Future UK-EU Relationship on Professional and Business Services (EU Committee Report)

Lord Russell of Liverpool Excerpts

Thursday 22nd July 2021 Lords Chamber

[Baroness Donaghy (Lab)]

My Lords, our report was published in October last year and I thank the House authorities for timetabling this debate nine months later—I am aware that some reports have not been so fortunate. In that nine-month period, we have had the trade and co-operation agreement and nearly seven months’ experience of it, together with the Covid pandemic, which has affected all aspects of trade and mobility.

Since the publication of the report, the sub-committee covered in more detail the impact on financial services, the creative industries and research and development. This work was published in March this year as Beyond Brexit: Trade in Services. I thank the members of the sub-committee and its staff, particularly Dee Goddard, for all their hard work producing the report. We did not share the same views about Brexit, but the views expressed in the report are unanimous. I am also grateful to all the witnesses who contributed to our inquiry, and to the Minister, the noble Lord, Lord Grimstone of Boscobel, for his frankness about possible outcomes—it was much appreciated by the committee.

We had no expectation that professional and business services would form a major part of any agreement between the EU and the UK, and the trade and co-operation agreement of 24 December last year confirmed that expectation, covering mainly goods and a promise of future co-operation—but we nevertheless welcomed the TCA, because the consequences of no deal would have been serious for professional and business services. It is a broad sector and includes legal services, market research, accountancy, audit, architecture, engineering, public relations and management consulting.

I emphasise the interconnectedness of those industries with each other and with the creative industries and financial services. It is also important to remember that they are mainly medium and small enterprises, spread throughout the UK. It is not just a London issue—although it is a London issue. The sub-committee was concerned to ensure that London remained a world centre of excellence in those industries.

One witness said about financial services: “The ecosystem for financial services is not just banks and investment houses. It’s also lawyers, accountants and related professionals.” Another said: “We are soft power exporters as well as actual exporters, but primarily we are a sector made up of very small businesses—more than 600,000 in the UK—and the average number of employees is fewer than four.”

They are vital to the UK economy, and the BEIS figures for 2019 indicate that the sector was worth an estimated £224.8 billion to the UK economy in terms of gross value added. They also provide 4.6 million jobs. This is a UK success story, and all those industries contribute to the wealth and richness of experience that we enjoy, whether it is in creative industries, a legal system that is respected throughout the world or recruitment and management consultancy.

The sub-committee was concerned that any deal needed to prevent the creation of barriers to trade that would have a detrimental effect, specifically on the issues of national reservations, mutual recognition of professional qualifications, business mobility, including comprehensive protection for travel, intellectual property rights and data adequacy. On national reservations, companies face a patchwork of complicated rules that vary by sector and member state. The committee subsequently called for guidance for business on navigating those reservations, but, as of today, this guidance has not been published. On business mobility, this will be a major change for service providers. Although the impact of the Covid pandemic has delayed the outcome, I think it will be felt once international business resumes. As of this month, the Government have published country- specific guidance on business mobility for 21 of the 26 member states.

On mutual recognition of qualifications, all our witnesses gave high priority to its importance once we had left the EU. The UK Government had an ambitious proposal, which the sub-committee welcomed, but we ended up with something much less. The TCA leaves open the possibility of a new agreement on mutual recognition of professional qualifications in future. My guess is that we will probably never know what happened in the negotiations on mutual recognition or on mobility of labour, but, post the TCA, the sub-committee urged the Government to seek such an agreement in the medium term. This is a personal view, but the professional qualifications legislation currently going through Parliament is a long way short of any medium-term deal.

On intellectual property, subsequent to this report the TCA embedded a mutual commitment to high standards of intellectual property protection, which is welcome. The sub-committee expressed the hope of regulatory dialogue with the EU to manage divergence. On data adequacy, the good news is that the EU confirmed its data adequacy decision on 28 June. One hopes that this will stick if the UK decides to make substantial changes to the GDPR.

As I said in a subsequent report, the service sector is at the heart of the UK economy, so it is essential that the Government and the EU make improvements to smooth UK-EU services trade. The sub-committee accepted that there might be divergence but urged the Government to be constructive and to set up joint consultative arrangements to maximise co-operation and avoid misunderstandings. I have to say that there is little evidence of this happening. The noble Lord, Lord Frost, said only yesterday that he regretted that the relationship was punctuated with challenges characterised by disagreement and mistrust. Passporting arrangements in financial services have stalled and there is little evidence of help for the creative industries in temporary movement of goods and people.

Parliamentary scrutiny is more important than ever on the impact of the TCA and the regulatory changes taking place, particularly in the financial sector, where financial regulations will be given the role that primary legislation has performed in the past. So it is with great relief that we finally have the European Affairs Committee to keep these issues under review and hold the Government to account. I wish the noble Earl, Lord Kinnoull, and his committee all the best in this endeavour.

[The Deputy Speaker (Lord Russell of Liverpool) (CB)]

My Lords, four speakers have withdrawn from this debate: the noble Lord, Lord Berkeley, the noble Earl, Lord Kinnoull, and the noble Baronesses, Lady Altmann and Lady Bennett of Manor Castle. I call the noble and learned Lord, Lord Hope of Craighead.