Promoting Internationalism
Annual Report 2021-22
Foreword from the Co-Convenors
Rt Hon Hilary Benn MP
Co-Convenor,
UK Trade & Business Commission
Peter Norris
Co-Convenor,
UK Trade & Business Commission
The UK Trade and Business Commission was established to scrutinise and recommend improvements to our trading and business relationships with both European and global trading partners in the aftermath of the UK’s departure from the European Union. We have hosted 38 evidence sessions, performed site visits, taken over 80 hours of live testimony from 234 expert witnesses, industry leaders and business owners and received written evidence submissions from over 200 organisations as part of an open consultation.
The Commission is the first of its kind, a cross-party, cross-sectoral endeavour bringing together business leaders and parliamentarians to assess the impact of the UK’s new trading arrangements. The Commission has taken evidence from business owners, politicians, trade associations and academics from all parts of the United Kingdom, as well as from those in the international community with UK interests. We have heard from those with direct experience or expertise, including businesses which trade internationally and with supply chains relying on international trade or needing access to an international workforce or skills.
This approach to understanding the UK’s new business and trading environment has enabled the Commission to engage constructively with the UK Government, supporting where appropriate and challenging where necessary. While there have been some signs of a UK Government response, we believe that the ambition to deliver ‘Global Britain’ would benefit from more engagement with the concerns set out in this report. We hope for greater engagement in 2022.
Leaving the European Union has raised more questions that it has answered for UK businesses and the UK's international trading policy more widely. With new customs arrangements coming in at the start of this year, new Free trade agreements between the UK and countries across the world, and a constantly evolving global political landscape, there is more work to be done. Therefore we intend to continue our work in the Commission for a second year.
We would like to thank all our fellow Commissioners, our Secretariat, the UK Government and civil servants with whom we have engaged and above all our witnesses. We are truly grateful for your help and support, and we look forward to the year ahead.
Foreword from the Expert Adviser
David Henig
Expert Adviser
UK Trade & Business Commission
The UK is a major economy. It is the world’s second largest exporter of services and around tenth for goods. We have long been Global Britain, with success stories from education to engineering, the BBC to JCB, and whisky or whiskey from all four nations of the UK. We cannot assume this will continue, not least after significantly raising barriers to our nearest markets, while global trade rules are threatened by the increasing assertiveness of the main trade powers, the US, EU, and China. There is intense competition between countries to boost their exports. Modern trade is far more complex than simply signing agreements to eliminate tariffs, as we have seen through all the sessions of the Trade and Business Commission. By bringing together diverse specialists we aim to deepen understanding of the realities of trade as a common base on which to address the challenges we face in maintaining our global position. UK competitiveness must be a common endeavour, yet too often we and our witnesses have found it difficult to engage with the UK Government on these issues. Our work shows there is a better, collaborative approach available.
EXECUTIVE SUMMARY
The UK has a long history of trade and global cooperation. But some of the ways we do business across the world, via cutting-edge scientists, popular touring artists and major sporting competitions, aren’t as wellrecognised as trade, unlike selling food, manufactured products, or financial and other services. UK trade is made up of contributions from all regions of the country, and from organisations large and small; a diversity of which we should be proud.
Given increasing global competition it will be a big challenge to maintain our position through what will be a major period of change in our trading environment. In particular, the 50% or so of our trade undertaken with the EU has been subject to significantly higher barriers since January 2021 in the form of new costs, paperwork and red tape. This has had an immediate impact particularly on our smaller traders without experience of trade outside of a single market. Larger companies such as those in the financial services sector have also been reconsidering their UK operating models and it may be easier for many to operate from neighbouring countries in the future.
To recognise this is simply to face realities rather than seek to turn the clock back. Our economy will change, but offsetting lost EU trade will not be as simple as signing agreements to reduce tariffs with distant countries. Yet too often, there has been minimal discussion of the practical consequences of leaving the EU, especially with those businesses most directly affected. This is not good enough.
We believe that meaningful engagement between Government and business on effective policies to maintain the country’s competitiveness will be the only method by which a ‘Global Britain’ agenda can be delivered.
For the UK success in the future, a more open approach is required, based around these principles:
Principles
Assessment of the diversity of UK interests across all sectors and regions, led by UK Government but backed up by independent experts;
Collaboration between businesses, devolved nations and regions to form a mutually beneficial and supportive relationship as 'Team UK';
Action to understand the challenges businesses face that the UK Government can help with, and put plans in place to tackle these, while not losing sight of the need for sustainable solutions
Trust as an essential component to building strong relationships domestically and with international partners, so we can better resolve issues as they arise;
Stability of regulations and trading arrangements, such that businesses can plan confidently knowing that there will not be sudden changes in regulation affecting their trade.
