Future UK-EU Relationship on Professional and Business Services (EU Committee Report) - Motion to Take Note

– in the House of Lords at 4:43 pm on 22nd July 2021.

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Baroness Donaghy:

Moved by Baroness Donaghy

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).

Photo of Baroness Donaghy Baroness Donaghy Chair, EU Services Sub-Committee, Chair, EU Services Sub-Committee

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.

The sub-committee was concerned that any deal needed to prevent the creation of barriers to trade that would have a detrimental effect, specifically on the issues of national reservations, mutual recognition of professional qualifications, business mobility, including comprehensive protection for travel, intellectual property rights and data adequacy. On national reservations, companies face a patchwork of complicated rules that vary by sector and member state. The committee subsequently called for guidance for business on navigating those reservations, but, as of today, this guidance has not been published. On business mobility, this will be a major change for service providers. Although the impact of the Covid pandemic has delayed the outcome, I think it will be felt once international business resumes. As of this month, the Government have published country- specific guidance on business mobility for 21 of the 26 member states.

On mutual recognition of qualifications, all our witnesses gave high priority to its importance once we had left the EU. The UK Government had an ambitious proposal, which the sub-committee welcomed, but we ended up with something much less. The TCA leaves open the possibility of a new agreement on mutual recognition of professional qualifications in future. My guess is that we will probably never know what happened in the negotiations on mutual recognition or on mobility of labour, but, post the TCA, the sub-committee urged the Government to seek such an agreement in the medium term. This is a personal view, but the professional qualifications legislation currently going through Parliament is a long way short of any medium-term deal.

On intellectual property, subsequent to this report the TCA embedded a mutual commitment to high standards of intellectual property protection, which is welcome. The sub-committee expressed the hope of regulatory dialogue with the EU to manage divergence. On data adequacy, the good news is that the EU confirmed its data adequacy decision on 28 June. One hopes that this will stick if the UK decides to make substantial changes to the GDPR.

As I said in a subsequent report, the service sector is at the heart of the UK economy, so it is essential that the Government and the EU make improvements to smooth UK-EU services trade. The sub-committee accepted that there might be divergence but urged the Government to be constructive and to set up joint consultative arrangements to maximise co-operation and avoid misunderstandings. I have to say that there is little evidence of this happening. The noble Lord, Lord Frost, said only yesterday that he regretted that the relationship was punctuated with challenges characterised by disagreement and mistrust. Passporting arrangements in financial services have stalled and there is little evidence of help for the creative industries in temporary movement of goods and people.

Parliamentary scrutiny is more important than ever on the impact of the TCA and the regulatory changes taking place, particularly in the financial sector, where financial regulations will be given the role that primary legislation has performed in the past. So it is with great relief that we finally have the European Affairs Committee to keep these issues under review and hold the Government to account. I wish the noble Earl, Lord Kinnoull, and his committee all the best in this endeavour.

Photo of Lord Russell of Liverpool Lord Russell of Liverpool Deputy Chairman of Committees

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.

Photo of Lord Hope of Craighead Lord Hope of Craighead Chair, High Speed Rail (West Midlands - Crewe) Bill Select Committee (Lords), Chair, High Speed Rail (West Midlands - Crewe) Bill Select Committee (Lords) 4:52 pm, 22nd July 2021

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.

Photo of Baroness Neville-Rolfe Baroness Neville-Rolfe Chair, Built Environment Committee, Chair, Built Environment Committee 4:55 pm, 22nd July 2021

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

To put it mildly, the sector feels let down and that better arrangements could have been won.

We suggested that the Government should pursue negotiations to address these issues, with both the EU and member states. Sadly, the Government do not seem to be in negotiation with the EU, and instead say:

“Through our engagements, we have established that some touring activities are possible without visas or work permits in at least 17 out of 27 member states.”

This is progress, but it is not sufficient. Can my noble friend update us and offer any hope?

The Government’s response to two related issues was disappointing. The first was the extra costs of creative professionals moving their equipment across borders and the need for costly ATA carnets. The second was the impact on the specialist touring haulier industry of cabotage restrictions. The creative sector, especially musicians of the classical and pop variety, and the tours they make, are hugely important to the UK. We need a better response. I hope that my noble friend the Minister can update us or write, and that the European Affairs Committee, with its new energy, will be interested in taking this issue forward.

