68.Professional and business services represent the UK’s largest export. Professional and business services have been defined by the Department for Business, Energy and Industrial Strategy (BEIS) as “a range of diverse knowledge-intensive industries and support functions … which provide specialised support to businesses and the public sector”. They include legal services, audit, accountancy, advertising and market research, management consultancy, architectural and engineering activities and employment activities. Many of these sectors are closely related to the UK’s financial services sector, so the impact of the TCA in one area will also affect the other.
69.The EU is the UK’s most significant trading partner of professional and business services, amounting to approximately 37% (£41 billion) of professional and business services exports in 2019. The UK is the second largest exporter of professional and business services in the world, exporting £113 billion in 2019 (behind only the United States with £148 billion in exports).
70.In the third quarter of 2019, ‘other business services’ (broadly equivalent to professional and business services) accounted for 32.1% of UK service exports, more than any other sector. Between 2011 and 2018, UK employment in the sector grew by 3.3%.
71.The UK’s thriving professional and business services sector is dominated by small and medium-sized enterprises (SMEs). George Riddell, Director of Trade Strategy at EY, told us that “85% to 90% of the employment in the sector is in small and medium-sized firms”.
Cross-border services trade is regulated at an international level by the WTO General Agreement on Trade in Services (GATS), to which all WTO members are party, including the UK.
The WTO GATS details four modes of supplying services:
1.Mode 1 (cross-border supply): services flows from the territory of one member into the territory of another member (e.g. banking or architectural services transmitted via telecommunications or mail).
2.Mode 2 (consumption abroad): situations where a service consumer (e.g. tourist or patient) moves into another member’s territory to obtain a service.
3.Mode 3 (commercial presence): a service supplier of one member establishes a territorial presence, including through ownership or lease of premises, in another member’s territory to provide a service (e.g. domestic subsidiaries of foreign insurance companies or hotel chains).
4. Mode 4 (presence of natural persons): persons of one member entering the territory of another member to supply a service (e.g. accountants, doctors or teachers).
72.The Government’s view is that the TCA’s services provisions are “gold-standard”. In written evidence, BEIS told us:
“UK businesses will benefit from increased legal certainty about their operating environment relative to the WTO baseline when trading with the EU and will not be exposed to the risk of potential future backsliding in services regulations in EU markets.”
73.As for the sector itself, George Riddell told us simply, “The deal is welcomed by business, because the alternative was no deal.” Amanda Tickel, International Tax Partner and Brexit lead at Deloitte, agreed: “The very fact of it [a deal] helps to lift the significant uncertainty that businesses have been facing since the referendum.” ABTA, which represents tour operators and travel agents, described the TCA as “a welcome step”, which avoided “the additional uncertainty and disruption that would have ensued in the event of a no trade deal scenario for both businesses and individuals”.
74.However, witnesses also stressed that the TCA represents a “huge change” from Single Market membership. Professor Sarah Hall and Martin Heneghan of the University of Nottingham highlighted two important Single Market principles for services that no longer apply to the UK, “the freedom to establish and the freedom to provide or receive services cross border across the Single Market”.
75.Others were more critical of the TCA’s services provisions. The Chartered Institute of Management Accountants (CIMA) said that the TCA “does not cover services to any great extent … this puts UK business at a severe competitive disadvantage vis-à-vis the EU as the UK service sector, notably accounting and finance is … much stronger than the EU’s.” The Scottish Government described the TCA as “a major setback for services sectors”, citing “substantive changes in trading conditions”. The TCA is also subject to a plethora of national reservations, as discussed below.
76.The Minister, Lord Grimstone of Boscobel, told us that service providers have been “coping” with the shift in trading conditions under the TCA “as well as might be reasonably expected”, but admitted that “there is increased bureaucracy, and people are having to get to grips with all of that”. The UK-EU Cross Border Services Working Group (CBSWG), a coalition of service providers in different sectors, said the TCA’s “complexity means it cannot be easily summarised to provide guidelines that apply to all … Consequently, confusion abounds as to what it does and does not allow.”
77.The limited period between agreement and implementation was also identified as a problem for service providers. According to Neil Ross, Head of Policy at techUK, “The biggest missed opportunity in the TCA is the lack of an implementation period.”
78.Professional and business services are a vital feature of the UK economy and the UK’s largest export. Trade with the EU is critical for these thriving sectors. We welcome the conclusion of the TCA, which alleviates some uncertainty for the sector and provides a platform for constructive dialogue with the EU. Nevertheless, the TCA represents a major change from Single Market membership, introducing new non-tariff barriers to trade, and businesses have been required to adapt to this in a short space of time.
