Beyond Brexit: trade in services Contents

Summary of conclusions and recommendations

Financial services

1.Financial services are an important part of the UK economy. The sector contributes £132 billion to the UK, amounting to 6.9% of total economic output, and contributed more than 10% of UK tax receipts in 2019/20. While the absence of substantive financial services provisions in the TCA was disappointing, it was not a surprise, and the sector was well prepared for 1 January. But delays to key decisions about the future relationship, particularly on equivalence, mean that financial services remain in a period of uncertainty. (Paragraph 27)

2.The results of the UK’s exit from the passporting regime have included the movement of some activity to the EU and firms facing the challenges involved in navigating different market access requirements in each Member State. We are concerned that it may, over time, lead to a substantial shift of people and assets out of the UK. (Paragraph 28)

3.We welcome the plan for structured regulatory cooperation in financial services, which we hope will be a solid foundation for future UK-EU relations. However, this dialogue will be worth little if it is not based on transparency and trust. We urge the Government and regulators to pursue as deep a level of cooperation, predictability and information sharing as possible. The Government should consult regularly to ensure it is representing the UK financial services sector’s interests and priorities in the dialogue. (Paragraph 35)

4.The UK financial services sector opposes the EU’s line-by-line approach to equivalence and supports the Government’s outcomes-based approach. We agree that broad positive equivalence determinations would best meet the needs of practitioners in both the UK and the EU, but recognise that in many areas the EU is unlikely to grant these without the UK sacrificing more decision-making autonomy than equivalence is worth. (Paragraph 52)

5.We regret that the extension of equivalence for UK central counterparties (CCPs), which continue to provide an important service for EU practitioners, is time-limited. A longer-term equivalence decision for UK CCPs would better serve the interests of both Parties. (Paragraph 53)

6.While recognising that this remains a unilateral decision, we believe the long-term interest of both the UK and the EU lies in a less prescriptive policy on market access, whether a reformed approach to equivalence or something closer to the non-discriminatory, outcomes-based deference model increasingly favoured globally. (Paragraph 54)

7.We welcome the Government’s assurance that there will be no bonfire of financial services regulations. We recognise that the UK and the EU will seek to change their regulatory regimes where it is in either Party’s interest, but call on the Government not to disregard the value of a close UK-EU relationship in financial services. Changes should be transparent and designed to enhance the attractiveness and competitiveness of the UK’s financial services sector. (Paragraph 59)

8.The Financial Services Bill currently before Parliament pre-empts the Government’s proposals for the future regulatory landscape and will come into law before these plans are published. This is a missed opportunity. The return of greater powers to UK regulators allows for more flexible and innovative regulation but will require changes to the way Parliament scrutinises the regulations and holds the regulators to account. (Paragraph 63)

9.The Government and regulators now hold significant power in setting financial services regulation. We welcome the House’s recent decision to establish a Select Committee on Industry and Regulators, which is an important step towards bringing greater parliamentary oversight to these decisions. However, this new Committee’s remit is broad and its resources are likely to be too limited to undertake dedicated scrutiny of the financial services sector. We recommend that the Liaison Committee considers further the merits of a committee dedicated to scrutiny of the financial services sector. (Paragraph 64)

10.The Government should use the UK’s innovative leadership to maintain high standards in financial services regulation on the global stage. (Paragraph 67)

Professional and business services

11.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. (Paragraph 78)

12.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. (Paragraph 95)

13.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. (Paragraph 96)

14.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. (Paragraph 111)

15.We welcome the Government’s proposed country-by-country guidance on business travel to the EU and urge the Government to ensure this is timely, detailed and easy for business to use. (Paragraph 112)

16.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. (Paragraph 121)

17.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. (Paragraph 135)

18.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. (Paragraph 136)

19.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. (Paragraph 137)

20.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. (Paragraph 147)

21.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. (Paragraph 148)

22.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. (Paragraph 156)

23.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. (Paragraph 157)

Data and digital trade

24.EU data adequacy is of vital importance for a wide range of service providers, and we warmly welcome the Commission’s recent draft decision, which, if confirmed, will allow EU-UK transfers of personal data to continue. (Paragraph 172)

