The report outlined that reduced access to the EU market will profoundly impact businesses across the country.
The services sector, which accounts for around 80% of the UK economy and includes financial services, has been largely missing from UK-EU trade negotiations, according to Services and Brexit, a report by academic thinktank The UK in a Changing Europe.
The report outlined that reduced access to the EU market will profoundly impact businesses across the country.
Services and Brexit raised questions about the economic price the government may have to pay through decreased single market access to ‘take back control’ over the rules and regulations shaping the services sector.
The UK in a Changing Europe has claimed that the governments of both Theresa May and Boris Johnson have not paid enough attention to the services sector in the context of Brexit negotiations, despite the fact that it accounts for some 30 million jobs.
Trade deals typically do not enable services trade to nearly the same extent as they do for trade in goods. As a result, strategically important sectors in the UK, including financial services, will face new barriers to selling into the EU market from 1 January 2021.
Without a deal, services exporters will likely face significant barriers, as World Trade Organisation (WTO) rules are weaker for services than goods.
The financial services sector will depend on a unilateral EU decision on equivalence, which can be revoked at short notice.
There is no guarantee that a trade deal will be secured on services, given the distance between the negotiating positions of the two sides.
While the UK emphasises the need for regulatory autonomy, the EU insists on conditions to remove the risk it perceives of regulatory competition from the UK.
The current COVID-19 crisis is also impacting the services sector.
As a result, many businesses may may prove unviable.
The combined impact of Brexit and the pandemic will significantly reshape the UK’s economy, regionally and nationally.
Professor Anand Menon, director of The UK in a Changing Europe, said: “It is worrying that the biggest sector in the UK economy – accounting for more than 80% of it – has been the subject of so little focus in the UK-EU negotiations.
“This serves to underline the largely political nature of the government’s Brexit priorities, focussed on regulatory autonomy rather than any economic implications of this.”
Professor Sarah Hall, senior fellow of The UK in a Changing Europe, said: “Given the UK’s reliance on services, the government faces a key question in the current negotiations: what economic price, in terms of declining single market access, is it willing to pay to ‘take back control’ on services regulation?
"How this question is answered will be critical in shaping UK services post-COVID and post-Brexit.”