79.The provisions of the TCA seem, at first sight, to facilitate extensive liberalisation for services. For example, Article SERVIN.3.2 states that the Parties shall not “adopt or maintain” restrictions on the number of services suppliers or operations, the value of service transactions, or on specific types of legal entity for service provision.
80.However, these apparent liberalisations are caveated by an extensive list of ‘national reservations’ in the annexes of the TCA, which disapply the liberalisations in the TCA for specific sectors and/or Member States. BEIS gave the example of Sweden, which maintains a reservation that 50% of the management and ownership of any company established there must reside in the Single Market. These reservations impose various regulatory barriers to cross-border trade in services and, as Amanda Tickel told us, “will result in a complex patchwork of rules” across the EU27.
81.The TCA operates on the basis of a so-called “negative list”, under which Member States explicitly list the areas where barriers are in place. This contrasts with the “positive list” system seen under the WTO’s General Agreement on Trade in Services, where parties are required to list the areas they are liberalising. Tim Courtney, Director of Trade and Investment Negotiations in the BEIS Services Directorate, described the negative list approach as a negotiating success for the UK. There are two sets of reservations in the TCA: Annex 1, which sets out reservations currently in force, and Annex 2, which allows the EU and individual Member States to introduce new reservations in certain areas in the future.
82.These national reservations mean that trade in services with the EU from outside the Single Market differs fundamentally from trade in goods. As George Riddell explained:
“Unlike on the goods side where, once you get that product as a third country across the customs border and complete all the necessary procedures, it can enter into free circulation and you can sell it anywhere in the EU, it just is not the same for services, where it really does matter which Member State you are looking to sell your services in.”
83.As Professor John Bryson of the University of Birmingham told us, the differences between EU Member States will thus “operate as [non-tariff barriers] to UK companies”. Similarly, the Law Society of Scotland observed, “The fragmentation resulting from this plethora of different requirements may, in itself, act as a barrier to trade.” To give one example, UK lawyers in the Czech Republic have to be resident to provide legal advice, whereas across the border in Austria they are prohibited from providing legal services through residency and can do so only on a cross-border basis.
84.Witnesses also stressed that the reservations in the TCA are “not formulaic”, and that this further complicates the picture. George Riddell told us that “The agreement sets a baseline … It is not just a case of UK service providers looking at the agreement and guaranteeing that that is the level of access in a particular Member State. They have to see how it is applied in practice.” TheCityUK said: “The reservations [do not] necessarily mean that a particular feature of practice is disallowed: it may be allowed, as a matter of the currently applied regime in a Member State, even though that Member State reserves the right not to allow it.”
85.In a letter to the Committee on 26 February, the Minister outlined his view on the impact of different reservations on trade:
“Reservations that are less likely to have a substantial effect on trade include those that apply only to small markets or niche sectors; those that are not actually enforced in practice; those that already applied to UK firms when the UK was in the EU Single Market; and those with which compliance is straightforward.”
“The reservations most likely to disrupt existing patterns of trade include those that apply across the EU as a whole; those that impose nationality or residency requirements to provide a service; and those that cover highly regulated professions that have their own sector-specific regulation within the Single Market.”
86.Tim Courtney of BEIS emphasised that the nature of individual reservations, rather than the total number of reservations, was the most important factor from a business perspective.
87.George Riddell told us that for professional services, “The rule of thumb that we use is that the more regulated an industry is, such as accountancy and legal, the more restrictions there are in the agreement, whereas in some of the more unregulated services sectors, such as management consultancy, there are relatively fewer reservations set out in the agreement.”
88.Smaller firms are likely to be the hardest hit by national reservations. The Federation of Small Businesses told us, “Additional administrative burdens and related costs, which could be easily absorbed by larger firms, may … be prohibitive to small firms.” Similarly, the Royal Institute of British Architects said:
“For smaller practices, the EU is the region most likely to provide international work. This means that national reservations will particularly impact smaller practices; around 85% of architecture practices employ fewer than 10 people, who are less able to bear the additional cost and administration burdens associated with the new requirements.”
89.BEIS told us: “The Government is exploring ways to make the reservations more accessible to businesses so they can more easily identify which ones are most relevant to them. We will publish guidance on GOV.UK on navigating these national reservations in due course.” In his letter of 26 February, the Minister added that BEIS would pay “particular attention to highly regulated sectors, such as audit”.
90.It is important to note that barriers are already in place, so while we welcome these plans, businesses need this information as soon as possible. In October 2020 we recommended that the Government publish comprehensive explanatory material on national reservations; it is disappointing that this will only be delivered months after the TCA has entered into force.