Photo of Lord Davies of Brixton Lord Davies of Brixton Labour 4:59 pm, 22nd July 2021

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.

Can the Minister and his colleagues offer any concrete hope of expediting action in this area? Is the Minister satisfied that mutual recognition is being given the priority it demands?

Photo of Viscount Trenchard Viscount Trenchard Conservative 5:02 pm, 22nd July 2021

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?

Photo of Lord Thomas of Cwmgiedd Lord Thomas of Cwmgiedd Chair, Consolidation, &c., Bills (Joint Committee), Chair, Consolidation, &c., Bills (Joint Committee) 5:05 pm, 22nd July 2021

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.

Photo of Lord Liddle Lord Liddle Labour 5:09 pm, 22nd July 2021

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.

Photo of Baroness Henig Baroness Henig Deputy Chairman of Committees, Deputy Speaker (Lords)

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

Photo of Baroness Bottomley of Nettlestone Baroness Bottomley of Nettlestone Conservative 5:12 pm, 22nd July 2021

My Lords, I add my admiration for the noble Baroness and her excellent report. I am beginning to feel left out, having not been a member of the committee, since it is evident that it was an excellent process with some really important results. I am delighted that there has been such a tremendous rush to join this debate, even if not all noble Lords have shown up, because it is a demonstration of the really important part that businesses and professional services play in the United Kingdom.

When I was young, many years ago, I was told—the noble Lord, Lord McNally, will know more about it than me—that the trade unions for miners and steelworkers would go into No. 10 for beer and sandwiches. My aim and aspiration, when I was responsible for leisure and hospitality, was that there should be a CBI debate on leisure and hospitality—the industry and jobs of the future. But it is business and professional services that are now involved in so many jobs and businesses, and so many small businesses; two-thirds are not in London and the south-east but really across the economy.

I pay tribute to the many trade bodies that have worked so hard for business and professional services, but particularly to the Business Services Association and Mark Fox, who for 13 years has worked so hard with his small team to ensure that these aspects are fully considered. In business services, they include ICT, business process outsourcing, facilities management, construction and infrastructure services and managed public services. They point out that in today’s economy, many contracts span more than one category; they are together in the real economy, even if they are not always linked by statisticians. Of the services and projects provided by businesses large and small, 70% is business to business, with the remainder being provided in the public sector—that is before we get to the professional services that support them, which are equally vital to our economy and often dominate the debate.

The UK business services industry is globally acknowledged as being at the cutting edge of service transformation and technological creativity. For some parts of business services, such as business process outsourcing, exports are integral. To quote the committee’s report:

“The EU is the UK’s largest market for exports in professional and business services, accounting for 37% of professional and business services exports.”

The UK

“ran a trade surplus of £12.4 billion with the”

EU’s professional business services. It is a highly lucrative and important market, and one we have, rightly, to nurture.

I pay tribute to the Ministers, my noble friends Lord Grimstone and Lord Callanan, and the many officials in the Department for International Trade and BEIS who have worked so hard to work with industry and acted as a go-between. Although much progress has taken place, we appreciate that there are still some outstanding and tricky issues. We have talked about the creative industries and the recognition of qualifications.

What does the Minister see as the critical and exciting role of business and professional services in the green economy as we move towards COP 26? I believe that this will provide further jobs, opportunities and wealth creation.

Photo of Baroness Henig Baroness Henig Deputy Chairman of Committees, Deputy Speaker (Lords)

The noble Lord, Lord Bilimoria, has withdrawn from this debate, so I call the noble Lord, Lord Bhatia.

Photo of Lord Bhatia Lord Bhatia Non-affiliated 5:16 pm, 22nd July 2021

My Lords, I fully agree with what the noble Baroness, Lady Donaghy, said in her speech. She has laid out all the parts of the committee’s report, which was unanimous. We must acknowledge that this sector is vital to the UK economy, contributing £224 billion and employing some 4.6 million people. The Government are yet to give their final response to the committee’s report. Can the Minister inform the House when they will do so?

