EU Committee Report: future UK–EU relationship on professional and business services

Edward Scott

Image shows a peson reading a newspaper with the word 'business' written on it

The House of Lords is set to debate the report from the EU Services Sub-Committee of the House of Lords European Union Committee, ‘The future UK–EU relationship on professional and business services’. on 22 July 2021.

Committee report

The professional and business services sector is broad and includes a variety of different industries, such as legal services, market research, accountancy, audit, architecture, engineering, public relations, and management consulting. In its report, the committee argued this sector was vital to the UK’s economy. According to figures provided to the committee by the Department for Business, Energy and Industrial Strategy, in 2019 the sector was worth an estimated £224.8 billion to the UK economy (in terms of gross value added). It also provided some 4.6 million jobs in the UK. The committee noted many of the businesses operating in the professional and business services sector were small and medium-sized enterprises. It also said the sector was closely linked to both the financial sector and the creative industries.

However, the committee accused the Government of overlooking this sector during its negotiation with the EU on the future UK-EU relationship when compared to the financial sector and trade in goods. It warned any free trade agreement established between the UK and the EU needed to prevent the creation of barriers to trade that would have a detrimental effect on this sector. Specifically, it argued the Government needed to ensure the agreement addressed the following issues:

National reservations introduced by EU member states: the committee noted that, when single market rules stopped applying to the UK after the end of the transition period, EU member states would be able to introduce national reservations effecting UK businesses. These could include economic ‘needs tests’, whereby a country could limit the use of UK service providers or personnel to only situations where this demand could not be met domestically. EU member states could also introduce rules on local presence whereby a service provider must either be resident in that country or have an existing local presence.
Mutual recognition of professional qualifications: The committee argued the Government needed to ensure that UK professional qualifications would be recognised in EU member states.
Business mobility: The committee argued that, following the end of freedom of movement, the Government should ensure that there were comprehensive protections for business travel as part of the agreement with the EU.
Intellectual property rights: The committee recommended the Government ensure the UK’s current intellectual property framework was protected under any future agreement. It recommended that the UK seek to prevent the establishment of future regulatory barriers through regulatory cooperation with the EU in this area.
Data adequacy: The committee recommended the Government should ensure that the EU confirm that the UK’s levels of data protection was comparable to that in EU law. The committee argued this was necessary to ensure that the flow of data continued between the UK and the EU.

Government response

The Government published its response to the committee’s report on 7 December 2020. It noted the outcome of the UK’s negotiations with the EU had still to be determined and said that as a result it could not offer a definitive response to some of the issues the committee had raised. However, in his forward to the response, Lord Grimstone of Boscobel, the Minister of State at the Department for International Trade, said he would update the committee once “sufficient clarity about [the UK’s] new trading relationship with the EU emerges”.

On the issue of national reservations, the Government said it would seek to achieve a baseline of EU market access similar to that achieved in the free trade agreements the EU negotiated with Canada and Japan. It said it was seeking to ensure the final agreement included measures enabling business travel from the UK to the EU. It also said that it was working with the Commission to ensure a decision was made on the adequacy of the UK’s data protection regime.

The Government also told the committee that it had proposed a mechanism by which UK professional qualifications might be recognised in the EU. However, it said agreement on this proposal had yet to achieved with the EU. On intellectual property, the Government said that it had made progress on achieving protection for existing UK intellectual property rights. However, it told the committee that companies would face charges for registering new trademarks in both the UK and the EU after the end of the transition period.

UK-EU Trade and Cooperation Agreement

On 24 December 2020, the UK and the EU reached agreement on a Trade and Cooperation Agreement (the TCA), setting out the future relationship between the UK and the EU. The TCA was subsequently ratified by both the UK and the EU.

Following the end of the transition period, the UK is non-longer covered by the automatic right to offer services across the EU. However, the TCA included non-discrimination obligations, intended to ensure that “suppliers or investors from the EU will be treated no less favourably than UK operators in the UK, and vice-versa”. It also included:

Reciprocal commitments intended to enable temporary business travel between the UK and the EU.
Measures intended to ensure that UK and the EU respect existing protections for intellectual property rights and their international obligations in this area.
Measures to uphold high levels of data protection standards.