91.The Government has singled out legal services as an area where the TCA is particularly advanced. The Minister described the provisions as “ground-breaking” and “beyond what the EU has included in any other FTA to date”.
92.Witnesses from the legal services sector struck a more cautious tone and highlighted the extensive national reservations in the sector. As the Law Society of Scotland told us, “Legal services are a prime example of an area where the potential benefits of commitments in the main body of the text will, in fact, be eroded by national reservations.” The Bar Council agreed: “Whilst the TCA provides greater clarity in the drafting as compared to the most ambitious pre-existing EU trade deals, it provides little by way of advances on the substance.”
93.Mickael Laurans of the Law Society of England and Wales said that the recognition in the TCA of home title practice without the need to requalify was welcome and “an innovation”, although requalification has been required for UK lawyers who wish to retain their rights to advise on EU law. Mickael Laurans added: “The reality of market access [for legal services] is to be seen in the annexes of the agreement … our members now face 27 different regulatory regimes in each Member State, with different rights and obligations.” He also said that “these reservations are new barriers to trade compared to the regime we had before”, given that the Single Market is “very advanced” when it comes to legal services. However, he also said that the reservations were “more or less what we were expecting”. As with other professions, the impact on legal services is likely to fall hardest on smaller firms, and more lightly on larger firms. The Law Society of England and Wales told us:
“Many larger firms are confident that they have sufficient ability under national laws to continue to provide the same level of service to clients as before. This requires some changes to working practices but is largely manageable.”
94.A number of witnesses raised concerns about jurisdiction for civil claims and enforcement of civil judgments, as these are important to the provision of legal services and to the UK as a world centre for dispute resolution services. The TCA does not deal with these issues as they are covered by the Lugano Convention, an international agreement to which the UK was a party as a member of the EU. These issues are covered in more detail in the report of the EU Security and Justice Sub-Committee.
95.The TCA’s market access provisions for professional and business services are limited by extensive national reservations, particularly in heavily regulated sectors. UK service providers face a patchwork of complicated rules that vary by sector and by Member State. This fragmentation will act as a barrier to trade for UK companies, and this has the potential to hit smaller businesses the hardest.
96.We welcome the Government’s intention to provide advice to businesses on national reservations, and urge it to publish this guidance as a matter of urgency. The Government should ensure that it is accessible for businesses, particularly SMEs, and should explore options for additional support. We are disappointed that this guidance, which we recommended in October 2020, was not delivered before the transition period ended.
97.UK-EU business travel is huge in scale. An estimated 4.8 million UK nationals and 5.6 million EU nationals visited the EU and UK, respectively, for business purposes in 2019.
98.As we concluded in our October 2020 report, The future UK-EU relationship on professional and busines services, professional and business services providers rely heavily on this travel between the UK and EU and on the ability to redeploy staff flexibly to offices across Europe. Barriers to UK-EU business mobility are therefore a threat to the UK’s competitiveness and innovation, as well as to trade.
99.The TCA includes commitments on mobility for short-term business visitors; business visitors for establishment purposes; intra-corporate transferees; contractual service suppliers; and independent professionals. The TCA establishes definitions for each of these types of business visitor, as outlined in Box 2.
100.Enabling short-term business visitors to travel to the EU for a total of 90 days in any six-month period is in line with the Government’s initial negotiating proposals, and more generous than the EU’s initial proposal of 90 days within a 12-month period.
101.However, as elsewhere, these provisions are subject to national reservations—for example, visitors to Austria and Cyprus require work permits, including an economic needs test, in order to take part in trade fairs and exhibitions beyond seven days per month or 30 days per year.
102.Both ABTA and the FSB welcomed the ability for short-term business visitors to travel without a work permit or visa, though the latter noted that the permitted activities for short-term business visitors are limited and would “exclude many activities”.
103.Witnesses were also clear that things would be less straightforward than when the UK was part of the Single Market. Mickael Laurans described the provisions as “a key concern. Things will not be as simple as jumping on the Eurostar or on a plane when international travel resumes.”
104.The FSB described the provisions on contractual service suppliers and independent professionals as “very restrictive”—particularly for independent professionals, where only those who hold a university degree and six years’ experience in their given field can make use of the TCA. The Recruitment and Employment Confederation (REC) and the Institute of Practitioners in Advertising both highlighted the exclusion of agency workers from these provisions.
105.The tourism and travel sectors expect to be particularly affected by the new mobility provisions. ABTA described the 90-day limit for short-term business travel as “quite restrictive given that most tourism postings would be between 6–9 months”. Young people seeking seasonal work experience in Europe will miss out on opportunities as a result. Seasonal Businesses in Travel (SBiT) told us that the new mobility arrangements would “result in a loss of the majority of the 25,000 UK jobs that currently are employed in UK outbound tourism to Europe”, primarily affecting young seasonal workers. In the ski industry, for example, SBiT argued that French restrictions on hiring non-EU staff make “the option of employing UK staff a non-starter for the industry”.
