A version of this article was published in Satellite Finance magazine in February 2017.

While Brexit is set to change the economic direction of Britain dramatically in some sectors, what does this mean for UK space business and future investment in the sector? John Worthy, partner and head of Satellite and Space Projects at international law firm Fieldfisher LLP, examines the outlook.

UK Government pledges continued support

In a series of recent announcements, the UK government has made it clear that space forms a core part of its technology drive. For a start, in November 2016, UK Chancellor Philip Hammond confirmed that the Government would invest an extra £2 billion per year into technology research and development by 2020. This is one part of a £23 billion National Productivity Investment Fund and includes funding the new Industrial Strategy Challenge Fund for priority technologies. In addition, the government promised venture capital investment via the British Business Bank into innovative firms, such as space businesses.

As one of the leading players in ESA, the UK has also committed €1.4 billion funding to ESA programmes over the next five years. Announced in December 2016, the investment includes €670.5 million towards satellite technologies and services for UK industry and science including telecommunications, earth observation, navigation and satellite services. The impressive scale of this support shows how the UK government is putting space at the top of its agenda.

In a further boost for UK business, Prime Minister Theresa May unveiled plans for a new industrial strategy to help create growth. The focus of her 10-point plan is to invest in science, research and innovation, upgrade infrastructure and encourage trade and inward investment. Space is highlighted as a sector  where the UK has the capability to become a world leader, reflecting the country's stated aim of achieving 10% of the world space market by 2030.

Investing in space business

Mirroring central government support, we are seeing increased appetite for private sector investment in space. Seraphim Capital, the UK-based venture capital firm, launched the Seraphim Space Fund in November 2016. Targeting an £80 million fund and backed by the British Business Bank and leading space companies, it will be the first to focus on early stage space-related technology businesses and invest in both downstream and upstream opportunities, typically at Series A level. Among other areas, the fund focuses on technologies that rely on satellite data, or which have potential space application such as artificial intelligence, robotics and nano technology. Alongside the Seraphim fund, London Business Angels has launched UK Space Tech Angels, a programme to channel investments into early-stage space businesses. Combined with Seraphim, this means the UK is helping to create a new investment climate for the sector, enabling space businesses to flourish.

Supporting UK exports and international trade

As the UK gives increased focus to export opportunities ahead of Brexit, the government has recognised the valuable role played by export credit support, especially in the space sector. The government is doubling the capacity of UK Export Finance (UKEF), the UK's export credit agency, from £2.5 billion to £5 billion, in order to make it easier for British businesses to export and enable UKEF to pursue new openings in this market. This move is particularly welcome for UK suppliers and for overseas space businesses seeking financing.

Meantime, the UK is planning for its international trade deals with the EU and other countries going forward. In its White Paper on the Brexit plans, the UK government aim to achieve the freest possible trade between the UK and the EU. This is one of the biggest challenges of Brexit: how to secure effective terms for trade in a remarkably short timeframe. Of course, any bespoke agreement with the EU may take several years to negotiate (Canada's trade agreement with the EU took seven years). In the absence of a bespoke trade deal with the EU, the fall-back of World Trade Organisation principles of non-discrimination and reciprocity would be clearly less advantageous for UK business.

On other fronts, a new US-UK trade deal has been touted by the Trump administration in the US. While a new agreement could take some years to negotiate, the important point for space will be how far this would in practice open up the US markets to UK business (and vice versa), given the constraints of the ITAR regime.

What does Brexit mean for space

Following the UK Supreme Court's decision on 24 January 2017 that Parliament's approval is required to trigger the exit provisions in Article 50 of the EU Treaty, the government is progressing its bill to approve the exit process. Having set a deadline for departing the EU by March 2019, the government will be aware that there is a huge amount to be done. Pursuing its new industrial strategy, Britain will aim to continue to collaborate with EU partners (and others) in science, research and technology. The key point will be what the collaboration deal looks like and how favourable its terms are.

What is clear is that Brexit is not going to change the UK's membership of ESA. The Government has stressed that membership of the ESA is "an important part of our overall investment in space". While joint EA and EU programmes, such as the Galileo global navigation satellite system, may be affected, the UK's core role in ESA is well set going forward. With the space industry now worth £13.7 billion to the UK economy, the UK's funding commitment to ESA at the December 2016 Ministerial shows that the government recognises the importance of the space sector.

Nevertheless, funding under the EU Horizon 2020 programme created to support research and innovation will be impacted: Horizon 2020 grants are available to EU member states alone. Therefore this funding will cease to be available following Brexit, unless the Government agrees a continuation in its negotiations with the EU. The good news for recipients of Horizon 2020 funding, however, is that the UK Government has pledged to underwrite any awards made under the programme where the projects continue to run after Brexit.

A sunset for EU regulations?

After Brexit, the UK would in principle have flexibility to reverse or amend laws driven by EU legislation. In its Brexit White Paper, the government confirms that UK laws will remain the same following the exit from Europe, but over time these will be amended and diverge from EU law. How far (and how quickly) this happens in practice remains to be seen, since broader factors of mutual recognition and cross-border trade may encourage the UK to keep many EU-derived measures in place.

One area that could be a target for amendment is the regulatory harmonisation measures in telecoms. However, there are questions about how far the UK would want to diverge from established European principles, especially as greater harmonisation would assist with cross-border operations on all levels. In theory, Ofcom could operate in a more independent fashion outside the EU, but in many areas affecting space business, international norms may drive the UK to follow existing laws.

Similarly, with the General Data Protection Regulation (GDPR) due to come in force in May 2018, businesses are examining how to prepare for one of the largest changes in personal data and privacy regulation in a generation – compliance needs to be achieved well before the UK leaves the EU. While the GDPR is EU legislation, we would expect that it (or a similar regime) is likely to remain in place post-Brexit as the UK would need to show that it can offer adequate protection of personal data for cross-border data transfers which are so vital to international businesses.

Brexit may also impact on employment issues, with controls on immigration expected to be a major feature in Brexit negotiations. While this could limit the EU talent pool available to work in the UK space sector, there may be greater flexibility in hiring staff from other countries, such as the US. In addition, as employee protection laws derive mostly from Europe, it will be interesting to see if the UK removes any of these established protections or whether they are seen as a valuable feature to preserve. 

UK spaceports: coming soon

Plans to enable the first UK commercial spaceports have been issued recently. On 9 February 2017 the government launched a £10 million grant scheme to incentivise the commercial spaceflight market. Several sites are aiming to develop spaceports, including Glasgow Prestwick, Campbeltown, Stornoway, Newquay and Snowdonia, and will be looking to attract spaceflight operators to service the anticipated demand. This has been followed by the draft Spaceflight Bill, setting out the new legal regime to enable low cost access to space. Further analysis of the Spaceflight Bill will be available on forthcoming Fieldfisher briefing.

So these developments show that, despite the challenges and uncertainties of Brexit, the UK is keen to emphasise the space sector's role as a driver for growth.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.