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

Motion to Take Note

Moved by

That this House takes note of the Report from the European Union Committee The future UK–EU relationship on professional and business services (13th Report, Session 2019-21, HL Paper 143).

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.

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.

My Lords, it is a pleasure to follow the noble Baroness, Lady Donaghy, and to congratulate her on securing this debate at last. I also pay tribute to her and her sub-committee for the work they did putting together such an excellent report on this crucial issue. The debate has been much delayed, but that delay has not taken anything away from its importance. The message that the report was designed to convey about the contribution that the professional and business sectors make to our economy, and the importance of unimpeded access to the EU, has lost none of its force. It is just as relevant today, and so is the importance for the Government to understand the needs of these sectors and to do what they can to support them. It was already clear when the report was published in October 2020 that there were fundamental differences between the UK and the EU on the issue of mutual recognition. Apparently, negotiations were still continuing when the Government published their response on 7 December, but their failure to reach agreement was plain for all to see when the TCA was published on 24 December.

The noble Lord, Lord Grimstone of Boscobel, explained where we are now when he was winding up for the Government at Second Reading of the Professional Qualifications Bill on 25 May. He said that the UK had proposed ambitious arrangements on professional qualifications recognition, but that the EU did not choose to engage with them. He said:

“We took the horse to water but it refused to drink”.—[Official Report, 25/5/21; col. 975.]

He recognised that UK regulators will now have to form their own professional specific agreements, which will take time and effort, and that this why the Government stand ready to help. I hope that this is still the case.

Regrettable though the situation is, we must move on. We cannot turn the clock back. At least we have the TCA and the possibility of some form of agreement in the future. The Professional Qualifications Bill is another step forward. It will create the framework that is needed on our side for mutual recognition. The question for the Minister is: what more can the Government do now, both here and in the member states, to provide advice and help to the regulators as they seek to pursue and develop recognition agreements with their European counterparts? The situation we are in was their creation. Those who work in these sectors, many of them small businesses, as the noble Baroness pointed out, are entitled to look to the Government for that support.

My Lords, I refer to my interests listed in the report and thank the noble Baroness, Lady Donaghy, for the fine job that she did chairing our committee. I also thank the staff—clerk Dee Goddard and Hadia Garwell—for their excellent work. Overall, I support the Government on Brexit, but with only three minutes, I must concentrate on areas of difficulty.

This is a big sector, with professional and business services providing £225 billion gross value added in 2019 and employing 13% of the workforce, yet in the negotiations it was more or less ignored. However, all is not gloom. Our legal and accountancy firms have been ahead of the game, setting up complex arrangements where necessary, to keep serving customers in the EU. Extra qualifications have been secured by talented individuals, young and old, with the Republic of Ireland being a major beneficiary. The very process may have generated innovation, fired up by the need to move online with Covid.

I have two areas of questioning. The first relates to small and medium-sized businesses, which are less able to jump through expensive hoops, such as smaller legal firms, architects, and engineers. Does my noble friend have any data on how they are faring? Are they offering services in the EU? Are they diversifying into markets elsewhere?

My second area of questioning is a matter that we found most unsatisfactory. It is the Government’s handling of the future relationship with the creative industries—a sector facing the challenge of both Covid-19 and arrangements in the agreement, which make touring very difficult. In response, the Government said that they

“could not expect to end free movement into the UK while at the same time expecting that nothing would change with respect to movement into the EU … It was inevitable therefore that there would be significant changes in the arrangement under which creative workers operate in the EU, all the more so because many of the relevant rules are set at Member State level.”

My Lords, I should declare an interest as a practising member of a profession. I thank the committee for its excellent report. I suppose you could say that today’s debate is better late than never, even if that effectively lets the Government off the hook. I want to use my three minutes to urge the Government to expedite the process, laid out in the trade and co-operation agreement, of facilitating the mutual recognition of professional qualifications.

The provision of professional services to Europe is one of our most important exports. Solicitors, accountants, architects, engineers, and even actuaries, bring us significant sums. All the treaty does is provide a mechanism on which regulators can work together to establish mutual recognition of professional qualifications to enable professional services to be sold in Europe. I do not believe for one moment that this is a simple process. In its guidance note, issue in May, the Department for Business, Energy and Industrial Strategy admits:

“Negotiations for establishing recognition arrangements may be a lengthy and resource-intensive process.”

That is even more reason for the Government to play their part in getting the process underway.

We all understand that what we have at present, under the treaty, is simply a framework, with the practice to be agreed through the joint Partnership Council. But the widest possible mutual recognition was a key negotiating demand in the original UK mandate. It had its own chapter—chapter 12—in the document. Given its importance to the UK’s professional and business services sector, it might be expected to be a priority area for the Government in seeking to enhance the agreement. It is unfortunate, therefore, that the council did not mention this issue in its initial work—no reference was made to it in the statements made following the council’s first meeting. This is not good enough, because it means years of uncertainty, leaving UK professionals at a competitive disadvantage.

My Lords, I declare my financial services interests as stated in the register. I congratulate the noble Baroness, Lady Donaghy, on securing this debate. I am glad that we just squeezed it in before the Summer Recess.