We recognise that officials in many parts of Government have sought to follow this approach but there appears to be a lack of consistent ministerial direction and engagement has been a particular problem.
The UK Trade and Business Commission will continue to seek constructive discussions and we are sure that our witnesses, businesses, devolved governments, specialists, interest groups, and elected representatives will do the same. We all have much to contribute.
If the UK is to continue to be truly global and ambitious in its outlook, this must be based on retaining and building upon the many strengths we possess. Our successful trading companies should be celebrated and supported through our new trading arrangements, rather than left in the dark. The UK government has a significant role in making this happen and there is much more that needs to be done to sustain and grow our trading position.
CONSOLIDATED RECOMMENDATIONS
During the evidence sessions of the UK Trade and Business Commission, witnesses have been asked to provide specific recommendations for government action to make a positive difference. These collectively demonstrate real-world, practical steps that would have a substantial impact on the UK’s economy
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• A more inclusive process is required given that international treaties have such lasting implications. The process by which the UK Government has, for example, negotiated and ratified the UK-Australia FTA with only limited scrutiny and involvement from industry stakeholders and civil society, has great potential to damage our interests.
• We need a more comprehensive, transparent and impartial impact assessment of how new trading arrangements are affecting the UK’s economic structure, particularly for SMEs and devolved nations and regions, and the UK's wider environment and sustainability commitments.
• The UK Government should regularly revisit the Trade and Cooperation Agreement with the EU and make necessary adjustments where possible, to ensure our interests are best supported. Areas such as data adequacy and financial regulation are particularly dynamic, and the EU is a hugely important market and regulator so strong ties are needed.
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• Long-term policy frameworks on issues such as regulatory regimes, visas and funding should be prioritised, rather than suggesting constant change. Such decisions should be made through an open process to ensure wide buy-in.
• The UK Government should maintain alignment with EU regulations as a general approach unless there is a strong UK interest in not doing so. For example, to gain a trade advantage or greater consumer or environmental protection.
• A comprehensive veterinary agreement with the EU would significantly reduce burdens for the food and drink industry. This would be in terms of both imports and exports, and could also contribute to the resolution of issues around the Northern Ireland Protocol.
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• The UK would benefit from a prioritised, coherent and widely agreed economic strategy, upon which clear trade policy covering areas such as industry, manufacturing, food and SMEs can be based, which in turn supports UK businesses to successfully engage internationally.
• Our trade strategy should be much wider than a simple export target, considering many goals such as the attraction of new productive inward investment, regional and sectoral growth across goods and services (widely defined to include areas such as culture and science) and overall sustainability. This would be based on a government-wide approach with clear ownership across government, rather than the current situation where the extent of Department for International Trade ownership of issues is often unclear.
• The UK must establish itself as a more attractive destination for the best talent around the world, while improving conditions and skills for all workers to develop our attractiveness for a wider range of foreign investment including in new technologies.
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• The UK Government needs to be seen as a trustworthy partner by other countries, working in collaboration with businesses, devolved nations and regions and others. We need more patient diplomacy and real dialogue.
• A more open and trusting relationship between the devolved administrations, the regions and UK Government is needed, where information is shared and administrations work together to achieve common goals.
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• The UK Government must tackle bottlenecks as they arise, working with the EU and other trade partners.
• Visa rules need to be tailored further to help UK businesses maintain many of their operations at reasonable cost. Better agreements with partners would also support UK interests, including British workers wanting to undertake seasonal work or European artists and designers wanting to support the UK fashion and music industries. Currently, such movement of people is more difficult and expensive than previously, meaning greater bureaucracy for businesses and higher costs for consumers.
• The SME Chapters in the TCA and other Free Trade Agreements are not sufficient to overcome existing barriers and there is a need for far greater support, at regional as well as national level, in conjunction with appropriate authorities.
• A successor to the Brexit Support Fund is an urgent requirement. This fund should be managed by the Department for International Trade and should have a simpler application process, with wider eligibility criteria and larger grants available compared to its predecessor, so that all businesses can access the financial support they need.
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• Disagreements over the Northern Ireland Protocol are currently the principal cause of friction in the UK’s relationship with the EU. This has undermined trust and affected progress on other issues such as the UK’s membership of the Horizon research programme.
• The operation of the Protocol has created problems for consumers and businesses in Northern Ireland and we would urge both the UK and the EU to find a pragmatic way forward in the current negotiations.
