Future UK-EU Relationship on Professional and Business Services (EU Committee Report)
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The Parliamentary Under-Secretary of State, Department for Business, Energy and Industrial Strategy (Lord Callanan) (Con)
My Lords, I express my gratitude to the noble Baroness, Lady Donaghy, for securing this important debate, which I thought was characterised by some excellent contributions, from her and many other Members. I am also grateful to my ministerial colleague and noble friend Lord Grimstone, who has offered evidence to the EU Services Sub-Committee on several occasions over this past year, including on this report, and who continues to engage with the sector’s leaders as co-chair of the PBS and investment councils.
As a number of noble Lords have pointed out, professional business services are one of our largest and most successful sectors. My noble friend Lord Grimstone’s open letter to the sector in May this year highlighted that, from 2000 to 2019, growth in PBS outperformed that of the UK economy as a whole. The sector generated 12% of the UK’s total gross value added in 2020 and represents one in seven jobs across the country, with two-thirds of those jobs outside London and the south-east. Internationally, the sector has also excelled. Since 2000, exports of PBS have grown from £28 billion to roughly £111 billion in 2019. The UK is now second only to the US as the greatest exporter of professional business services in the world. This is something that the UK excels at and that we should be proud of. Our task now, of course, is not only to maintain but to develop the sector’s reputation for excellence.
The noble Baroness, Lady Donaghy, pointed out, and the Government recognise, the challenges that the UK’s new relationship with the EU and the Covid-19 pandemic present for the sector. Naturally, many noble Lords focused their contributions today on these challenges. I will address many of those comments and questions later, but I think that it is also worth reminding ourselves briefly of what the UK-EU free trade agreement and the Covid relief programme offer our businesses.
The agreement grants UK firms access to EU markets in a way that matches, and in some areas improves on, the EU’s best agreements to date with countries such as Japan and Canada. In practice, this means that most PBS businesses can continue to access EU markets and that they will not be subject to discriminatory barriers to trade while doing so, except where either side has expressly reserved the right to do so. The agreement means that business travellers can move easily between the EU and the UK for short-term visits —for example, by eliminating nationality requirements for some roles and guaranteeing how long temporary business visitors from the UK can stay in the EU. It is also future proof, which means that our businesses get the most liberal market access that either party grants to any future trading partner as well.
Notably, the agreement includes a number of important wins for the UK and PBS businesses. On legal services, we negotiated unprecedented provisions that will help ensure that UK law remains popular and competitive as the governing law of choice for commercial contracts worldwide. We also secured one of the most liberalising and modern digital trade chapters anywhere in the world. Among other things, it makes the cross-border flow of data easier by prohibiting requirements to store or process data in a specific location and thereby avoids costly requirements for British businesses.
Our exit from the EU represents an unparalleled opportunity for the UK to do things differently and better. Our priority is to help the sector adapt to these changes. To that end, we have been operating export helplines, running webinars with experts and offering businesses support via our network of 300 international trade advisers. We have also published extensive guidance on GOV.UK, including sector-specific landing pages to help individual sectors navigate the guidance available online, enhanced guidance on visa and work permit routes in EU member states and an interactive tool that can be used to find which reservations are most relevant to UK businesses selling services to customers in the EU. These are bespoke resources whose detailed guidance is unmatched by other trading partners worldwide.
The sector has overcome adversity in the past, but none has proved as great as the Covid-19 pandemic. At its worst point, economic activity in the sector as a whole fell by 20% in 2020. While the sector has suffered, 2021 has so far proven a positive year for PBS. As of May 2021, PBS output was just 3% below what it was pre Covid, in January 2020, tracking the strong recovery of the UK economy overall. With the help of the Government’s furlough scheme and plan for jobs, many businesses have adapted to new and innovative ways of delivering their services to support their clients through this adversity.