It was a great pleasure to serve on the EU Services Sub-Committee, under the excellent chairmanship of the noble Baroness. She skilfully led the committee—whose members represent different strands of opinion on Brexit and its effect on our services industry—to agree this report, and indeed our subsequent short report, without dissent.

Three minutes is not enough time to begin to comment on the myriad important issues identified in the reports, so I shall mention just three. First, we thought that the Financial Services Act was a missed opportunity to make major changes to our financial regulations. Since the return of powers to our regulators allows for a more flexible and innovative regime, it is still unclear precisely how Parliament will scrutinise regulations and hold the regulators to account. The report of the Taskforce on Innovation, Growth and Regulatory Reform, led by my right honourable friend Iain Duncan Smith, shows how the UK can seize the opportunities available from Brexit by reshaping its regulatory approach. Does my noble friend the Minister agree that we need to be swifter and bolder in reforming our cumbersome rulebook?

Secondly, a combination of Covid and new rules restricting travel to the UK for artists and creative support teams from the EU has increased costs and reduced opportunities for many festivals and events organisers. Can my noble friend confirm that the Government will continue to work with the EU and with member states to make it easier and cheaper for touring performers and crews to travel both to and from the UK?

Thirdly, our report called for a mutual commitment to high standards of intellectual property protection. The Chartered Institute of Patent Attorneys argues that divergence from EPO standards, such as the introduction of the grace period or the need for the ability to extend patent terms, should be resisted unless agreed as global standards in multilateral fora such as WIPO and Group B+. Does my noble friend the Minister think that this will present a problem in negotiating accession to the CPTPP, or does he think that our acceptance of CPTPP rules on patents would encourage the EPO to be more flexible in working towards international harmonisation of patent rules and a common rulebook for itself, the Japan Patent Office and the United States Patent and Trademark Office?

It is a pleasure and privilege to follow the noble Viscount, Lord Trenchard, and to agree with the praise with which he and other speakers have referred to the very able and skilful chairmanship of the noble Baroness, Lady Donaghy, in the report that we are now debating and in all the work that the committee did. I also add my tribute to the work of the staff and particularly to Dee Goddard.

Others have spoken at length about the importance of services to the UK, particularly financial services, accountancy, law, and the creative industries. It is now important to look forward. It is perhaps disappointing that the EU has so far refused to go much along the lines of what was hoped for, but I do not find that unsurprising, given that some see this as a competitive advantage to be snatched from the departure of the UK. However, we must look to the future, and it is the future on which we must concentrate.

First, it is vital that we get certainty on mutual recognition of professional qualifications and that the Bill is brought forward in a proper form in due course. Secondly, we must continue dialogue. My own experience—outlined in the declaration of interests in the register and in this report—shows that there is a great deal that we can do. Our accountancy profession, our legal profession and our financial regulators are highly respected across Europe, and I very much hope that we continue to push forward our dialogue. I have no doubt that that will be well received. Thirdly, it is important that we use that dialogue as part of what we must show for the future, which is leadership. The noble Baroness, Lady Donaghy, showed wonderful leadership on this committee, and the Government need to show leadership in showing what we can do to bolster our service industries by dialogue with Europe but also leadership across the world.

The noble Viscount, Lord Trenchard, spoke eloquently about the need for proper regulation, and it is important to stress that we have huge advantages here. We have an innovative spirit with which to approach regulation. We know how to avoid the kind of mistakes that led to Enron, and we have, above all, the advantage of a flexible legal system, particularly the common law, which is able to develop and buttress regulatory systems that operate to support innovation, to support the new economy that is emerging from the digital revolution and to take us forward. I very much hope that the Minister will be able to be encouraging about how he sees regulation and the service industries associated with it moving forward.

My Lords, I join others in congratulating the noble Baroness, Lady Donaghy, and her committee on the quality of this report. It is about a crucial sector of the British economy that has been sorely neglected in the EU negotiations. I find it extraordinary, and I hope that the noble Lord, Lord Callanan, will try to explain why it is so, that so much attention was paid to the British fishing industry, where the gain in catch as a result of Brexit is something like £25 million a year, when the needs of the business services sector, worth £224 billion to our economy, were so neglected in negotiations. Did the Government simply get their priorities wrong?

When we are looking to the future, as I think the noble and learned Lord, Lord Thomas, is right to suggest we have to, on some issues we may be able to make progress. We might be able to make progress on short-term mobility, which is particularly important for the creative sector, our musicians and all the rest; but we will have to recognise that such progress will require reciprocal action on our part. If we take an ideological approach, as I believe the Government do, to ending freedom of movement, they will find an agreement on this difficult to negotiate. If we set aside the ideology, we might get somewhere on mobility.

On mutual recognition of qualifications, it is going to be a very hard grind. As the noble and learned Lord, Lord Thomas, says, we have to demonstrate that we have something to offer. We have a trade surplus with the EU on services. It has always been difficult within the EU to get progress on services liberalisation and, to the extent that there has been progress, it is because we were in a single market where the Commission drove member states to open up with the backing of the ECJ. We have lost that by not being in the single market, and it is a very big loss for us indeed. In future years, if the gains of Brexit are as minimal as they appear at the moment, we will have to reconsider this question of single-market membership.

We seem not to be getting the noble Lord, Lord Bilimoria, so perhaps we should move on and come back if we can.