106.In written evidence, BEIS said:
“We recognise that there are now additional processes when travelling abroad for work, including potentially longer lead-in times and additional costs associated with attaining the required paperwork. The Government is committed to supporting individuals and businesses during this period.”
We note, however, that the Government’s guidance on EU business travel does not yet include detailed guidance on country-by-country requirements. Tim Courtney told us that BEIS was “pulling together summaries of some of the guidance issued by different Member States on the visa and work permit arrangements that are in place”.
107.In terms of inbound business travel, witnesses called on the Government to ensure the UK is as open to business travel as possible in the future. TheCityUK highlighted the need for the Government to review the TCA’s provisions and “ensure that any unintended consequences are not repeated in future trade agreements”, while UK Finance warned against “unnecessary costs or limitations on the ability of firms to recruit skilled specialist nationals from [the EU]”.
108.As many witnesses noted, current COVID-19 travel restrictions mean that the impact of the TCA’s mobility provisions has been delayed. Neil Ross described the pandemic as “an accidental grace period” for many service providers, but added, “We should expect some disruption in services to occur down the line whenever we get back to life as normal.” Similarly, Mickael Laurans told us that the pandemic has “left more time to prepare for the new realities when international travel resumes”.
109.The travel restrictions have also meant the TCA’s mobility provisions have not been “tested” yet, making their impact difficult to assess. The UK and Ireland branch of the International Association of Conference Interpreters (AIIC) told us that this meant “uncertainty is compounded … we are not able to ‘test the waters’ in the new regime”.
110.Some witnesses suggested that the shift to online service provision could survive to some degree after the pandemic ends. But their general consensus was that while some online service provision will continue post-COVID, many businesses are likely to return to face-to-face service provision and will therefore have to navigate the new mobility provisions. George Riddell said that while “the nature of work will change and that we will do more things digitally going forward”, it is “extremely difficult to provide cutting-edge services” without building professional relationships face-to-face.
111.The TCA’s business mobility provisions represent a major change in the UK-EU trading relationship for services. The tourism and travel sectors will be hit particularly hard, undermining opportunities especially for young people seeking seasonal work experience in Europe. Professional service providers which rely on agency staff, such as recruiting and advertising, also face considerable barriers to mobility. The impact of these provisions has been delayed by the COVID-19 travel restrictions, but will be felt once international business travel resumes.
113.Cross-border supply is the flow of services from the territory of one country to another, for example digitally. A common set of barriers to cross-border supply are so-called ‘local presence’ requirements, which tie market access to residency or commercial presence in the territory of the country in question. Most UK-EU professional services trade involves an element of cross-border supply, with many UK providers doing business with the EU without establishing a presence there.
114.The TCA appears at first sight to facilitate substantial liberalisation on cross-border supply of services. Article SERVIN.3.3 states: “A Party shall not require a service supplier of the other Party to establish or maintain an enterprise or to be resident in its territory as a condition for the cross-border supply of a service.” BEIS told us that “the EU has only agreed a commitment like this once before (with Mexico)”. The Committee called for such a commitment in its October 2020 report, and we welcome its inclusion in the TCA.
115.As in other areas, however, these provisions are subject to national reservations. Amanda Tickel gave several specific examples: “In Slovenia, for instance, you now have to have an establishment somewhere in the EU to provide accounting and bookkeeping services, where previously you did not. In Finland and Hungary, you have to have residency in the EEA to provide patent agency services.”
116.One potential risk is that local presence requirements will trigger business relocations in response to the new requirements. Lord Grimstone, however, told us that “these moves do not mean that substantial economic activity is being located in another country. In some instances, it may involve setting up a subsidiary, a branch office, which may be very small.” Similarly, Amanda Tickel said, “We are not expecting a large relocation of services activity”, though she accepted that there might “be the need for an office or subsidiary in the EU as well”.
117.Relocation could also vary by sector. Neil Ross told us it was “a question for the more regulated sectors”, and that the tech sector had been “pleasantly surprised at the lack of movement of companies over to the continent”. The impact of local presence requirements may also vary by business size: the FSB told us that larger firms were more likely to “have EU-based foreign affiliates that will facilitate navigating local presence provisions”.
118.In our October 2020 report, we highlighted the concern that rules on the right of establishment may affect certain corporate forms, and strongly encouraged the Government to seek an agreement to remove such limitations. However, as Professor John Bryson told us, UK service firms will not be able to establish limited liability partnerships in certain Member States, including France, as this corporate form is not recognised there. This could have a particular impact on legal firms.
