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Analysis

May’s deal would gut our world-beating services sector

by Luke Lythgoe | 26.10.2018

A hard Brexit of the kind Theresa May is proposing would mean a “services slump” for the UK economy, a new report has found. Without the same access to the EU for our world-beating services, we could see our national output drop by 6% and lose £20 billion a year in tax revenue which we might otherwise spend on our public services.

Talk about a “Brexit dividend” in advance of next week’s Budget is nonsense. There would be a Brexit deficit instead.

Our services sector accounts for 80% of our economy, and about 40% of our exports. And “services” doesn’t just mean bankers in the City of London – although financial services are a huge boost for government coffers.

Services jobs include advertising, marketing, consulting, insurance, pensions, accounting, legal, telecoms, IT, engineering, architecture, business services, travel, film, TV and other creative arts. And while services play the biggest economic role in London and the South East, they are essential to every region and nation of the UK.

As the Federal Trust report says: “If there is one area where it would inadvisable for a government to willingly intervene to its detriment, then it would be in the service sector.”

But that’s exactly what May’s hard-Brexit proposal for our future relationship with the EU does. It focuses on a common rulebook for goods, while only vaguely promising “new arrangements” for services.

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In particular, the document admits that what May wants “will not replicate the EU’s passporting regimes”. Passporting is a series of arrangements – for example mutual recognition of standard practices and professional qualifications – which mean a supplier can sell a service throughout the entire EU single market without further barriers, so long as they conform to EU rules.

The reason the UK government gives for ending passporting is that it wants “regulatory freedom where it matters most” after Brexit, to be “best placed to capitalise on the industries of the future”. Essentially, to out-compete EU rivals. In this scenario, the EU can do nothing other than treat the UK as a “third country” which might change its regulations at any time in order to gain advantage over EU firms.

Brexiters clearly think this “freedom” is worth losing access to the single market. This is as much of a fantasy as their swashbuckling global trade deals or £350 million per week for the NHS.

In the short term, we’re damaging our economy by throwing up obstacles between us and the huge market next door. In the future, international rules for services will increasingly be set by the biggest economies – whether that’s on data, finance or artificial intelligence. The medium-sized UK will most likely follow the rules of others, and often that will means the EU’s rules. That or stay detached with our own idiosyncratic regime, watching business investment go across the Channel.

The Federal Trust says either staying in the EU or becoming a member of the EEA would both be “more economically beneficial” than May’s hard Brexit. But while the EEA option might solve the economic problems, we’d still be following EU rules without a say at the top table – certainly not “taking back control”.

It is crucial that people grasp the importance of services to our future prosperity before it’s too late. And if they don’t like the guaranteed damage May’s Brexit will have on them, they must have the chance to say so in a People’s Vote.

Edited by Hugo Dixon

2 Responses to “May’s deal would gut our world-beating services sector”

  • Brexit is turning out to be a long, slow, painful slap in the face. There probably isn’t even a majority for it anymore, yet it appears to be happening. That’s because of the shoddy state of UK institutions and the ridiculous “constitutional” (we all know that’s a fiction) settlement that exists between the countries that make up the UK, which results in two of them being ignored.

    Arrogance before the referendum and arrogance after have left us too proud to be pragmatic, and we all know the expression, pride comes before a fall. We can see a disaster coming but are too pig-headed to avert it.

    Failure to create a properly democratic system eventually means democratic failures. For these reasons and many others, the long, slow slap in the face is richly deserved – and especially by those who voted for it. For those who didn’t, the only thing we can do is rebuild, and hold fools to account. Many of the people who voted for Brexit, we are told, hadn’t voted in years. They never bothered and now they are free to profoundly affect the lives of the next three generations, at least. That is, by any measure, a democratic failure.

    We can address these problems by making it much easier for people to vote and declaring a National Holiday on national election days. That is simple enough and would go a long way to healing the country. You can’t complain if you never vote and it isn’t justifiable to vote to burn the national house down the first time you go to the polls. In what other countries could such a thing happen? You reap what you sow….

  • I am angrier by the day about people who never bothered to vote for their MEP suddenly voting to Leave the EU and thereby depriving me of the right to vote as I always have done. Why are they allowed to disenfranchise me and millions like me?
    At the same time they care nothing about depriving other people of medicine and health care and less than nothing for the devastating effect that their ill-considered decision will have on other people’s enjoyment of the arts or their ability to travel.