Brexit: Trade in Non-financial Services (EUC Report)

Baroness Randerson Excerpts

Monday 18th December 2017 Lords Chamber

[Baroness Randerson (LD)]

My Lords, I start by thanking the noble Lord, Lord Whitty, for his leadership on this committee and by making the point that it is certainly not his fault that I end every Thursday morning feeling depressed and dejected. That is due to the nature of the evidence we get, week after week after week, from those who are practitioners in the different sectors of our economy.

The EU committees have together done what the Government have apparently failed to do, which is to assemble a vast body of evidence on the impact of Brexit. If you look at all the committee reports so far, they make pretty grim reading on the complexity and impact of Brexit on business. The overwhelming view of those who came to speak to us was that they want things to continue as close as possible to what we have already. That, of course, fatally undermines the Tory Brexit vision.

This report has been completed and written for so long that it is now a historical document. All we can do is note the lack of a government response to it so far and conclude, I fear, that that is because the Government have no answers to the difficult questions we asked. I look to the Minister to fill that gap this evening.

We have heard an awful lot about the might of the City of London and the financial impact Brexit will have on it, and rightly so because financial services are very important and a huge driver of our economy. However, in total, the volume of non-financial services trade is almost three times the size of the financial services trade. What worries me above all is that most of the options being pursued by the Government—from a clean-break WTO-terms departure to the bespoke model so beloved by our Prime Minister—is that they leave our service industries high and dry.

Only today, the Institute for Government produced a challenging report in which it emphasises the complexity of departure, especially in relation to the service industries. It makes the point that, even with a transition phase, it will be very difficult indeed to fit the timescale. Our evidence virtually unanimously called for the UK to stay in the single market, but as the Institute for Government says, with the acceptance of the single market comes obligations—for example, oversight by EU institutions, which would be a considerable problem for the Government.

The issue that makes the services sector particularly vulnerable if we do not achieve single market status is not so much the tariffs but the problem of non-tariff barriers, such as needing 27 different licences instead of one or the complexity of which country your qualifications will be accepted in and so on.

It is important to remember that the EU is the most integrated services regime in the world. We have a trading surplus with the EU in high-growth service industries. The service sector includes the fastest-growing sectors of our economy, and we sell 40% of our services to the EU. The problem that the service sector poses for militant Brexiteers is the free movement of people that inevitably and intrinsically goes along with so many service industries.

I want to take a number of the service industries and look at their impact. Tourism is one service sector where we have a deficit in trade, which will probably continue because we are not going to stop wanting to go to warmer places abroad. But that does not mean that tourism in Britain is unimportant. Quite the opposite is true. It is of great benefit in some of the more distant parts of the country. But the significance of our tourism sector is that it is a source of much of our soft power in the world. That is probably a diminishing asset, but we need to cherish the soft power that we have left.

I will take that link and look at other sectors within services and examine the soft power that they yield. My noble friend Lord German has already referred to the cultural influence of the music industry, which is a huge source of soft power. In broadcasting, without appropriate agreements to maintain access to the single market, UK broadcasters would be unable to broadcast services to the EU and that would affect almost 60% of Ofcom-licensed broadcasters.

Digital services are a real cutting-edge technology. To emphasise our leadership in this: the UK has 0.9% of the global population; we produce 3.9% of global GDP; but 11.5% of global, cross-border data flows come from Britain and 75% of UK cross-border data flows are with the EU. That includes a whole range of different sectors. Witnesses told us:

“In this digital age data flows cannot be separated from trade flows”.


The key point is that it does not really matter where companies are based; what matters are the skills available and the right regulatory regime. They will leave the UK if we no longer have the set-up that they need. They need free movement of skilled labour, and they also need to be able to rely on EU talent to offset our own skills shortage.

Soft power is also reflected in the importance of education services, with nearly 125,000 EU students enrolled in UK universities. That is 8% of total university income coming from the fees of EU students. Contrary to what has been said, this is not a sector of people who are stuck in their ways, nor is it a sector of people who assume that things should continue as they are. Our witnesses represented a sector that is disruptive and embracing change. It is at the cutting edge of all of the newest technologies. These people are the brightest and best in this country, and they say that we should stay in the single market.