Brexit: Microsoft Could Cancel UK Data Centre Expansion

Microsoft may scale back its UK data centre plans if Britain’s exit from the EU results in higher tariffs on server hardware.

That is according to the company’s UK government affairs manager Owen Larter, who laid  out Microsoft’s position in a web-broadcast talk shortly after prime minister Theresa May indicated the UK would seek to exit Europe’s common market.

Hardware import tariffs

Larter said Microsoft is currently planning strong expansion for its British data centres, but those projects could be hit by increased import duties on server hardware from outside the UK, such as Asia or other parts of Europe. 

“We’re really keen to avoid import tariffs on any hardware,” Larter said in the ‘What Brexit Means for Tech’ talk. “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.”

Hardware assembled within the EU currently incurs no customs duties as it crosses borders within the single market, while member states share common external tariffs with outside countries.

So far nothing is known about possible future tariffs for the UK after it leaves the EU, but concerns over these and other issues have caused currency fluctuations, which have in turn led several tech providers, including Microsoft, to raise their sterling prices.

Apple increased its hardware prices by hundreds of pounds and increased its iOS app store charges, while Microsoft has raised prices for both software and services.

Data-sharing with the EU

Larter also highlighted Microsoft’s concerns about data-sharing between the UK and the EU, and said Britain’s cloud services market depends upon ensuring it remains easy to transfer data between the two markets.

“The UK is actually the EU’s largest cloud market at the moment, and is set to double by 2019,” Larter said. “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 data centres… This is particularly significant for Microsoft, we’ve just opened two datacenters here in the UK.”

He said he is less concerned about data-sharing between the UK and the US, currently handled by the EU-US Privacy Shield agreement, saying he hoped the countries would “get that deal right”.

Highly skilled immigration

Larter also said Microsoft hoped Britain’s exit from the EU would give it more flexibility on permitting highly skilled staff to enter the UK from outside Europe.

“We’ve really struggled internally at Microsoft sometimes to bring people over from the US, from China, from India,” Larter said. “The restrictions on immigration from outside the EU have been so severe, because (in the UK) we couldn’t control immigration from inside the EU and we were conscious about the numbers.”

Control over immigration was a key point ahead of the EU vote, but Larter said Microsoft would push for a result where increased controls were put into place for “lower wage immigration” while leaving “flexibility on recruiting high-skilled people”.

He pointed out that its R&D headquarters in Cambridge employs 200 highly skilled staff, 80 percent of whom were born outside 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,” he said.

Updated: Microsoft sent a statement to Silicon UK noting that Larter’s comments were not reflective of the company’s stance on Brexit and its position in the UK. 

“The comments reported today by a Microsoft employee were not reflective of the company’s view.  As we have said both before and after the EU referendum vote, Microsoft’s commitment to the UK is unchanged,” a spokesperson from Microsoft said. 

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