119.Amanda Tickel told us that business relocation could take place in the other direction—that is, EU businesses establishing in the UK:
“There are EU businesses that will need to think about whether they can continue providing services in the UK market, which is the fifth biggest GDP in the world … it could well happen both ways. I am not sure that we can predict yet whether this is a loss to the UK or not.”
120.Lord Grimstone also said that “the other side of the coin is that we want to encourage as many businesses as possible to set up in the UK”.
121.While large relocations of economic activity in professional and business services from the UK to the EU are not expected in the short term, some organisations may need to establish a branch or subsidiary in the EU to comply with national reservations on local presence. The Government should continue to do as much as possible to persuade and incentivise UK service providers to maintain their economic activity in the UK, while also encouraging EU service providers to establish here.
122.Some professional and business service providers require recognition of their qualifications to be able to work in, or export their services to, another country. Within the EU, the recognition of professional qualifications is facilitated by the Mutual Recognition of Professional Qualifications (MRPQ) Directive.
123.As we heard in our October 2020 inquiry, the UK’s negotiating mandate proposed an ambitious and wide-ranging framework of mutual recognition, under which UK and EU professional qualifications would be recognised by default. We strongly supported the UK’s proposed approach, but it was rejected by the EU.
124.The TCA instead includes a framework allowing regulators and professional bodies to negotiate recommendations for Mutual Recognition Agreements (MRAs) on a profession-by-profession basis, which must then be submitted to the Partnership Council for approval. In the interim, the default position is that qualifications are not recognised, apart from those already recognised under Article 27 of the Withdrawal Agreement (which covers UK citizens already living in the EU and EU citizens living in the UK).
125.Witnesses were concerned by the lack of a default mutual recognition of professional qualifications. The Professional and Business Services Council (PBSC), an industry-led partnership between the professional and business sector and BEIS, warned of “a material risk that the lack of mutual recognition for some professions does start to impact the ability of firms to provide their services in the way in which they did previously”. The Institute of Chartered Accountants of England and Wales (ICAEW) described the provisions as “a significant step back from the EU-wide recognition procedures and the legal certainty underpinning them which were previously enjoyed by holders of UK qualifications in the Single Market”.
126.Some sectors have taken steps to mitigate the immediate impact of the loss of mutual recognition. As RIBA told us, the Architects Registration Board, the relevant UK professional body for architects, has unilaterally recognised EU/EEA qualifications that are covered under the MRPQ Directive; it has also concluded a bilateral agreement with the Royal Institute of Architects of Ireland for continued mutual recognition of qualifications.
127.We hope that the mutual recognition provisions could be improved through future negotiation. A footnote to the relevant Article in the TCA states, “this Article shall not be construed to prevent the negotiation and conclusion of one or more agreements between the Parties on the recognition of professional qualifications.” As Amanda Tickel explained:
“The entire section on MRPQs could be superseded by a future agreement between the UK and the EU. So, in my view, this should always be on the future agenda, because full recognition would of course be so much better than this patchwork of bilateral agreements in the different sectors.”
128.Lord Grimstone told us that the failure to achieve full mutual recognition did not mean that sectoral MRAs were unlikely: “I do not think it was an antipathy [from the EU] to these qualifications being mutually recognised. It was that it felt that the route to recognition should be led on a profession-by-profession basis by the regulators.” BEIS also claimed that the TCA’s framework for recognition was an improvement on EU precedent: “We have streamlined the process by which professional bodies and authorities make recommendations for arrangements.”
129.There was uncertainty over the potential timelines for MRAs under the framework. Amanda Tickel said: “We just do not know the timescale … we urge those professional bodies to start those bilateral discussions as soon as possible.” Neil Ross added: “The big variable here is how quick the Partnership Council can be established, and how fast and how good the UK and the EU engagement on moving issues forward can be.”
130.Mickael Laurans was “quite pessimistic” on the timetable and thought that MRAs were “likely to take years”. He explained: “the Agreement replicates the EU-Canada CETA model, and even though that Agreement came into force three years ago, no single mutual recognition agreement has been approved.”
131.MRAs can be negotiated on either an EU-wide basis or bilaterally with Member States, depending on how a given profession is regulated. Each approach has its own advantages. On the one hand, Tim Courtney of BEIS said that MRAs would be easier in sectors with EU-wide “harmonised trading requirements”, such as architecture, and “more challenging” in sectors where the regulatory approach differs from Member State to Member State. ICAEW told us that EU-wide arrangements would give greater “legal certainty” and would better support the “market standing and portability” of UK qualifications. On the other hand, we heard that bilateral MRAs with Member States could be concluded more quickly than EU-wide arrangements in the short term. George Riddell said that some professions were prioritising bilateral agreements for this reason.
