In the relentless cacophony of the political debate about Brexit, one subject has been conspicuous by its near-absence: the impact of Britain’s departure from the EU on our gigantic services sector.
The sector – which includes firms as diverse as retailers, architecture practices and banks – accounts for 80 per cent of the nation’s GDP and, a lesser-known fact, 83 per cent of its jobs. Unlike manufacturing, services are growing in importance to the UK economy, thanks in part to a highly skilled workforce. And they will remain a major source of employment as service jobs are harder to automate.
Over the past two decades, growth in UK exports has been driven by services, and services exports now make up 45 per cent of Britain’s total exports but that doesn’t include services provided via a foreign subsidiary – something UK statisticians are exploring.
But these numbers do not tell the whole story. In services, we sell a lot more to the rest of the world than we buy from abroad. The foreign currency we earn from this surplus is critical to our ability to pay for imports of food, clothes and other essentials because, in goods trade, we have a large deficit.
The jewel in our trade crown relies heavily on demand from the EU – that is where we sent 41 per cent of our services exports last year. The main reason for such concentration is the existence of the EU single market, of which we are still part of.
But the way our politicians have interpreted the Leave vote, Brexit means leaving the single market.
The most talked-about achievement of the EU single market is the removal of tariffs but it has also lowered so-called non-tariff barriers, and these matter for services a lot more.
My husband, a eurosceptic turned europhile after studying law, likes to give this example of non-tariff barriers.
Imagine you are a bicycle maker in Nottingham. You’d like to sell your bikes in Northampton too but you can’t because your brakes are made to a different safety standard. Then, one day, the two cities decide to follow the same safety standard and, suddenly, you can sell your bikes in Northampton and the size of your market almost doubles. Unifying standards is one of the many things the European single market does.
Differing national requirements, whether for products or services, are just one of a myriad of obstacles to free trade. In fact, by examining practices in countries around the world, the OECD has identified almost 350 ways to restrict trade in services.
These include not recognising foreign qualifications, limiting the ability of foreign companies to service local clients and capping the number of visas granted to professionals from abroad.
Such barriers matter because far from all services can be supplied remotely. A British doctor wishing to treat German patients needs to see them in person. In contrast, a British gadget maker wishing to sell gadgets to Italy can simply send them in a truck.
Though not fully liberalised for services, the EU is still the most developed single market for services in the world.
For some industries, it trumps even the US, a single country. Because of different regulations in each US state, it is harder for a New York lawyer to service a client in California than for an Estonian lawyer to service a client in Portugal, to quote an example given by Mickaël Laurans from the Law Society of England and Wales in testimony to parliament’s International Trade Committee in June.
After Brexit, UK lawyers may well run into similar difficulties in the EU. Researchers at the UK Trade Policy Observatory, an independent expert group, have pointed out that, based on the OECD’s methodology of quantifying barriers to trade, British firms will find it four times harder to sell services into the bloc once we are outside the single market.
So why is our political class largely silent on the body blow that leaving the EU will deal to the UK trade in services?
With Brexiteers, the answer is clear: it is not in their interests to talk about the inevitable trade-offs involved in the radical change that is Brexit.
With pro-EU politicians and those trying to bridge the yawning gap between both camps of MPs and voters, there could be a number of explanations.
One, as some have suggested, is an illusion that UK services exports consist mostly of financial services – an industry long due its comeuppance, in the popular view. In reality, finance accounts for only about 20 per cent of the services we sell abroad.
Another reason may be the intangible nature of services. Queues of lorries held up by customs checks in Calais make for more vivid imagery than an office of lawyers twiddling their thumbs because they have suddenly lost all their EU clients.
But I wouldn’t rule out another, simpler possibility. As has become increasingly clear since the Brexit vote, many in our ruling class are spectacularly ignorant about the world’s largest trading bloc on Britain’s doorstep.
And just like an informed decision and an educated guess have a greater chance of proving right, knowledge is a good place to start in any endeavour – let alone one of Brexit’s proportions.
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