed."

Coadec said it welcomed plans to reform the EU's data protection framework but said that rules governing how personal data can be collected, used and disclosed should "not stifle innovation". It raised particular concern about the burdens that many small startup businesses may face under new EU data protection laws that are currently being negotiated if plans to impose additional regulatory requirements on "data heavy companies" are included within the final plans.

"Digital startups, who often handle significant amount of data, yet lack the resources of larger companies, can be particularly affected by well-meaning provisions," Coadec said. "As it currently stands, the General Data Protection Regulation (GDPR), proposed by the European Commission includes far reaching new regulations that could impose significant burdens on digital startups. While there are proposed exemptions for small companies, these may not apply to data heavy companies (those processing data on more than 5000 subjects), a category in which many startups would fall, despite their size."

"While it is welcome that the Ministry of Justice (MoJ) has raised its concerns about the Regulation, including raising concerns about the cost to businesses, including SMEs – arguing that it could have a net cost to the UK of £100–360 million, it should go much further in making the positive case in Brussels for reforms that would work for consumers and business," it said.