Photo of Baroness McIntosh of Pickering Baroness McIntosh of Pickering Conservative 5:17 pm, 22nd July 2021

I add my congratulations to the noble Baroness, Lady Donaghy, and the committee on this very full, comprehensive and welcome report. I recognise the contribution that all professional services and businesses make to the UK. As a doctor’s daughter, sister and niece, I would like to place on record my view that professionals in this country are the jewel in the crown of the United Kingdom. I will make particular reference in my remarks to the legal profession in both England and Scotland, particularly the contribution made by the Law Society of Scotland and its members, and the Faculty of Advocates and its members—of which I am a non-practising one.

I refer to the references to the Internal Market Act 2020 and all the work the Government did there, and the recognition that the legal profession is different, which was acknowledged in the Professional Qualifications Bill. There are some 160 professions regulated by the legislation in the UK and worldwide, and numerous others with voluntary regulatory arrangements. Many of these professions, such as nursing and teaching, provide a wide range of employment opportunities. Much of the policy around this legislation centres on maintaining an adequate supply of professionals in areas where a potential shortage is a concern. As such, the Government’s focus was to facilitate cross-border recognition and regulation to ensure as integrated a system of transfer of professionals as the Immigration Rules would permit. That is something I support.

As was acknowledged in the Internal Market Act 2020, the legal profession is somewhat different. We have different legal systems and separate jurisdictions. That is something we have to be cognisant of as we monitor and support the Professional Qualifications Bill’s passage through this House.

On my noble friend’s work in this regard, particularly in his role in the Department for Exiting the European Union, I was grateful for a reply that I received from him on 16 March to a Question that I asked about non-reciprocal rights being offered to those from the EEA countries and Switzerland coming to this country. He said:

“The Government is firmly committed to the agreement in December and we are working with the Commission to agree how they should be translated into legal form in the Withdrawal Agreement. We are committed to turning the Joint Report into legal text as soon as possible and it remains our shared aim to reach agreement on the entire Withdrawal Agreement by October.”

I hope that my noble friend shares my disappointment that we were not able to reach agreement by that deadline.

It is important that we establish such an agreement in the context of the trade and co-operation agreement. I hope that my noble friend will take this opportunity to say how important that is. I share my noble friend Lady Neville-Rolfe’s concern about how badly affected businesses have been, as set out in the report, particularly small and medium-sized companies. Having suffered the loss of EU drivers, we now face a severe shortage of lorry drivers. As honorary president of the UK Warehousing Association, I know that there is an equally severe shortage of space in warehousing, which could become acute in the run-up to Christmas. I am sure that my noble friend is aware of that, so I hope that he will put my mind at rest in that regard.

I welcome this opportunity to discuss the recommendations and conclusions of the report before us today.

Photo of Lord McNally Lord McNally Liberal Democrat 5:22 pm, 22nd July 2021

My Lords, like all the members of our committee, I was in awe of the ability of the noble Baroness, Lady Donaghy, to keep our unruly group in order and enable us to deliver a unanimous report. The way she conciliated and arbitrated between us you would almost believe she had spent a lifetime doing that kind of thing. As has been said, we were most ably aided by Dee Goddard and the staff.

I disagree with what the noble Lord, Lord Davies, said about us letting the Government off the hook. The hard truth that runs through the report, as the noble Lord, Lord Liddle, indicated, is that professional and business services were the forgotten army of the Brexit negotiations. Time and again, on topics ranging from intellectual property to data adequacy, from recognition of professional qualifications to business mobility, and the business and professional services mentioned by the noble Baroness, Lady Bottomley, we were met with responses to our concerns from Ministers that could roughly be described as “It’ll be all right on the night”.

As yesterday’s Statement on the Northern Ireland protocol clearly demonstrated, Boris Johnson’s much-vaunted “oven-ready” deal was in reality half-baked. We are now going to learn the hard way the consequences of signing in haste and regretting at leisure. I hope that Parliament will learn the lessons of this debacle. The noble and learned Lord, Lord Goldsmith, and his Committee on International Agreements will need to be particularly robust in examining the details and consequences of some of the trade deals that the International Trade Secretary, Liz Truss, is rushing to complete. The Comprehensive and Progressive Agreement for Trans-Pacific Partnership is already being hawked round by the Brexiteers as the alternative safe harbour to the EU, yet concerns are already being expressed about the safety of patents and intellectual property under any CPTPP agreement. Of course, we have the promises of a US-UK trade agreement. We all know how we can rely on the special relationship with our American cousins when they come to talking about trade. The Northern Ireland experience shows that negotiating under political pressure to demonstrate that Brexit is done can lead to catastrophic mistakes. “Caveat emptor” should be the watchword for the committee of the noble and learned Lord, Lord Goldsmith.