The TCA did not include measures to ensure the mutual recognition of qualifications. However, it included a commitment to seek to establish reciprocal arrangements in the future for industries on a case-by-case basis.

Further information on the TCA is provided in the House of Lords Library briefing ‘UK-EU Trade and Cooperation Agreement’ (5 January 2021).

Reaction to the UK-EU Trade and Cooperation Agreement

Parliament passed the European Union (Future Relationship) Act in one day on 30 December 2020. This enabled the TCA to be implemented in domestic law.

During second reading of the bill in the House of Lords, Baroness Donaghy, the chair of the EU Services Sub-Committee, described the TCA as the “thinnest of thin treaties”. She said the TCA would have the following effects on the services sector:

[…] the Government have failed to achieve mutual recognition of qualifications or to maximise short-term mobility of labour, which will have a detrimental effect on creative industries. Anything involving selling goods or services will require a work visa. These barriers will have a disproportionate effect on small and medium-sized enterprises.

She also asked the government whether it intended to establish further agreement with the EU in the following areas:

On the wider issues not yet covered, if we fail to achieve a data adequacy agreement, the cost to business, at a conservative estimate, will be between £1 billion and £1.6 billion to arrange standard contractual clauses. Agreements on equivalence and regulatory co-operation in financial services, intellectual property, cross-border supply of services, rights of establishment and business mobility, in addition to the mutual recognition of qualifications, are all vital ingredients to professional and business services’ continuing success. What priority will the Government give to these areas?

Responding for the Government, Lord True, Minister of State at the Cabinet Office, did not address Baroness Donaghy’s question directly. However, he argued the TCA struck the right balance between enabling UK businesses to operate in the EU and ensuring the UK had the freedom to establish its own regulatory regime following the end of the transition period. He defended the TCA from the accusation that it was thin, arguing that a “thicker deal must logically be a closer deal; a thicker deal means more institutional ties, not fewer”.

European Union Committee oral evidence session

In February 2021, Michael Gove, Chancellor of the Duchy of Lancaster, and Lord Frost, then the Prime Minister’s representative on Brexit and International Policy, gave evidence to the House of Lords European Union Committee. During this evidence session, Baroness Primarolo (Labour) asked about the outstanding elements of the future UK-EU relationship. Lord Frost described the TCA as a “very comprehensive agreement”. However, he said:

[…] there are things still to be completed, for example on data, where we still await an EU decision on data adequacy. There is a bridge in the treaty for up to six months that enables that.

The European Commission subsequently adopted an adequacy decision on the UK’s data protections regime in June 2021. Lord Frost also told the committee that the UK and the EU were reviewing the issue of mutual recognition of qualifications. On the establishment of future agreements, Lord Frost said:

[…] there is a provision in the treaty that says that supplementing agreements between us are brought within this framework unless provided otherwise. There is a presumption that it all fits together. There are two such already, i.e. the nuclear co-operation agreement and the agreement on exchange of information. I expect there will be more over time.

European Union Committee report, ‘Beyond Brexit: trade in services’

The House of Lords European Union Committee published a report on March 2021 entitled ‘Beyond Brexit: trade in services’. It said the services sector had welcomed the fact that an agreement between the UK and the EU had been reached. However, the report warned significant challenges remained for the sector. It said that the TCA did not do enough to prevent the introduction of national reservations, arguing “UK service providers face a patchwork of complicated rules that vary by sector and member state”.

On the issue of business mobility, the committee welcomed the fact that the Government had secured some protections for short-term business travel. However, the committee said that the new restrictions on UK business travel following the end of freedom of movement rights still represented a major change in the UK-EU trading relationship for services. It said the impact of these changes had yet to be fully experienced because of the restrictions on travel introduced by countries during the Covid-19 pandemic.

The committee also said the absence of an agreement on the mutual recognition of professional qualifications would have a damaging impact on the sector. It recommended the Government and the sector should “explore all options”, including the establishment of a side agreement to the TCA on professional qualifications specifically.

The Government has yet to publish a response to this report. However, the Government did announce in the Queen’s Speech on 11 May 2021 that it would be introducing legislation to establish a new framework for the recognition of overseas professional qualifications in the UK. Further information is provided in the House of Lords Library briefing, ‘Professional Qualifications Bill [HL]: Briefing for Lords Stages’ (20 May 2021).