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Comment

Services without a smile

by Alan Wheatley | 22.05.2017

Brits holidaying in Europe this summer will be able to surf the internet as well as the waves without fear of chalking up a huge roaming bill. Thanks to the EU, call, text and data charges for mobile phone users travelling in the bloc will be scrapped on June 15. Come 2019, however, once we’ve left the EU, we’ll be at the mercy of the deals that UK operators strike with European telecoms firms.

Nor can post-Brexit flights to the EU be guaranteed unless the UK strikes a bilateral aviation deal. “In the worst-case scenario there will be no flights in or out of the UK to Europe for a period, for all carriers,” according to Ryanair.

The two examples illustrate the enormously complex task mapping out a post-EU future for Britain’s service industries, which make up 80% of the economy.

Brexiters complacently assume a free trade agreement covering goods will be straightforward. Remember? It’s in the EU’s self-interest to reach a tariff-free deal because Germany sells us BMWs and we quaff gallons of Italian prosecco.

Even if they are right, the barriers our service providers will face after Brexit are more subtle than a border tax. But no less costly for that. An analysis published on Monday by the Centre for Economics and Business Research (Cebr) estimates that restrictions on our service exports could cost us £25 billion-£36 billion, or 1.4% to 1.9% of GDP. About a third of the losses would be in financial services. But the biggest proportional reduction would be in IT and transport.

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The UK could minimise potential losses by negotiating broad market access. But, as Cebr points out, such an agreement may require compromises on Theresa May’s negotiating red lines.

For example, in regulated areas how would the prime minister, if re-elected, square her desire to set our own economic regulations with the other EU countries’ determination to trade under  their own service-sector rules?

For unregulated services such as consultancies, many creative industries and research providers, it ought to be business as usual after Brexit. But, as many people working in these sectors are self-employed, they could fall foul of another of May’s red lines: control over the free movement of labour. Even modest restrictions – there is talk of an e-visa for visitors to the EU – could take a toll on travel and transport.

Even with goodwill, renegotiating the UK’s existing access arrangements will take a long time. “It is no good Brexiteers repeating ad nauseam that the UK could trade freely with all partners. In services, what matters is the detail of regulation – for example, who recognises an architect’s qualifications,” according to Robert Pringle, an expert in trade in services.

Business can’t wait forever. Big banks are making plans to move some operations from London to the EU on the assumption they will lose the EU “passport” that lets them sell their services throughout the bloc. Lloyd’s of London and easyJet have established EU offices for the same reason.

And, of course, goodwill is not guaranteed.  May insists that no deal is better than a bad deal, while German Chancellor Angela Merkel is wary of the UK gaining an economic edge by cutting red tape. “Not to mention that we don’t have experience in dealing with services in free-trade accords – and that’s an area where Britain is very strong,” she said last week.

The tone, then, is ominous. Cheap flights and cheap roaming will probably survive Brexit. But the European prospects for the biggest sector of the UK economy are growing darker.

Edited by Hugo Dixon