In recent weeks, the noble Lord, Lord Frost, has made increasingly clear that the harsh new Brexit world in which whole sectors of the British economy will have to compete is the one that the Brexiteers intended. There will be no soft Brexit. For example, as the noble Baroness, Lady Neville-Rolfe, the noble Viscount, Lord Trenchard, and the noble Lord, Lord Liddle, pointed out, a settlement that would have allowed the important music and concert touring industry to have easy access to the EU markets could not be countenanced because it involved diluting the purity of quitting the single market in labour mobility. This is not an immigration or free movement issue. What is needed is to have negotiated simple, frictionless, cost-free arrangements for temporary paid workers in EU countries so that this important creative sector can continue to flourish. I pay tribute to the efforts of Sir Elton John to make the Government see sense—I did not think that I would ever say that in the House of Lords.

We also put on record our concerns about data adequacy. The recent announcement of a data adequacy decision by the EU Commission is, of course, welcome, as the noble Baroness, Lady Donaghy, said. But, to quote the Commission’s own press release, the decision included

“strong safeguards in case of future divergence such as a ‘sunset clause’, which limits the duration of adequacy to four years”.

This short rein imposed by the EU is in sharp contrast to the sense of urgency in bringing our domestic legislation into line with the GDPR in 2019. Is it because the Government are already planning to bring us into conflict with EU data adequacy? Do Ministers anticipate any conflict between remaining true to our EU data adequacy commitments and our ambitions to join the CPTPP?

What about our ambitions for a free trade agreement with the USA? I ask because in the last couple of days I have received two invitations to round tables looking at greater co-operation between the USA and the UK on data transfer. It would be helpful if the Minister was to give us some idea from the Dispatch Box of how the Government intend to use the four years of data adequacy now granted. Will they be working with the EU, as it refines its own data framework, and have influence in shaping the outcomes, as we did with the GDPR? Or will we be like the Bisto kids, sniffing the gravy but on the outside looking in? The report’s declaration that the

“free flow of data between the UK and EU is vital to professional and business service providers” remains valid today. The Government owe it to the sector to spell out their intentions in this area and their priorities during the four years that we have been granted.

In the pages of this report are unanswered questions after unanswered questions about the prospects for financial services, the problems facing lawyers, the uncertainties about patents and intellectual property, the fate of our creative industries and other things that have been raised by noble Lords during this debate. The report shows that the Prime Minister and the noble Lord, Lord Frost, have delivered a Brexit with much unfinished business and with a mindset ill-suited to resolving the many problems that they themselves have created by their tunnel vision and ideological inflexibility.

The noble and learned Lords, Lord Hope and Lord Thomas, both wisely advised us not to try to turn back the clock but to look to the future. I realise that there is no chance of our returning to the EU in the near future or on the favourable terms negotiated by successive British Governments in our 40 years of membership. But there is an alternative to consistently seeing Europe as the enemy. At some time, there will come a British Government willing and able to work constructively with our nearest neighbours and most important trading partners. This report provides a useful checklist for how the most successful sector in our economy can have its interests protected and enhanced in that process.

Photo of Baroness Hayter of Kentish Town Baroness Hayter of Kentish Town Shadow Spokesperson (Cabinet Office), Shadow Deputy Leader of the House of Lords, Shadow Minister (Business, Energy and Industrial Strategy) (Labour), Shadow Spokesperson (Cabinet Office, Constitutional and Devolved issues) 5:29 pm, 22nd July 2021

My Lords, the sad story of this excellent report, so ably introduced by my noble friend Lady Donaghy, is that the Government failed to heed the clarion call to place our professional and business services centre stage in negotiations with the EU. That is hard to explain, given what a great foreign earner those services represent, the sheer numbers employed and the role that they play in servicing other business so that they too can trade and prosper. All those were mentioned by the noble Baroness, Lady Bottomley, the noble and learned Lord, Lord Hope, my noble friends Lord Davies of Brixton and Lord Liddle and others.

