Michael Gove is famous for dismissing the views of “experts” during the 2016 referendum campaign. This week the Chancellor of the Duchy of Lancaster was at it again, ridiculing the considered view of the UK’s former EU ambassador that, by seeking a rushed trade deal with the EU next year, the Tories are setting the stage for the biggest Brexit crisis yet.
An important part of this argument concerns trade in services. Ivan Rogers argued on Monday that a hasty UK-EU trade deal would inevitably be lopsided and would almost certainly exclude important sectors such as services. Gove’s response to the BBC Today Programme was to belittle the importance of services in any negotiation, to insist that Britain’s service industries have a “bright future” outside the EU, and to boast that the UK could enjoy autonomy in setting the rules for them. (Listen at 1’56”).
None of these statements stands up to a moment’s examination; taken together, they amount to some of the most dangerous nonsense yet heard in the campaign. Let’s take each point in turn.
3 bad arguments
First, services are not some detail that can be carved out from a UK-EU trade agreement and dealt with separately. They are the most important part of the UK economy, accounting for 80% of GDP and an even higher proportion of jobs.
Pace Gove, they are also an important part of the European single market. The market in services is certainly not complete, but has already yielded considerable benefits – for example in providing mutual recognition of professional qualifications for lawyers, architects, accountants and the like. If we stay in the EU, we can shape the next phase in the development of the market including the “single digital market” and “capital markets union” both of which would benefit us hugely.
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Second, the future of UK service industries outside the EU is certainly not bright if they are not covered in any UK-EU trade agreement. The balance of trade in services is in the UK’s favour. We had a £10 billion surplus last year compared to a £94 billion deficit in goods. This means that UK service providers will suffer mightily from any restrictions on their ability to ply their trade in Europe.
The same applies to trade in services with the rest of the world. Whatever the merits of “WTO rules” on trade in goods, those on services are universally regarded as all but useless. In fact, very few trade agreements anywhere in the world have ever contained adequate provisions for trade in services – mainly because it is a devilishly complex area in which conventional trade mechanisms such as tariffs or quotas are simply not relevant.
Which leaves us to Gove’s third porkie in his Today interview: suggesting that the UK can progress by making its own rules for services rather than becoming a “rule-taker” at the mercy of regulations made in Brussels.
The City, key engine of UK service exports, will have heard his words with incredulity. The banks, investment houses and other providers know only too well that the Brexit now being envisaged by Boris Johnson and his chums will automatically make Britain a “third country” as far as the EU is concerned, with Brussels retaining the whip hand in determining whether the UK regulatory regime is up to snuff. Without “equivalence”, in the regulators’ jargon, there will be no market access – which is why the Prime Minister has agreed precisely that in the political declaration which Gove boasted about in his interview. (See paragraph 36).
No, in claiming a bright future for UK services, “fin tech” and creative industries without close alignment with the EU, the Tories are again indulging in wilful wishful thinking. The industries on which the economy so heavily depends will pay a heavy price for this delusion.
The headline and excerpt were updated on December 3