One of the ways we are ensuring the continued recovery and growth of the sector is through the PBS council and its working groups. The council has already made great progress this year by jointly publishing the Skills for Future Success report with the Financial Services Skills Commission. This report explores how to deliver recovery and growth right across the UK and complements the work of the socioeconomic diversity task force, which will provide much-needed evidence on what we can do to progress and retain talent across all backgrounds.
The council’s trade working group is exploring the possibilities that lie further afield—feeding the sector’s views into new potential FTAs as well as the global opportunities through COP 26 and an increased focus on environmental services. I completely agreed with my noble friend Lady Bottomley, as I so often do, that the PBS sector will be key to supporting a sustainable economic recovery and making the UK a world leader for green technology and finance, including in areas such as reporting of climate-related financial information and facilitating the use of the Government’s sovereign green gilt and green savings bonds. My department is working with DIT’s trade promotion unit and the four major new trade hubs across the UK to showcase the international expertise and excellence of our PBS sector, helping make businesses more sustainable and achieving our net-zero objectives in the process.
I will now turn to some of the specific points raised by noble Lords in the debate. My noble friends Lord Trenchard and Lady Neville-Rolfe raised the knotty issue of touring musicians, which I know has exercised a number of others in this House. Officials have now spoken to every member state about the importance of touring. DCMS Ministers have also raised touring with their counterparts in a number of member states, including Portugal and Austria. Through this engagement, we have established that the picture is better than previously thought, and that some touring activities may be possible in at least 18 member states without visas or work permits. This includes many of the most economically important countries, such as France, Germany, Austria, Belgium, the Netherlands and Italy. DCMS, via our embassies, is engaging with those member states that do not have any visa or permit-free touring, such as Spain, calling on them to more closely align their arrangements with the UK’s generous domestic regime. DCMS Ministers are personally involved in the engagement with these priority countries. I hope that reassures my noble friends.
The noble and learned Lord, Lord Thomas of Cwmgiedd, raised a number of points, including the important subject of financial services. Our new chapter for financial services is already under way. Building on his Statement to the House of Commons in November 2020, at the Mansion House in July the Chancellor introduced four key themes of the Government’s vision for financial services. These are to be: an open and global financial hub; the sector at the forefront of technology and innovation; a world leader in green finance; and a competitive marketplace promoting effective use of capital. The Chancellor was clear that the UK had an abiding interest in a prosperous and productive Europe. Leaving the EU means that we have a unique opportunity to take an approach that better suits our markets while maintaining our high regulatory standards. We are using our new freedoms to build on our historic strength as a global financial centre and to develop our relationships with jurisdictions all around the world, attracting investment and increased opportunities for cross-border trade.
A number of noble Lords raised the recognition of professional qualifications on which the PBS sector often relies to practise overseas. Mutual recognition agreements generally smooth this process. In the TCA negotiations, the Government worked hard to agree a framework for MRAs across all EU member states. This framework improves on the one which Canada negotiated with the EU by streamlining certain aspects of the application process. I hope that I can reassure the noble and learned Lord, Lord Hope of Craighead, and the noble Lord, Lord Davies of Brixton, that we have been working hard to provide a suite of support for regulators and for professional bodies wanting to agree these arrangements. We have established a new recognition arrangements team, published technical guidance and launched a pilot grant funding programme for the PBS sector, specifically to help regulators navigate this important area.
The noble Lord, Lord Liddle, raised the important issue of mobility. As a result of the TCA, business travellers do not require a work permit to carry out certain short-term business travel activities, such as attending meetings and conferences or providing after-sales services or translation and market research services. Some EU member states allow additional activities without the need for a visa or work permit. For those undertaking longer-term stays or stays involving work, or providing a service under contract, a visa and/or work permit may be required. I can tell the noble Baroness, Lady Donaghy and my noble friend Lady Neville-Rolfe that we have published guidance on visa and work permit routes in 27 out of 30 EU member states. We continue to engage regularly with our embassies in order to better understand the requirements in each country and to support UK nationals when they travel abroad. We have also secured a review clause on the list of permitted activities for short-term business visitors which will allow both parties to update their commitments further down the line.
