Professional and business services provided £225 billion gross value added to the UK economy in 2019 and employed 13% of the UK workforce, yet these dynamic and highly successful sectors have been overlooked in the UK-EU future relationship negotiations. It is the UK’s leading services export, valued at £96 billion, which is over three times the value of the UK’s leading goods export (cars). The EU is the largest market for the UK’s professional and business services, amounting to 37% of exports (£35 billion).
These services provide specialised support to businesses and the public sector, including advertising, legal services, market research, accountancy, architecture, engineering, design, management consulting, and audit. While London is a global centre of excellence for professional and business services, two-thirds of these companies are based outside of London and the South East and most are small and medium-sized; they are also of significant importance to Northern Ireland, Scotland and Wales. They are closely linked to the financial services sector and the creative industries, both of which face some of the same vulnerabilities and threats raised in this report.
Compared to goods or financial services, the needs of this industry have been overlooked in the ongoing UK-EU future relationship negotiations. A free trade agreement on services is no silver bullet, but there are a number of areas that both sides need to get right to limit potential barriers to trade.
In this report we set out the key priorities for a UK-EU free trade agreement. We address a number of the cross-cutting issues facing professional and business services companies. This report comments on the UK and EU draft agreements and builds on our 2017 report, Brexit: trade in non-financial services.
We are deeply concerned about the potential for any national reservations to the agreement to undermine services trade liberalisation by imposing restrictions at the national level. We have received evidence that national reservations to the agreement such as economic needs tests and rules on local presence could be catastrophic for the UK’s professional and business services sectors. The UK must work with the EU and Member States to reduce and, if possible, remove any barriers put in place through national reservations. The FTA should also explicitly commit not to tie market access to local establishment or residency.
Professional and business services companies rely on being able to travel between the UK and EU to deliver their services: any significant barriers to UK-EU business mobility risk a loss of competitiveness and innovation. While freedom of movement will end at the end of the transition period, we urge the Government to ensure that temporary mobility is covered by an agreement with the EU, and that arrangements on the duration and nature of permitted business travel are as ambitious and comprehensive as possible.
The mutual recognition of professional qualifications is one area where a bad deal could be worse than no deal. In many sectors, qualifications must be recognised for professionals to be able to deliver their services. We support the UK’s position that mutual recognition should be the default position. We are concerned about the EU’s proposal which mirrors CETA under which no agreement on mutual recognition has been reached. The agreement should specifically allow for bilateral agreements between the UK and Member States on mutual recognition.
Proposals on intellectual property will be fundamental to promoting innovation and creativity and we set out recommendations on the recognition of registered and unregistered designs. We believe it essential that a UK-EU agreement protects the existing UK intellectual property framework and provides effective enforcement of intellectual property rights for the UK’s creative and intellectual property rich sectors. We also consider how future regulatory cooperation can be structured to prevent regulatory barriers emerging,
Separate to the future relationship negotiations, we are alarmed about the lack of an EU decision on the data adequacy of the UK framework and the absence of most decisions on financial services equivalence and audit adequacy. We call on the Government to push for these assessments to be concluded as soon as possible, to give businesses in the UK and EU legal certainty and time to prepare.
We have seen how these sectors can be agile and adapt to changing environments, and many are keen to embrace new opportunities. Evidence to our inquiry has shown that many professional and business services businesses, especially smaller and medium-sized businesses, are not well prepared for the end of the transition period, not least because they are not sure what to prepare for.
Although our focus has been on the priorities for a UK-EU agreement, it is clear how serious a ‘no deal’ outcome would be. The absence of a UK-EU free trade agreement that promotes trade in services would pose a real risk to UK jobs and revenue.