132.CIMA stressed that sector-wide MRAs should “take full account of the variation between specialisms in what are often very broad sectors … professions within the same sector may have differing outlooks and regulatory requirements that cannot easily be accommodated under a single framework.”
133.Although MRAs under the TCA’s framework are negotiated by regulators and professional bodies rather than the Government, BEIS told us that the Government was taking steps to support the regulators:
“BEIS has secured the services of the UK Centre for Professional Qualifications, which provides advice, guidance and signposting to individuals looking to provide services overseas … To promote the uptake of MRAs between UK and EU regulatory bodies, BEIS is establishing an MRA facilitation team to support regulatory bodies entering into MRAs and will provide guidance on the options available to facilitate mutual recognition.”
The PBSC welcomed the news that the Government would be supporting UK professional bodies and regulators in negotiating MRAs.
134.Lord Grimstone told us that while “we will give [the regulators] every help that we can”, there were limits to what the Government could do without “impinging on the autonomy of regulators to carry out these activities within their own responsibilities”.
135.The absence in the TCA of mutual recognition of professional qualifications is disappointing and could have an impact on many sectors. Instead, the TCA replicates the CETA model, where not a single mutual recognition agreement has been reached in over three years since its entry into force. The likely timelines for achieving recognition on a profession-by-profession basis are thus unclear.
136.UK regulators and professional bodies should negotiate and conclude EU-wide and bilateral mutual recognition agreements as soon as possible. The Government has said that it will support this process. We would welcome updates on how and when this support is being provided.
137.The TCA leaves open the possibility of a new agreement on mutual recognition of professional qualifications in the future. This would be a major improvement on a patchwork of sector-specific agreements, and we urge the Government to seek such an agreement with the EU in the medium term.
138.There are three outstanding equivalence decisions affecting professional and business services:
(a)Equivalence of frameworks under the Statutory Auditing Directive. This covers third-country auditing registration;
(b)Adequacy of competent authorities under the Statutory Auditing Directive, covering cross-border exchange of auditors’ working papers for regulatory purposes; and
(c)Reporting standards under the Accounting Directive.
139.Amanda Tickel told us that the decision on adequacy of competent authorities is “the one that as an industry we care about the most”. In contrast, the accounting decision “has less impact, because, at the moment, compliance with both [UK and EU] frameworks is relatively easy”, even in the absence of equivalence.
140.TheCityUK also highlighted the auditing adequacy decision as “critical to the capacity of regulators to transfer audit working papers between the UK and EU”, adding that without the two auditing decisions, “UK audit and accountancy firms will have to continue to navigate complex regulatory requirements across the EU in order to provide cross-border advice.”
141.Outside the Single Market, the UK is free to diverge from the EU rulebook, including with respect to services. The services chapter of the TCA reaffirms the rights of both Parties to “regulate within their territories to achieve legitimate policy objectives”. The Minister, Lord Grimstone, suggested that regulatory divergence would be assessed on a case-by-case basis: “There will be some instances where we feel that the United Kingdom’s interest best lies by some divergence from standards in the European Union … There will be other instances where we take the view that firm alignment is the best way.”
142.As for services sectors, George Riddell said, “If there was a good, considered reason for divergence, we would certainly consider it, but divergence for divergence’s sake at the moment, particularly given the wider economic challenges that we face, is perhaps not the best use of our time or effort.”
143.Neil Ross struck a slightly different note:
“[The] point about divergence for divergence’s sake is very important, but equally I do not think we should align for alignment’s sake … I do not think we should expect a big bang when it comes to industry calling for regulatory divergence. It is about looking much more strategically at what is good for the UK in its growth objectives and proceeding on that basis.”
144.Witnesses highlighted the potential opportunities of emerging sectors. George Riddell and Amanda Tickel both identified the green economy and fintech, while both Amanda Tickel and Neil Ross pointed to regulatory “sandboxes” as an innovation with potential.
145.Lord Grimstone highlighted that the Government was seeking to negotiate “strong services chapters” in new FTAs with other countries, with a view to seeking “compensating advantages” to offset against new barriers to services trade with the EU.
146.Witnesses also highlighted the inherent strengths of the UK services sectors. For the tech sector, Neil Ross argued that both Brexit and the growth of tech in other countries meant the UK was in “a much more competitive environment”, and should therefore “double down on the [UK’s] core strengths”, specifically “the language, the ease of setting up a business, our more proportionate and risk-based approach to regulation, and our university sector”. George Riddell added: “London, the City and the UK as a whole are extremely good at reinventing themselves … it is about making sure that we do not try to regain what has been lost but look forward to those new economic opportunities.”
