Leaving the EU: Legal Services

Debate between Ellie Reeves and Jonathan Djanogly

Wednesday 21st November 2018 Westminster Hall

[Mr Djanogly]

My hon. Friend makes another very important point.

English law is the most widely used legal system in the world—27% of the world’s 320 legal jurisdictions use it. There are more than 200 foreign law firms with offices in the UK, from more than 40 jurisdictions. The UK legal services sector is forecast to produce turnover of £30.82 billion and net exports of £4.25 billion by 2025.

Brexit will be the largest ever change to the UK’s legal framework and it represents both opportunities and risks for the legal sector. The impact of Brexit on lawyers, law firms and legal practices will be significant. Negotiations around the UK’s withdrawal from the European Union and the transition period have been agreed, but questions remain, especially about the future relationship of the UK and the EU.

[Ellie Reeves (Lewisham West and Penge) (Lab)]

Legal services amount to the equivalent of 1.5% of GDP. Both the Bar Council and the Law Society have issued warnings that any form of Brexit will have a significant impact on the sector. Does the hon. Gentleman not agree that it would be better for the legal services sector if we remained in a single market?

[Mr Djanogly]

Yes, and the hon. Lady is going to hear me explain how the post-Brexit situation that I want to see is as close to that as possible.

[Mr Djanogly]

That is exactly what I shall be doing.

The legal sector has broadly welcomed the Government’s negotiating stance so far. However, concerns remain that withdrawal from the EU and our future relationship will not deliver in a number of key areas for legal services. There are concerns over whether the Government’s current approach will deliver sustainable market access for legal services and flexibility for services. Unlike financial services, there is no in-depth common rulebook or Europe-wide regulator in legal services. Instead, legal services remain regulated autonomously by each EU member state, while functioning on the principle that an EU law firm should be treated as equal to domestic lawyers and firms. There is therefore no great benefit for the legal sector in maintaining regulatory flexibility when pursuing trade agreements with third countries.

I would point out, from my time on the Select Committee on Exiting the European Union, that that is the view of most service industries. They have every intention of following EU rules whether they are mandated to or not, because that is what their business dictates. Certainly, from a legal services perspective, the preservation of the present system should be prioritised, so that lawyers from EU member states, European economic area states and Switzerland can practise freely across the continent.

The APPG inquiry focused on mutual market access and on how legal services will be able to operate following the UK’s withdrawal from the European Union. We accepted written evidence and held sessions in Parliament to hear oral evidence from interested parties, including law firms and chambers, individual practitioners and other stakeholders. We sought evidence on the impact of Brexit on legal practices, the workforce, business structures and client bases. We explored how lawyers currently practise across borders, looking at everything from rules on immigration and practice rights to the recognition of professional qualifications, and how that is anticipated to be affected by Brexit. We sought to understand where contingency planning was taking place and what steps firms were already taking to mitigate any effect of Brexit on the sector. We sought to understand the key concerns of the sector about the effect of Brexit, and we published the final report in October—if anyone wants a copy, I have some. It explored the concerns and comments raised in the oral and written evidence.

We made 10 recommendations. First, the Government should ensure that mutual market access is retained, as currently envisaged, in any transitional arrangements. Secondly, we urge the Government to seek to retain mutual market access as far as possible in any future relationship with the European Union. Thirdly, the Government should ensure that UK lawyers are able to continue to serve their clients post-Brexit on what is called a fly-in, fly-out basis. Fourthly, the Government should ensure that any future relationship with the EU includes a mechanism for UK lawyers to practise EU law via the mutual recognition of professional qualifications and law firm structures. Fifthly, the Government should seek to secure the rights of audience in EU courts, such as the Court of Justice of the European Union.

Sixthly, it is vital that, following Brexit, the Government provides for the ability of the legal sector to easily recruit skilled individuals from outside the UK. Seventhly, the Government should ensure that our immigration system does not block lawyers from continuing to provide services in the EU. Eighthly, the Government and the EU should agree on the draft withdrawal agreement as soon as possible to ensure a transition period that provides legal certainty—that one, hopefully, gets a tick. Ninthly, any transitional agreement should replicate the current legal framework as far as possible to ensure legal certainty and prevent businesses and individuals from having to adapt to changes in their rights and obligations twice—once during a transitional phase and once upon implementation of a new UK-EU agreement. Tenthly, a no-deal scenario should be avoided at all costs.

Let me address a few of those points, taking first the ability to practise, mutual recognition of professional qualifications and rights of audience. Of key concern to the legal sector was the ability to practise in Europe. The current framework, which allows for the mutual recognition of professional qualifications, rights of audience and the ability to practise and establish firms in EU member states, has hugely benefited the UK legal services sector, providing a large net contribution to the UK economy, as was mentioned by my hon. Friend the Member for Bromley and Chislehurst (Robert Neill). As far as possible, mutual market access should be retained.

[Ellie Reeves]

The withdrawal agreement does of course refer to mutual recognition, but only for the transition period. Does the hon. Gentleman agree that that creates further uncertainty for the legal profession, which, as has been pointed out, already contributes so much to our economy?

[Mr Djanogly]

I will be making the case that the hon. Lady has just put.

On labour mobility, the legal services sector has profited from the ability to attract talent from across the globe and the ability to work in the European Union. Frankly, many people going into the offices of a City law firm would be staggered by the number of nationalities and the depth of EU and world legal experience that we have in the UK. For instance, an American client would quite commonly run its European company acquisition strategy from London—because we speak English, yes, but also because they trust our jurisdiction and courts, and because we have European expertise here in London. We do not want to lose that. It is very important that a labour mobility framework that guarantees those abilities post-Brexit is put in place.

The legal services sector requires legal certainty throughout the UK’s withdrawal from the European Union. Law firms and their clients are already, sadly, beginning to implement contingency plans and move business elsewhere. We now have a draft of a detailed transition agreement, and the sector believes, as I do, that that agreement must be confirmed as soon as possible to ensure the sector has the legal certainty that it requires.