Services sector ‘overlooked’ in Brexit trade talks

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“Four and a half million jobs depend on this sector” Baroness Donaghy. Photo: UK Government

The needs of the UK’s £225bn professional services sector are being overlooked in the UK-EU trade talks according a sub-committee of the House of Lords.

More than 4.6 million people – 13% of the workforce – are employed in professional and business services, which encompasses HR, recruitment, advertising, legal services, market research, accountancy, audit, architecture, engineering, PR and management consulting.

But an inquiry by the EU services sub-committee has found that the needs of this broad sector sector have been overlooked by the government during negotiations.

Committee chair Baroness Donaghy said professional business services are a vital part of the UK’s economy. “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.

“A free trade agreement on services is no silver bullet, but there are a number of areas that both sides need to get right to limit potential barriers to trade. It is essential that issues such as EU member state national reservations to the agreement, the mutual recognition of professional qualifications and business mobility are dealt with properly in a future UK-EU agreement. These barriers to trade must be prevented.

“Despite being so close to the end of the transition period, many businesses, especially SMEs, are not well prepared, not least because they are not sure what to prepare for.”

Professional and business services are valued at three times the value of the UK’s leading goods export – cars – and the EU is its largest market amounting to 37% of exports.

The committee said that individual member state’s reservations to the trade agreement, such as economic needs testing, which allows third-country service providers only if demand cannot be met domestically, as well as rules on UK companies having a local presence, could be “catastrophic”.

Neil Carberry, chief executive of the Recruitment and Employment Confederation, said: “Reducing unnecessary trade barriers is essential. This includes minimising restrictions to accessing markets. Any barriers will make doing business in other countries expensive and more risky.”

On global mobility he added: “Ensuring UK professionals can still easily travel within the EU and conduct business is crucial.”

The committee has urged the government to ensure that temporary business mobility is covered by an agreement with the EU, and that arrangements on the duration and nature of permitted business travel are comprehensive.

Legal sector in focus

In the absence of a comprehensive trade deal, UK legal professionals and law firms would stand exposed to a range of establishment and investment barriers across the EU and EEA. The Professional and Business Services Council and financial services body TheCityUK told the committee that member state lawyers are prohibited from partnering with third country lawyers in France, Spain and Sweden.

Sarah Hall, professor of economic geography at the University of Nottingham, told the committee that under Danish law, 90% of shares in a law firm “must be owned by lawyers with a Danish licence, lawyers qualified in a member state of the EU and registered in Denmark, or law firms registered in Denmark”

Without a UK-EU agreement, British lawyers may become unable to operate in the EU under UK-specific corporate structures, in particular limited liability partnerships (LLP).

One of the countries where LLPs could no longer be recognised is Austria. Edward Braham, senior partner at Freshfields Bruckhaus Deringer, noted that his firm’s “Austrian lawyers [would] not be able to operate under the English LLP, which is effectively the holding partnership of the group”.

Prof Hall also pointed to the example of Germany, where “third country law firms are not able to establish as LLPs”.

In evidence, the Law Society submitted that the continued use of LLPs across the EU would require bespoke UK-EU arrangements on “recognition of legal forms in force in the UK”, which should also preserve the ability for UK law firms to “employ local lawyers” and “continue using their usual name”.

A spokesperson for the UK government said: “We have tabled far-reaching proposals in this area that are appropriate for an free trade agreement, but we have been met by resistance from the EU and have had to adapt accordingly.

“We remain committed to working hard to reach an agreement, and hope to see EU proposals that at least match what they have offered to other third countries.”