New U.K. Government Focuses On Startups And Spooks

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The U.K. voted in a General Election on Thursday. The result ends five years of coalition government, and ushers in five years of true blue Tory rule.

Prime Minister David Cameron’s Conservative party now commands a slender but working majority of 12 MPs in the House of Parliament. The Tories’ erstwhile coalition partners, the Liberal Democrats — who tempered plans to expand digital surveillance powers via what critics dubbed a Snoopers’ Charter — have been pushed aside and reduced to a rump of just eight MPs.

The opposition Labour party has 232 MPs. The Scottish National Party, which all but wiped out Labour in Scotland, has 56 MPs — stepping into the third largest party seat just vacated by the Lib Dems.

A Conservative majority government has plenty of implications for the U.K. startups and the digital community. Here’s a quick round up of a few of the tech issues and areas that are going to be in play over the course of this Parliament.

More invasive surveillance. Hawkish Home Secretary Theresa May, who remains in post post-election, has made it clear she wants more powers to capture digital communications — ostensibly for anti-terrorism purposes.

Specifically she’s been pushing for legislation that will force companies to retain data about online conversations, social media activity, calls and text messages for 12 months. As noted above, the Communications Data bill was derailed in Parliament by the Lib Dems but now has the prospect of unblocked passage. Privacy advocates — and anyone who cares about civil liberties or information security — should be rightly concerned about such sweeping data capture powers.

May has already expanded data retention powers, via the Counter Terrorism and Security Act, which received royal assent in February. That law requires ISPs and mobile phone providers to retain more data than they previously were (to allow for IP matching), handing it over to the authorities on request. Now that the Tories have a majority they are in a position to push for even greater data retention powers.

The one fly in the ointment here is Europe. Last July the coalition rushed through emergency surveillance legislation (DRIPA) following an earlier European Court of Justice ruling that had struck down European data retention powers on the grounds they were overly broad. Europe’s top rights body has also rejected mass surveillance, calling for targeted, proportionate intelligence gathering.

The U.K. Data Retention and Investigative Powers Act contains a sunset clause — meaning it terminates at the end of 2016, requiring new legislation to be tabled. So DRIPA will decay in this Parliament but May’s re-railed Communications Data bill is likely to reinstate its powers — and even go further.

Challenges to U.K. dragnet surveillance legislation might be possible under European law, such as the Human Rights Act. However the Tories have previously said they intend to repeal the Human Rights Act and replace it with a British Bill of Rights. So relying on Europe to combat an expanded surveillance state driven by hawkish Conservatives might well be a forlorn hope.

The encryption question. Cameron has made some similarly concerning comments about strong encryption. Namely that he does not think it should exist — again justifying this stance on amorphous grounds of ‘national security’. That position really is baffling, unless it’s just misdirection to push greater surveillance powers through parliament, given that encryption is necessary to securely run key digital infrastructure to prevent unauthorized access — whether it’s to personal data, banking systems, or ecommerce.

Quite what Cameron’s vague pronouncements on perforating encryption will shake out to in this Parliament remains to be seen. But political pressure is clearly being applied to Internet companies to build backdoors into services in order to grant government intelligence agencies access. This is very dumb policy indeed — given that backdoors ensure Internet services and data are exploitable by hackers. But the U.K. appears aligned with U.S. policymaking here. The Five Eyes’ intelligence alliance has long been exploiting domestic data protection loopholes to expand surveillance state capabilities by sharing data on each others’ citizens behind the scenes. Earlier this year Cameron was reportedly lobbying President Obama on encryption workarounds. He’s not the only one either.

The European question. Cameron has also committed to an ‘in/out’ referendum on European Union membership during this Parliament. How the U.K. general public will vote on this question remains unclear, although it has arguably become more Eurosceptic in recent times — fueled by the economic downturn and amped up anti-immigration rhetoric from various quarters. What is certain is there will be a period of operational and regulatory uncertainty for U.K. businesses in the run up to the public vote on EU membership.