147.The Government should not diverge from EU regulation for divergence’s sake, nor should it align for alignment’s sake. Instead, the Government should establish effective regulatory dialogue with the EU to ensure any divergence is managed successfully—for example, by establishing a new Working Group under the supervision of the Trade Specialised Committee on Services, Investment and Digital Trade.
148.Given the trade barriers under the TCA, new economic opportunities will need to be pursued to support the UK’s professional and business services sector, particularly in the tech and green sectors. The Government must ensure the UK’s regulatory environment helps these emerging sectors to thrive.
149.As well as the overarching Partnership Council, the TCA also establishes a Trade Partnership Committee and a series of Trade Specialised Committees, including a Trade Specialised Committee on Services, Investment and Digital Trade.
150.The Specialised Committees focus primarily on monitoring and reviewing the TCA’s implementation, and on providing the Partnership Council and the Trade Partnership Committee with specific technical expertise. In addition, the Trade Specialised Committee on Services, Investment and Digital Trade is to act as a forum for consultations on facilitating the movement of capital between the UK and the EU.
151.The timelines for establishing many of the TCA’s institutional structures remain unclear, as do the processes for business engagement. In a letter to the Chair of the EU Select Committee on 23 February, the Chancellor of the Duchy of Lancaster, the Rt Hon. Michael Gove MP, said, “we do not consider that the Partnership Council and other bodies established under Title III of the Agreement should begin their work formally during the period of provisional application”. On the same day, the Government accepted the EU’s request to extend provisional application of the TCA to 30 April, pending ratification by the European Parliament.
152.Industry witnesses called on the Government to accelerate the establishment of the TCA’s institutional structures. George Riddell urged the Government to “engage proactively on this agenda and as soon as possible in order to kick off those discussions”. Amanda Tickel said simply, “There is work to be done, and we cannot sit back and be relieved that there is a deal.”
153.Witnesses stressed the importance of Government engagement with business on the implementation of the TCA. The PBSC called for “appropriate consultation … as part of an ongoing dialogue” to address business and stakeholder concerns. George Riddell called for a commitment from Government to ensure that domestic advisory groups for business and civil society engagement with the TCA are “not just tick-box exercises but genuine, meaningful dialogue on how to take these issues forward and be incorporated in the discussions of the future services [trade specialised] committee”.
154.The TCA’s transparency provisions oblige the UK and EU to make services trade requirements publicly available. The PBSC said:
“Having this information published in a clear, concise and usable manner is crucial in order for services providers to be able to utilise the agreement. The UK and EU should clearly communicate where they will be putting this information online and disseminate it through the appropriate channels.”
George Riddell agreed that information should “not [be] hidden away somewhere on the government website but front and centre and usable to businesses”.
155.Lord Grimstone told us that the Government wanted “maximum participation from UK businesses across a wide range of sectors”. Tim Courtney added, “I am very confident that engagement with businesses will be critical in trying to make sure that those committees and governance structures have the information they need to really understand whether this is working or not.”
156.We regret the Government’s decision to defer establishing the Partnership Council and other bodies and urge them to review this position. The Partnership Council, the Trade Partnership Committee and the Trade Specialised Committee on Services, Investment and Digital Trade should be established as soon as possible and the Government should facilitate transparent business and civil society engagement with these bodies. The TCA should be treated, as much as possible, as a live agreement as meaningful dialogue and collaboration will help businesses to see the TCA as a long-term relationship.
157.The transparency provisions of the TCA should be put into effect as soon as possible, and the UK and EU should ensure that published information is displayed prominently online and is easy for businesses to use.