The TCA focused on fishing and goods and, in the words of the noble Baroness, Lady Neville-Rolfe, rather ignored services, leaving them facing barriers to their continuation and growth. In particular, while the TCA provides a framework, as my noble friend Lord Davies of Brixton said, for mutual recognition of professional qualifications, this new system will, in the judgment of TheCityUK, take a long time to yield any meaningful results. I hope that the Government will hear the need for urgency in making progress on that vital aspect, as mentioned by the noble and learned Lord, Lord Thomas of Cwmgiedd.

While there are undoubtedly some positives in regard to legal services—a sector mentioned by the noble Baroness, Lady McIntosh, and others—particularly on where UK lawyers can practise UK and international law under home title anywhere in the EU without requalification, such access is subject to national restrictions. Importantly, along with all professional and business services, including cultural services, the trade agreement provides little on the movement of people. That is one of the biggest losses for UK professional service providers in doing business in the EU.

Perhaps most worrying since the conclusion of the TCA is the absence of agreement on Lugano, about which I have tabled Written Questions, though I await responses from the Government. Perhaps the Minister can update the House as to why he thinks that the European Commission has concluded that it is

“not in a position to give its consent to invite the United Kingdom to accede to the Lugano Convention” and tell us what steps the Government are taking to rectify that and mitigate the resulting difficulties.

There remains work to be done to improve our trading relationship with the EU over the ongoing provision of the UK’s professional and business services. TheCityUK has outlined its priorities, some covering financial services, which are beyond the scope of this report, but a number are germane to our debate, particularly over data adequacy—as mentioned by the noble Lord, Lord McNally—Lugano and the movement of people. However, TheCityUK’s major message to us is the most important: outstanding practical and implementation issues are unlikely to be solved

“until the political situation between the parties is heavily de-escalated”.

That is our plea to the Government. Can we tone down the language? Can we stop the playground name-calling and accusations of bad faith? Please can we not even think of triggering dispute mechanisms or other such macho devices? How can we possibly at this moment be setting ourselves on a collision course with the EU by threatening to suspend parts of the Brexit deal, which the Government have only just negotiated and signed, if the EU does not accede to our demands?

As the FT says today, the Command Paper

“represents a root-and-branch rewriting of the Brexit deal UK prime minister Boris Johnson agreed with the EU in October 2019”,

amounting to an attempt to tear up an international treaty—an attempt, in the view of the FT, that the EU was bound refuse. Indeed, I understand from the BBC website that Mrs von der Leyen has already this afternoon rejected the Prime Minister’s bid to renegotiate the protocol. That is not just important for the protocol, but how does it help our wider relationship with our vital partner, particularly the continuation of the business and professional services on which, as we have heard from all speakers, we are so dependent? Can we please heed the noble and learned Lord, Lord Thomas, and look to the future and so keep our eye on the major prize? That is increased and growing trade in professional and business services with our nearest neighbour and our biggest single market—an objective that does not have to be at the expense of trade further afield.

We need better atmospherics to achieve the improvement in our relationships with the EU on the services that we are discussing today. They are vital for our economy, both in the direct benefit of these services and for all the other businesses that they support—goods, fishing, agriculture, academia. Everything that we do with the EU tends to depend on advice, legal advice, professional services and recruitment—all the ones that we are covering today, including, of course, accountancy. I hope that the noble Lord will offer some real assurances that the Government share our ambition in this regard to ensure that this sector of our economy continues to thrive, grow with the EU and help all the other bits of our economy and, similarly, trade with this biggest and nearest partner.

Photo of Lord Callanan Lord Callanan Parliamentary Under-Secretary (Department for Business, Energy and Industrial Strategy) 5:36 pm, 22nd July 2021

My Lords, I express my gratitude to the noble Baroness, Lady Donaghy, for securing this important debate, which I thought was characterised by some excellent contributions, from her and many other Members. I am also grateful to my ministerial colleague and noble friend Lord Grimstone, who has offered evidence to the EU Services Sub-Committee on several occasions over this past year, including on this report, and who continues to engage with the sector’s leaders as co-chair of the PBS and investment councils.