The EU also recently unveiled a strategy for building a digital single market across all 28 Member States. It wants to break down barriers to Europe-wide ecommerce by harmonizing cross-border taxes and regulation, co-operating on digital infrastructure builds and various other measures. If the U.K. votes to leave the EU it would be stepping outside this digital single market — albeit, the pace of the European project puts any such single market years out at this stage so likely not touching down within this Parliament.

Spooks and startups. Earlier this year the Tories pledged money for encouraging homegrown “cyber intelligence” innovation — with U.K. NSA equivalent, the GCHQ spy agency, set to invest £3 billion over nine years, including working with “hundreds of small businesses” to develop what Chancellor George Osborne dubbed “the next stage of national cyber intelligence”. If you’re building a startup in this space, that’s some enticing investment potential. If, however, you’re building a security or pro-privacy business — or even operating a cloud business that needs to be able to gain customers’ trust in your service and the security of their data — then the U.K. government doubling down on surveillance apparatus might well have a more chilling effect on your startup prospects.

Backing for robotics and other high tech. Last year the coalition published a strategy document promoting robotics — having identified robotics and autonomous technologies as areas of future economic growth for the country. Test sites for driverless vehicles have been established, a review undertaken and £100 million pledged. The Tories look set to continue seeking to clear the road and green light technology developments in this space. Other high tech focus areas for the Party include nanotech and the Internet of Things.

Support for collaborative consumption and fintech. The government has also looked kindly on collaborative consumption to-date — commissioning a review last fall with the aim of identifying obstacles to its growth in order to remove them. While it didn’t agree with all of the de-regulation calls from eager industry players, the government’s response to the review was pretty bullish — including agreeing to speeding up the process of criminal record checks to grease the feet of the sharing economy.

Fintech and digital payments are another area of interest — with Tory Minister Ed Vaizey telling TechCrunch Disrupt London last October: “We want to make these e-payments faster, quicker, we want to make it as safe as possible. And we want to look at the kind of technologies that the digital currencies use to allow end systems to operate in a de-centralized way, with no intermediaries. We want to look at how the new technologies can benefit consumers and the wider economy.”

Startup tax breaks and loans. The Conservative Party manifesto included a pledge to treble a government startup loans program in the new Parliament — aiming to provide loans to 75,000 entrepreneurs over the next five years. The Tory-led coalition extended existing startup investment tax breaks — such as the Enterprise Investment Scheme (EIS) and Seed Enterprise Investment Scheme (SEIS) — and also created a number of new Enterprise Capital Funds via the government owned British Business Bank. Just before the election, more than 90 tech entrepreneurs co-signed a letter published in The Guardian expressing personal support for the Conservatives on the grounds of their tech-friendly “attitude”.

Computing education in focus. The coalition overhauled the computing curriculum in schools in England, requiring bona fide coding be taught to kids of primary age — starting last fall. They also instigated a review of computer science degrees with a view to assessing graduate employability. And funded a set of free online courses promoting digital business skills. Continued Tory focus on boosting domestic technology skills to improve digital employability seems likely.  Which brings me to…

Immigration caps. The Conservatives talked tough on immigration during the election campaign, and pledged to maintain their cap on skilled economic migration from outside the EU at 20,700 during the next Parliament. They’ve also promised student visa system reform to cut the number of students who stay after their visas expire. U.K. startups needing to bring in skilled staff from overseas will continue to face hurdles getting the talent they need to power their businesses into the country.

Tech City gets a new mayor. London’s mayor Boris Johnson will be moving on within the Parliament as his term comes to an end in 2016. He’s been a vocal supporter of the Tech City initiative for London, setting up the $133 million London Co-Investment Fund (LCIF) to encourage and support burgeoning startups in the capital. Johnson won’t be leaving political life entirely of course, given he’s just been re-elected to Parliament to serve as a Conservative MP. And with the Prime Minister also set to step down as Tory leader within the current Parliament Johnson is widely seen to be maneuvering for the top job himself.

TechCrunch’s Steve O’Hear contributed to this article