UK’s £225bn professional services industry risks ‘catastrophic’ hit from Brexit
Britain’s £225bn professional services industry has been ignored by the government and is under “catastrophic” threat of losing business to the EU post-Brexit, a parliamentary committee has warned.
A House of Lords’ EU services subcommittee report published yesterday said the UK’s accountants, lawyers, recruiters, architects and advertisers are under risk of losing contracts and jobs when Britain formally leaves the bloc in January.
The report accused the government of ignoring the “hugely important sector” — which makes up around 13 per cent of the UK workforce — in trade negotiations with the EU.
Committee chair Baroness Donaghy said: “This sector, and the people who depend on it for their livelihoods, will suffer if its needs are not reflected in the UK’s negotiations with the EU.
“We are concerned that they have been overlooked in the negotiations so far.”
Jack of all trade deals
The professional services sector is the UK’s leading services export, contributing around three times more than cars — Britain’s leading goods export.
Meanwhile, the EU is the largest market for UK professional services, making up 37 per cent of UK exports from the sector.
The Lords committee warned that even a “Canada-style” trade deal with the EU, in which the UK would avoid tariffs and quotas, would not be enough to prevent huge restrictions on professional services exports to the continent at the end of the Brexit transition period.
Under Canada’s current trade agreement with the EU — known as Ceta — European countries are permitted to apply “national reservations” to shield their firms from foreign competition.
Reservations can include demands that companies prove local talent is not available, that foreign professionals become residents in certain countries, and that firms adopt domestic corporate structures.
Simon Davis, president of the Law Society and partner at Clifford Chance, said: “All Ceta does is say that it would be a good thing to have some kind of mutual recognition… but nothing has happened.”
The committee added that Ceta-style reservations “could be catastrophic for the UK’s professional and business services sectors”.
“Without a UK-EU agreement, UK lawyers may become unable to operate in the EU under UK-specific corporate structures, in particular limited liability partnerships,” the report said.
Deal or no deal
Time is running out for the UK to secure a trade deal with the EU, with Prime Minister Boris Johnson warning that any agreement must be struck before an EU summit in Brussels tomorrow.
If the UK does not strike a deal by then, it is highly likely Britain will leave the EU without a deal at the end of the Brexit transition period on 1 January.
Peers warned today that a no-deal Brexit would be hugely damaging for the UK’s professional services industry and Britain’s reputation at large.
“If the UK leaves without a deal, we are concerned that there may be a global perception of the UK not having sufficient co-operation with the EU, and therefore a perception that the UK is no longer a landing pad for brands to come to the UK first,” the report said.
However, it added that professional services “is one area where a bad deal could be worse than no deal”, if mutual recognition of professional qualifications is not granted in any trade agreement with the EU.
The same concerns apply to the UK’s financial services and creative industries, the committee warned, “both of which face some of the same vulnerability and threats raised in this report”.
John Gould, senior partner at law firm Russell-Cooke, told City A.M: “Apart from a lack of focus and resource, the government’s difficulty is that it doesn’t seem to know what it wants.
“Is it more interested in facilitating the movement of UK professionals abroad or regulating the inward flow? If you don’t know where to go, you tend to stand still.”
Beyzade Beyzade, head of corporate and employment law at Chancery Lane Law, told Morning Wire failure to achieve a tailored trade deal for professional services would wipe out the UK’s legal credibility.
“I’m currently working on a case involving multiple law firms, KPMG, various other accountants and university professors all across the EU — that kind of cooperation is just not going to be possible if you don’t have the same legal systems, the same judgements, the same qualifications after Brexit,” he said.
“I’m not sure that I would agree that the government has ignored the professional services industry — there was reference to it in the political declaration. But I’m also not sure how realistic it is to expect a piecemeal negotiation for professional services.
“It’s all getting very close — and now we have a pandemic on the cards.”
Best before data
Securing a data-sharing deal with the EU is integral to current trade agreement negotiations, with many businesses relying on the free flow of data between the UK and EU.
The Prime Minister has previously said that a data adequacy agreement, in which the UK’s data regulations are deemed sufficiently similar to the EU’s and therefore allowed to continue as usual, is “self-evidently in the [UK’s] interests”.
However, the Lords committee yesterday said it is “alarmed about the lack of an EU decision on a data adequacy” agreement so far.
“We are concerned that there is a possibility that the commission may not grant the UK a data adequacy decision,” it added.
It comes after a ruling last week by the EU’s top court dealt a major blow to the UK’s chances of securing a post-Brexit data-sharing agreement with the EU.
The European Court of Justice (ECJ) ruled that unrestrained mass surveillance of phone and internet data is illegal under EU law unless there is a “serious threat to national security”.
The Prime Minister in February said the UK was planning to set up sovereign controls over its data sharing policies, and that Britain could diverge from EU rules once it leaves the bloc.
However, the PM has said he is “confident” the UK will secure an adequacy agreement with the bloc by the end of the transition period.