Cloud

Microsoft's Brexit warning: We could halt UK datacenter expansion if tariffs are too high

Redmond sets out its reaction to Brexit, including its hope that the UK will relax rules on letting skilled foreign workers into the UK from outside of Europe.

Image: Evgeny Gromov, Getty Images/iStockphoto

Microsoft has spelled out its hopes and fears following the UK's vote to leave the European Union.

Speaking days after UK prime minister Theresa May made it clear that Britain would be leaving the European single market, Microsoft's UK government affairs manager Owen Larter, set out Redmond's position.

Microsoft is concerned that loss of access to the European single market could lead to new tariffs on imported computer hardware.

While Larter said Microsoft is "committed to the UK as it stands", he added that if these tariffs were too onerous, then Microsoft could abandon plans to build out its datacenter estate in Britain.

"We're really keen to avoid import tariffs on any hardware. Going back to the datacenter example, we're looking to build out our datacenters at a pretty strong lick in the UK, because the market is doing very well," he said in the What Brexit Means for Tech webinar, adding the firm had recently opened two new datacenters in Britain.

"If all of a sudden there are huge import [tariffs] on server racks from China or from eastern Europe, where a lot of them are actually assembled, that might change our investment decisions and perhaps we build out our datacenters across other European countries."

Microsoft already runs datacenters across Europe—including in Austria, Finland, France, Germany, Ireland and the Netherlands—which help provide regional cloud services to customers.

There are no customs duties within the EU, and member states share common external tariffs with third countries. The level of import tariffs that might be imposed in Britain post-Brexit are as yet unknown, but the possible costs are a concern to various industries in the UK.

In the UK IT market, the drop in the value of Sterling following the Brexit vote was partly blamed for Apple increasing the price of its computers by hundreds of pounds, with Microsoft also hiking prices for its software and services following the referendum result.

Pushing for more non-EU skills

However, the UK's seeming commitment to a 'hard Brexit' is not universally negative for Microsoft, according to Larter, particularly when it comes to access to skills.

Larter said Brexit actually presents an opportunity for Microsoft to bring more foreign developers and researchers into the UK from outside Europe.

"One thing we're really pushing for is making it easier to bring people into the UK, particularly if they fit a particular profile, if it's for work and they're high skilled in a certain industry," he said.

"We've really struggled internally at Microsoft sometimes to bring people over from the US, from China, from India. Even just on a month or by week basis, because the restrictions on immigration from outside the EU have been so severe, because we [the UK] couldn't control immigration from inside the EU and we were conscious about the numbers."

Larter said he was hoping for revised immigration controls where "there is some element of control, particularly over lower wage immigration, while still a lot of flexibility on recruiting high-skilled people".

As an example of why Microsoft needs better access to foreign skills, he said: "we have 200 people at our R&D headquarters based in Cambridge. These are all sort of PhD+ people, 80 percent of which are not born in the UK. We need to still be able to attract these kinds of people for the benefit of the industry and the UK economy in general."

Protecting cloud services

The final priority for Microsoft is that data-sharing between the UK, and the EU and the US, isn't interrupted following Brexit, he said.

"At the moment, in the EU, there is an agreement that data from any one of the EU countries, can be transferred and stored in any one of the other EU countries, because they are all deemed to have adequate safeguards in relation to data protection.

"This word adequacy is quite significant. What we're concerned about is that the UK will leave the EU and this agreement will no longer apply.

"This is particularly significant for Microsoft, we've just opened two datacenters here in the UK.

"The UK is actually the EU's largest cloud market at the moment, and is set to double by 2019. That kind of bright future is probably not going to be possible if we make it a lot harder to transfer data and store data from the EU into UK datacenters."

However, when it comes to data sharing with the US, he added that early indications from interviews with US president Donald Trump are encouraging, and that he hoped the UK and US would be able to "get that deal right" in devising a data-sharing agreement to replace the existing EU-US Privacy Shield.

Update: Since publication, Microsoft has issued a statement disassociating itself from Larter's opinions.

"The comments reported today by a Microsoft employee were not reflective of the company's view," a Microsoft spokesperson said.

"As we have said both before and after the EU referendum vote, Microsoft's commitment to the UK is unchanged."

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About Nick Heath

Nick Heath is chief reporter for TechRepublic. He writes about the technology that IT decision makers need to know about, and the latest happenings in the European tech scene.

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