As a number of noble Lords have pointed out, professional business services are one of our largest and most successful sectors. My noble friend Lord Grimstone’s open letter to the sector in May this year highlighted that, from 2000 to 2019, growth in PBS outperformed that of the UK economy as a whole. The sector generated 12% of the UK’s total gross value added in 2020 and represents one in seven jobs across the country, with two-thirds of those jobs outside London and the south-east. Internationally, the sector has also excelled. Since 2000, exports of PBS have grown from £28 billion to roughly £111 billion in 2019. The UK is now second only to the US as the greatest exporter of professional business services in the world. This is something that the UK excels at and that we should be proud of. Our task now, of course, is not only to maintain but to develop the sector’s reputation for excellence.

The noble Baroness, Lady Donaghy, pointed out, and the Government recognise, the challenges that the UK’s new relationship with the EU and the Covid-19 pandemic present for the sector. Naturally, many noble Lords focused their contributions today on these challenges. I will address many of those comments and questions later, but I think that it is also worth reminding ourselves briefly of what the UK-EU free trade agreement and the Covid relief programme offer our businesses.

The agreement grants UK firms access to EU markets in a way that matches, and in some areas improves on, the EU’s best agreements to date with countries such as Japan and Canada. In practice, this means that most PBS businesses can continue to access EU markets and that they will not be subject to discriminatory barriers to trade while doing so, except where either side has expressly reserved the right to do so. The agreement means that business travellers can move easily between the EU and the UK for short-term visits —for example, by eliminating nationality requirements for some roles and guaranteeing how long temporary business visitors from the UK can stay in the EU. It is also future proof, which means that our businesses get the most liberal market access that either party grants to any future trading partner as well.

Notably, the agreement includes a number of important wins for the UK and PBS businesses. On legal services, we negotiated unprecedented provisions that will help ensure that UK law remains popular and competitive as the governing law of choice for commercial contracts worldwide. We also secured one of the most liberalising and modern digital trade chapters anywhere in the world. Among other things, it makes the cross-border flow of data easier by prohibiting requirements to store or process data in a specific location and thereby avoids costly requirements for British businesses.

Our exit from the EU represents an unparalleled opportunity for the UK to do things differently and better. Our priority is to help the sector adapt to these changes. To that end, we have been operating export helplines, running webinars with experts and offering businesses support via our network of 300 international trade advisers. We have also published extensive guidance on GOV.UK, including sector-specific landing pages to help individual sectors navigate the guidance available online, enhanced guidance on visa and work permit routes in EU member states and an interactive tool that can be used to find which reservations are most relevant to UK businesses selling services to customers in the EU. These are bespoke resources whose detailed guidance is unmatched by other trading partners worldwide.

The sector has overcome adversity in the past, but none has proved as great as the Covid-19 pandemic. At its worst point, economic activity in the sector as a whole fell by 20% in 2020. While the sector has suffered, 2021 has so far proven a positive year for PBS. As of May 2021, PBS output was just 3% below what it was pre Covid, in January 2020, tracking the strong recovery of the UK economy overall. With the help of the Government’s furlough scheme and plan for jobs, many businesses have adapted to new and innovative ways of delivering their services to support their clients through this adversity.

One of the ways we are ensuring the continued recovery and growth of the sector is through the PBS council and its working groups. The council has already made great progress this year by jointly publishing the Skills for Future Success report with the Financial Services Skills Commission. This report explores how to deliver recovery and growth right across the UK and complements the work of the socioeconomic diversity task force, which will provide much-needed evidence on what we can do to progress and retain talent across all backgrounds.

The council’s trade working group is exploring the possibilities that lie further afield—feeding the sector’s views into new potential FTAs as well as the global opportunities through COP 26 and an increased focus on environmental services. I completely agreed with my noble friend Lady Bottomley, as I so often do, that the PBS sector will be key to supporting a sustainable economic recovery and making the UK a world leader for green technology and finance, including in areas such as reporting of climate-related financial information and facilitating the use of the Government’s sovereign green gilt and green savings bonds. My department is working with DIT’s trade promotion unit and the four major new trade hubs across the UK to showcase the international expertise and excellence of our PBS sector, helping make businesses more sustainable and achieving our net-zero objectives in the process.