25.We note, however, that a positive adequacy decision is not guaranteed to be permanent, given the requirement for renewal after four years and the precedent set by recent legal challenges, including the Schrems II case in 2020. The Government should therefore maintain close dialogue with the EU on data to support the long-term stability of EU-UK data flows, and ensure that the implications for EU data adequacy are factored into any changes to the UK’s domestic data protection regime. (Paragraph 173)

26.We welcome the TCA’s digital trade chapter, which is one of the strongest areas of the deal for services and provides extensive liberalisation which goes beyond comparable EU FTAs. (Paragraph 181)

27.Digital trade is a fast-moving area, and the provisions will need to be updated as new technologies develop. The Government should make use of the TCA’s framework for further dialogue, as well as the review clause, to ensure the digital trade provisions remain up to date. (Paragraph 182)

Creative industries

28.The UK’s creative industries sector was worth over £100 billion in 2019 and grew at twice the rate of the rest of the economy. The benefits of a thriving creative sector go far beyond its significant financial contribution and include a sense of pride, community and joy, as well as promoting UK values and ‘soft power’ abroad. (Paragraph 189)

29.This sector has been hit hard by the COVID-19 pandemic, and its recovery will depend in part on getting the relationship with the EU right. Exports to the EU in the creative sector are worth over £15 billion and the relationship with the EU is important for promoting creative collaboration and innovation. (Paragraph 190)

30.The mobility provisions in the TCA make it difficult for those working in the UK creative industries to tour in the EU. The COVID-19 pandemic means these problems are hidden for now, but these mobility restrictions put the sector’s recovery at risk. (Paragraph 212)

31.We urge the Government to negotiate, as a matter of urgency, a bilateral and reciprocal agreement to make mobility arrangements for touring performers, creative teams and crews. (Paragraph 213)

32.The Government should also seek to negotiate an agreement to resolve the barriers to the movement of goods used in cultural and sporting events that are imported on a temporary basis. These arrangements will be mutually beneficial to creative industries in both the UK and EU. (Paragraph 214)

33.Now that the UK has left the EU’s Creative Europe programme, the Government should ensure that funding continues to be allocated to the creative industries. This funding should continue to support international collaboration. (Paragraph 219)

34.We welcome the embedding in the TCA of a mutual commitment to high standards of intellectual property protection, which is essential to a flourishing services sector. (Paragraph 230)

35.Keeping up with new technologies may lead to future divergence between the UK and EU intellectual property legislative frameworks. As in many other areas, managing this divergence will require an open and productive regulatory dialogue, both to provide assurance to businesses and to ensure that high standards of protection are maintained. (Paragraph 231)

Research and education

36.The future relationship with the EU will be critical to the continuing success of the UK’s research and education sector. We welcome the Government’s decision to associate with the Horizon Europe programme, which was the strong preference of witnesses to our inquiry. (Paragraph 251)

37.Both sides should seek to ensure that final negotiations on the Horizon Europe settlement are concluded as soon as possible, to enable UK researchers to take part in the first calls for funding applications. (Paragraph 252)

38.As an associate member of the programme, the UK will not have a vote on decisions about the direction of the Horizon Europe programme and how it is run. The Government should work constructively with European partners to ensure that the UK’s views are heard. (Paragraph 253)

39.The Government should provide clarity on how UK contributions to Horizon Europe will affect the domestic research funding commitments set out in the Research and Development Roadmap, published in July 2020. In particular, the Government should make innovation funding available for SMEs. (Paragraph 254)

40.We are deeply concerned about the Government’s decision not to join the Erasmus+ programme as an associate member. This decision will limit the opportunities for UK students in the immediate short term and could harm the prospects for UK universities in the future. (Paragraph 274)

41.We welcome the proposed Turing scheme, which will provide funding for UK students to undertake study placements abroad. We do not, though, see this scheme as a replacement for the Erasmus+ programme, as it does not provide for inbound mobility and student exchanges. (Paragraph 275)

42.Ambiguities about the Turing scheme leave uncertainty for students and universities who may miss out on these opportunities this year. There are significant gaps in current proposals, as the scheme will not cover tuition fees or travel costs for all but the most disadvantaged students. There are also concerns about the practicalities of administering the scheme. We are concerned that the £100 million budget allocation for the scheme will not cover the increased costs associated with global placements. (Paragraph 276)

43.The Government should undertake a review of the Turing scheme after its first academic year of operation to assess the effectiveness of the scheme, whether the programme achieves its objectives, and whether it provides good value for money. (Paragraph 277)

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