98 Department for Business, Energy and Industrial Strategy, Professional & Business Services sector: creating further demand and growth outside London, February 2020: [accessed 24 February 2021]
99 Written evidence from BEIS ()
100 (Lord Grimstone of Boscobel); see also supplementary written evidence from Lord Grimstone of Boscobel ()
101 Office for National Statistics, UK trade in services by partner country: July to September 2019, 22 January 2020: [accessed 24 February 2021]
102 Supplementary written evidence from Lord Grimstone of Boscobel ()
104 World Trade Organization, ‘The General Agreement on Trade in Services (GATS): objectives, coverage and disciplines’: [accessed 3 March 2021]
105 Written evidence from BEIS ()
108 Written evidence form ABTA ()
110 Written evidence from Professor Sarah Hall and Martin Heneghan, University of Nottingham ()
111 Written evidence from CIMA ()
112 Written evidence from the Scottish Government ()
114 Written evidence from the UK-EU Cross Border Services Working Group ()
117 Written evidence from BEIS (); see also
120 Written evidence from BEIS ()
122 Written evidence from Professor John R Bryson, Birmingham Business School, University of Birmingham ()
123 Written evidence from the Law Society of Scotland ()
125 (Amanda Tickel)
126 Written evidence from TheCityUK ()
127 Supplementary written evidence from Lord Grimstone of Boscobel ()
130 Written evidence from the Federation of Small Businesses ()
131 Written evidence from RIBA ()
132 Supplementary written evidence from Lord Grimstone of Boscobel ()
133 ; see also Prime Minister’s Office, Summary of the UK-EU Trade and Cooperation Agreement: [accessed 24 February 2021]
134 Written evidence from the Law Society of Scotland ()
135 Written evidence from the Bar Council ()
139 Written evidence from the Law Society of England and Wales ()
140 European Union Committee, Beyond Brexit: policing, law enforcement and security (25th Report, Session 2019–21, HL Paper 250). See also European Union Committee, (17th Report, Session 2016–17, HL Paper 134)
141 Written evidence from BEIS ()
142 European Union Committee, (13th Report, Session 2019–21, HL Paper 143)
143 These activities are specified in the
144 This limit does not apply to Ireland, as the Common Travel Area allows for continued free movement between the UK, Ireland and the Isle of Man. In addition, journeys to the 4 remaining EU Member States which are not in the Schengen Area (Bulgaria, Croatia, Cyprus and Romania) do not count towards the 90-day limit in the remaining 22 Member States, and vice versa.
145 European Union Committee, (13th Report, Session 2019–21, HL Paper 143)
147 There are 11 categories of permitted activities for short-term business visitors under the TCA (including meetings, research and commercial transactions). Short-term business visitors are not permitted to carry out unlisted activities, and are also explicitly prohibited from making direct sales to the general public.
148 Written evidence from ABTA (); Federation of Small Businesses ()
150 Written evidence from the Federation of Small Businesses ()
151 Written evidence from REC (); Institute of Practitioners in Advertising ()
152 Written evidence from ABTA ()
153 Written evidence from SBiT ()
154 Written evidence from BEIS ()
155 HM Government, ‘Visit Europe from 1 January 2021’: [accessed 24 February 2021]
157 Written evidence from TheCityUK ()
158 Written evidence from UK Finance ()
161 Written evidence from the Advertising Association (); Professor Sarah Hall and Martin Heneghan, University of Nottingham (); ACE ()
162 Written evidence from AIIC ()
164 European Union Committee, (13th Report, Session 2019–21, HL Paper 143), para 41
165 Written evidence from BEIS ()
166 European Union Committee, (13th Report, Session 2019–21, HL Paper 143), para 64
170 Written evidence from the Federation of Small Businesses ()
171 European Union Committee, (13th Report, Session 2019–21, HL Paper 143)
172 Written evidence from Professor John R Bryson, Birmingham Business School, University of Birmingham ()
175 Directive 2005/36/EC of the European Parliament and of the Council of 7 September 2005 on the recognition of professional qualifications,
176 European Union Committee, (13th Report, Session 2019–21, HL Paper 143)
177 Written evidence from CIMA ()
178 HM Government, Agreement on the withdrawal of the United Kingdom of Great Britain and Northern Ireland from the European Union and the European Atomic Energy Community, 19 October 2019: [accessed 3 March 2021]
179 Written evidence from the PBSC (). This written evidence represents the views of the business side of the PBSC only.
180 Written evidence from ICAEW ()
181 Written evidence from RIBA ()
185 Written evidence from BEIS ()
188 . See also European Union Committee, (13th Report, Session 2019–21, HL Paper 143), para 136
190 Written evidence from ICAEW ()
192 Written evidence from CIMA ()
193 Written evidence from BEIS ()
196 European Commission, Equivalence Decisions taken by the European Commission as of 10/02/2021: [accessed 24 February 2021]
199 Written evidence from TheCityUK ()
204 . A regulatory ‘sandbox’ is a framework for allowing regulatory innovation in emerging sectors, within a controlled environment. Within the sandbox, certain regulatory requirements do not apply to authorised firms.
209 Letter from Rt Hon. Michael Gove MP, Chancellor of the Duchy of Lancaster, to the Earl of Kinnoull, Chair, House of Lords European Union Committee, 23 February 2021:
210 Letter from Rt Hon. Michael Gove MP, Chancellor of the Duchy of Lancaster, to the Vice President, European Commission, 23 February 2021:
213 Written evidence from the PBSC ()
216 Written evidence from the PBSC ()