I will now turn to some of the specific points raised by noble Lords in the debate. My noble friends Lord Trenchard and Lady Neville-Rolfe raised the knotty issue of touring musicians, which I know has exercised a number of others in this House. Officials have now spoken to every member state about the importance of touring. DCMS Ministers have also raised touring with their counterparts in a number of member states, including Portugal and Austria. Through this engagement, we have established that the picture is better than previously thought, and that some touring activities may be possible in at least 18 member states without visas or work permits. This includes many of the most economically important countries, such as France, Germany, Austria, Belgium, the Netherlands and Italy. DCMS, via our embassies, is engaging with those member states that do not have any visa or permit-free touring, such as Spain, calling on them to more closely align their arrangements with the UK’s generous domestic regime. DCMS Ministers are personally involved in the engagement with these priority countries. I hope that reassures my noble friends.

The noble and learned Lord, Lord Thomas of Cwmgiedd, raised a number of points, including the important subject of financial services. Our new chapter for financial services is already under way. Building on his Statement to the House of Commons in November 2020, at the Mansion House in July the Chancellor introduced four key themes of the Government’s vision for financial services. These are to be: an open and global financial hub; the sector at the forefront of technology and innovation; a world leader in green finance; and a competitive marketplace promoting effective use of capital. The Chancellor was clear that the UK had an abiding interest in a prosperous and productive Europe. Leaving the EU means that we have a unique opportunity to take an approach that better suits our markets while maintaining our high regulatory standards. We are using our new freedoms to build on our historic strength as a global financial centre and to develop our relationships with jurisdictions all around the world, attracting investment and increased opportunities for cross-border trade.

A number of noble Lords raised the recognition of professional qualifications on which the PBS sector often relies to practise overseas. Mutual recognition agreements generally smooth this process. In the TCA negotiations, the Government worked hard to agree a framework for MRAs across all EU member states. This framework improves on the one which Canada negotiated with the EU by streamlining certain aspects of the application process. I hope that I can reassure the noble and learned Lord, Lord Hope of Craighead, and the noble Lord, Lord Davies of Brixton, that we have been working hard to provide a suite of support for regulators and for professional bodies wanting to agree these arrangements. We have established a new recognition arrangements team, published technical guidance and launched a pilot grant funding programme for the PBS sector, specifically to help regulators navigate this important area.

The noble Lord, Lord Liddle, raised the important issue of mobility. As a result of the TCA, business travellers do not require a work permit to carry out certain short-term business travel activities, such as attending meetings and conferences or providing after-sales services or translation and market research services. Some EU member states allow additional activities without the need for a visa or work permit. For those undertaking longer-term stays or stays involving work, or providing a service under contract, a visa and/or work permit may be required. I can tell the noble Baroness, Lady Donaghy and my noble friend Lady Neville-Rolfe that we have published guidance on visa and work permit routes in 27 out of 30 EU member states. We continue to engage regularly with our embassies in order to better understand the requirements in each country and to support UK nationals when they travel abroad. We have also secured a review clause on the list of permitted activities for short-term business visitors which will allow both parties to update their commitments further down the line.

At the moment, it is too early to say to what extent reservations will affect UK firms’ decisions on whether to operate from a particular place or how to structure their businesses. Reservations that apply to niche sectors are likely to have less of an impact—in particular, I was struck by the one on reindeer herdsmen in Lapland, should the noble Baroness, Lady Donaghy, wish an alternative career. Those which apply across the EU as a whole or which cover highly regulated professions, for example, lawyers, accountants and architects—which may be of a little more interest to the noble Baroness—are likely to mean that businesses must adapt. Many businesses which use the reservations tool that I mentioned earlier will likely only need to engage with a handful of member states—for example, Germany, France, the Netherlands, Ireland and Spain. These made up approximately 62% of our services trade with the EU in 2019.

I am pleased to reassure the noble Baroness that investment into the UK remains robust. Figures from the Department for International Trade show that during the 2020-21 financial year, new inward investment from the EU created over 21,000 new jobs in the UK.