At the moment, it is too early to say to what extent reservations will affect UK firms’ decisions on whether to operate from a particular place or how to structure their businesses. Reservations that apply to niche sectors are likely to have less of an impact—in particular, I was struck by the one on reindeer herdsmen in Lapland, should the noble Baroness, Lady Donaghy, wish an alternative career. Those which apply across the EU as a whole or which cover highly regulated professions, for example, lawyers, accountants and architects—which may be of a little more interest to the noble Baroness—are likely to mean that businesses must adapt. Many businesses which use the reservations tool that I mentioned earlier will likely only need to engage with a handful of member states—for example, Germany, France, the Netherlands, Ireland and Spain. These made up approximately 62% of our services trade with the EU in 2019.
I am pleased to reassure the noble Baroness that investment into the UK remains robust. Figures from the Department for International Trade show that during the 2020-21 financial year, new inward investment from the EU created over 21,000 new jobs in the UK.
As the noble and learned Lord, Lord Thomas of Cwmgiedd, rightly observed—as did the noble Baroness, Lady Hayter—data flows and the digital economy are crucial to supporting cross-border trade in services, not only with the EU but with all our trading partners. We have welcomed the EU’s recent adoption of adequacy decisions for the UK. Some estimates suggest that this has saved UK businesses as much as £1.6 billion on data transfer compliance costs—such as setting up standard contractual clauses—and it allows for the ongoing free flow of personal data from the EEA to the UK in the safe and secure way it has always been in the past.
Our most recent deals with Japan, Australia, the EEA/EFTA countries and the EU contain some of the most advanced digital trade provisions seen in any modern trade agreement and we are now looking to strike additional arrangements—both for data and digital —with other like-minded partners.
My noble friend Lord Trenchard raised the issue of the IPO. The UK’s IP regime achieves an effective balance between rewarding creators and innovation and reflecting wider public interests, such as ensuring access to and use of IP on reasonable terms. We will ensure that the terms of our accession to the CPTPP are consistent with the UK’s IP interests, including not doing anything that increases reactive costs for our IP service providers.
My noble friend Lady McIntosh of Pickering asked for information about support to small businesses. Innovate UK, the United Kingdom’s innovation agency, offers several support mechanisms that are available to SMEs and other businesses, such as: the innovation loans pilot programme; smart grants; the Small Business Research Initiative; and catapults, which are all there to provide support to small businesses in navigating this important area.
The noble and learned Lord, Lord Thomas of Cwmgiedd, and other noble Lords, talked about the Professional Qualifications Bill, which we will seek to progress as much as possible. It revokes the UK’s interim system for the recognition of professional qualifications which currently often gives preferential treatment to holders of EEA and Swiss qualifications, and it will help aspiring professionals to understand how to access the UK’s professions. The Government have reflected carefully on the points that were made during the Bill’s passage to date and will be continuing conversations and engagement with noble Lords and stakeholders over the summer to try to address their key concerns.
The noble Baroness, Lady Hayter, asked about the Lugano Convention. We continue to maintain that we meet the criteria for accession to the Lugano Convention, both because it is open to countries outside the EU and because all non-EU members already support the UK’s membership. Supporting UK accession is the sensible and pragmatic solution for all citizens. The Government are aware of the European Commission’s notification that it is not in a position to give its consent to UK accession to the Lugano Convention. However, we understand that member states have not yet been given an opportunity to vote formally on that position.
I am running out of time so I will move my remarks to closure. I assure noble Lords that helping PBS businesses both to adjust to our new relationship with the EU and to recover from the pandemic remain some of the Government’s highest priorities. We will continue to feed the sector’s views into future trade negotiations with other countries and develop the sector’s reputation for excellence both at home and abroad. Through trade promotion, we will support the sector to take advantage of opportunities in existing and emerging markets, maintaining and growing its global competitiveness.