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Brexit: Trade in Non-financial Services (EUC Report) - Motion to Take Note

Part of the debate – in the House of Lords at 9:34 pm on 18th December 2017.

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Photo of Lord Liddle Lord Liddle Labour 9:34 pm, 18th December 2017

My Lords, I add my thanks to my noble friend Lord Whitty for ably chairing our deliberations. It was one of the most interesting experiences that I have been involved with on a Select Committee, as I shall explain.

The first thing that struck me was how the sector of non-financial services is absolutely vital to Britain’s future. It is a growing sector with great diversity, but it all trades essentially, for the most part, on our key strengths in the knowledge economy. It provides fulfilling jobs for people, often working in non-hierarchical companies, and it is a crucial part of our future as a strong economy and thriving society. I would say to the noble Baroness, Lady Noakes, that I would not describe the people whom we met in that sector as status quo people; they are the great disruptors and innovators in our economy today. Unlike the innovators and entrepreneurs of a century or more ago, they do not have the competitive advantage secured by the barrel of a gun in an empire. They have to do it on their own—and that is something that we should respect.

Secondly, the experience challenged the conventional wisdom that I had, having always thought of myself as someone who knew something about Europe. The received wisdom in Whitehall was always that the single market was a great success in goods but very deficient in services. Actually, it taught me that the single market was actually very important in services, and the four freedoms of the Treaty of Rome were essential to the success of the sector.

Thirdly, this is the sector where the Government have given the least thought of any to a strategy for securing its future. In trading goods, you can see where the Prime Minister wants to go; it is a model of regulatory convergence, in return for which we get tariff-free trade. I think that she will find it a lot more difficult than she imagines, but that is a plausible model. Also, in financial services, the buzzword is regulatory equivalence. In this sector, it will be much more difficult because it is so varied. Those trade negotiations are not going to be conducted by the nice Michel Barnier, who has been extremely gentlemanly with the British over the past 12 months. They will be conducted by DG Trade. I have worked in the cabinet of the Trade Commissioner and I know what they are like. They are hard men and women, who are tough mercantilists at heart.

The problem with the sector is that our bargaining position is extremely weak. Why is that? Because, if you look at the EU 27’s export of all services to the UK, it amounts to about 0.8% of EU 27 GDP. But when you look at Britain’s exports of services to the rest of Europe, it amounts to a massive 4.7% of GDP. So who is the demandeur? We are the demandeur, and we do not have many cards in our hand. Of that figure, just over one-quarter—about 30%—is financial services, so non-financial services are extremely important.

Those who think that the WTO offers a happy prospect of this sector had better think again. I looked up the paper which went to the European Parliament on this. It states:

“The liberalisation of services under the GATS is subject to a hugely complex set of ‘reservations’, whereby the member states can continue with restrictions on market access for specified services. Since the EU’s own competence in the field of services is incomplete”— it is not all at EU level—

“this has had the result that at the WTO the ‘reservations’ by the EU and its member states are a hybrid of EU-level reservations and bilateral member state reservations”.

That is why a trade agreement on services will take years to negotiate. You are not just dealing with the Commission, tough as it is, but you also have to deal with blockages in member states and any agreement has to be ratified by the Parliaments in all member states as a result. We are not talking about two years: it will probably be five or seven, so the Government had better grow up.

This sector faces real problems. I think that the only answer is the single market. People say that you cannot have the single market because it involves free movement. I have a huge pile of evidence from our committee’s deliberations which shows that free movement is not a trade-off with the economy; in this sector, free movement is the heart of their business model and competitive advantage. If we say that we are going to stop free movement for political, non-economic reasons we are damaging one of the most successful parts of the British economy. I hope that the Conservative Party will explain to people why that is in the national interest.