As the noble and learned Lord, Lord Thomas of Cwmgiedd, rightly observed—as did the noble Baroness, Lady Hayter—data flows and the digital economy are crucial to supporting cross-border trade in services, not only with the EU but with all our trading partners. We have welcomed the EU’s recent adoption of adequacy decisions for the UK. Some estimates suggest that this has saved UK businesses as much as £1.6 billion on data transfer compliance costs—such as setting up standard contractual clauses—and it allows for the ongoing free flow of personal data from the EEA to the UK in the safe and secure way it has always been in the past.

Our most recent deals with Japan, Australia, the EEA/EFTA countries and the EU contain some of the most advanced digital trade provisions seen in any modern trade agreement and we are now looking to strike additional arrangements—both for data and digital —with other like-minded partners.

My noble friend Lord Trenchard raised the issue of the IPO. The UK’s IP regime achieves an effective balance between rewarding creators and innovation and reflecting wider public interests, such as ensuring access to and use of IP on reasonable terms. We will ensure that the terms of our accession to the CPTPP are consistent with the UK’s IP interests, including not doing anything that increases reactive costs for our IP service providers.

My noble friend Lady McIntosh of Pickering asked for information about support to small businesses. Innovate UK, the United Kingdom’s innovation agency, offers several support mechanisms that are available to SMEs and other businesses, such as: the innovation loans pilot programme; smart grants; the Small Business Research Initiative; and catapults, which are all there to provide support to small businesses in navigating this important area.

The noble and learned Lord, Lord Thomas of Cwmgiedd, and other noble Lords, talked about the Professional Qualifications Bill, which we will seek to progress as much as possible. It revokes the UK’s interim system for the recognition of professional qualifications which currently often gives preferential treatment to holders of EEA and Swiss qualifications, and it will help aspiring professionals to understand how to access the UK’s professions. The Government have reflected carefully on the points that were made during the Bill’s passage to date and will be continuing conversations and engagement with noble Lords and stakeholders over the summer to try to address their key concerns.

The noble Baroness, Lady Hayter, asked about the Lugano Convention. We continue to maintain that we meet the criteria for accession to the Lugano Convention, both because it is open to countries outside the EU and because all non-EU members already support the UK’s membership. Supporting UK accession is the sensible and pragmatic solution for all citizens. The Government are aware of the European Commission’s notification that it is not in a position to give its consent to UK accession to the Lugano Convention. However, we understand that member states have not yet been given an opportunity to vote formally on that position.

I am running out of time so I will move my remarks to closure. I assure noble Lords that helping PBS businesses both to adjust to our new relationship with the EU and to recover from the pandemic remain some of the Government’s highest priorities. We will continue to feed the sector’s views into future trade negotiations with other countries and develop the sector’s reputation for excellence both at home and abroad. Through trade promotion, we will support the sector to take advantage of opportunities in existing and emerging markets, maintaining and growing its global competitiveness.

Photo of Baroness Donaghy Baroness Donaghy Chair, EU Services Sub-Committee, Chair, EU Services Sub-Committee 5:53 pm, 22nd July 2021

My Lords, I think all Members who have contributed, particularly the four members of the committee. I was not sure whether the noble Lord, Lord Callanan, was trying to act as a recruitment officer for reindeer herders; the noble Baroness, Lady Bottomley, had better watch out—he is moving into the headhunter profession. However, I will politely decline. I do not think I would be very good at it, although, watching the numbers of speakers dropping like flies this afternoon, I am not sure whether a 30% attrition rate would be acceptable in that new career.

We have to look to the future. We are not looking just for mitigation, which the Minister spent some time doing. I know the Government are working hard on these issues but it is mainly to mitigate; it is not about improving people’s positions but about trying to make sure that they keep as good as they had.

We have such a lot of talent in the UK and such a lot to offer, and these businesses deserve constructive dialogue and renewed efforts by the Government to enable a thriving future. The noble Baroness, Lady Hayter, summed it up in saying that we need better atmospherics; that is what the professional and business services are looking for.

I shall not go on any longer, but I thank everyone for their contribution. The noble and learned Lord, Lord Thomas, talked about the innovative spirit that the UK has in regulation and our flexible legal system. It is not that I lack confidence in what we have to offer; I just lack a bit of confidence in the ability of the Government to overcome the barriers that to some extent they themselves have created.

Motion agreed.