A CROSS-SECTOR OVERVIEW OF UK TRADE CHALLENGES
Modern trade does not fit neatly into categories. A product like a car is sold with services such as maintenance and traffic information. It may even be sold as a service through a leasing plan. University students travelling to the UK to study are services exports and UK tourists visiting other countries are considered imports. Small businesses often sell their products through major services platforms like the Apple Store or eBay and those buying may not know that these goods are being imported. Even without knowing it, most of us are involved in trade in one way or another so barriers to trade affect us all.
Rules by which trade is conducted may be set locally, for example minimum alcohol pricing in Scotland, or nationally, like visa or food quality rules, or internationally through treaties such as that establishing the World Trade Organisation (WTO). The implications can also be felt at all levels, from local economies to the global climate emergency.
The UK Trade and Business Commission’s work offers a broad analysis of the myriad issues that affect trade and our economy; issues that are not limited to a single UK government department or sector. The Commission brings together parliamentarians from all corners and nations of the United Kingdom alongside business representatives spanning various sectors, from renewables to retail. We invite witnesses to evidence sessions who are specialists in their own subjects, but who also see the broader connections, and we use this knowledge to build a bigger picture.
In presenting this evidence we have divided our work into the following categories, notwithstanding the links between them. For each we offer a summary of what we have heard, and what the UK should do:
Naturally, our work has focused on the impact of the major change in our trading relationship with the EU since 1st January 2021 but the global picture is also of interest. UK exporters want to “go global but remain European”. The Commission has sought to understand this picture across the UK, from the impact of the Northern Ireland Protocol to the effect on SMEs in all of the devolved nations and regions.
Our work continues. There will be new issues to consider in 2022, and many we have looked at in the past will return to public discussion. Some of the upcoming topics we will cover include:
The cost of living crisis
Free trade agreements
Re-evaluation of the impact on the Financial Services sector
Publication of annual trade figures for 2021
Review of the UK Government’s SME support strategy
ECONOMIC AND REGIONAL IMPACT OF NEW TRADING ARRANGEMENTS
The UK Trade and Business Commission has heard evidence from leading economists on both sides of the Brexit divide on the macroeconomic picture since our departure from the EU. There was a consensus that the new trading relationship with the EU would cause short-term economic losses that would have a particularly significant impact on Small and Medium Enterprises, though economists have disagreed on the longer term picture and likely future economic performance of the UK.
Small business representatives confirmed the challenges faced by SMEs, with owners from across the UK citing increased bureaucracy, confusion and a lack of constructive engagement from government since our new trading arrangements came into force on 1st January 2021. Small businesses in the devolved nations have faced a unique set of challenges exacerbated by the UK Government’s general reluctance to seriously consult with the devolved administrations, whether on trade policy or economic support schemes. Small businesses such as those in agriculture across Wales and Scotland are concerned they are the make-weight for large businesses in England in free trade agreements. Post-Brexit schemes to replace EU funding appear to be by-passing devolved schemes such as apprenticeship programmes in Wales, while the UK Government’s trade promotion efforts for food and drink may well be overriding existing devolved schemes and competencies.
“UK exporters want to ‘go global but remain European.”
Richard Rumbelow, Make UK
“Anything that changes trading arrangements, whether that’s to make them freer or less free, will have some impact on the structure of the economy.”
Julian Jessop, Institute of Economic Affairs
We have heard many stories from individual SMEs of the increased complexity they face in exporting to the EU, which now equals that faced in other global markets; hence there are no countries to which exporting is easy. Exporters have similarly been hit by increased paperwork, the need for specialists such as customs agents and large delivery companies, and handling complexities like commodity codes, origin, and VAT. This is all unavoidable in international trade outside single markets and customs unions, but is much more easily handled by larger companies which have the balance sheet strength to absorb additional costs. Guidance (where available) still needs to be interpreted, and support has been inadequate.
The impact on the economy as a whole remains to be seen, though the trade figures for 2021 look to be disappointing compared to other major economies. If manufacturers move their production lines away from the UK to the continent and high quality talent isn’t as interested in moving to the UK, this will have a big impact on the UK’s future economic performance. It is important the UK Government pays attention to the whole economy.
RECOMMENDATIONS
The Commission shares the Government’s expressed commitment to support small and medium-sized businesses to restore export activity, and we welcome the various government initiatives in place which seek to tackle the problems, including the Internationalisation Fund and the Export Support Service. However much more needs to be done to support SMEs. The government should consider the following:
The SME Chapter in the TCA and other free trade agreements is not sufficient to overcome barriers. Small businesses need far greater support, at regional as well as national level, in conjunction with appropriate authorities.
A successor to the Brexit Support Fund is needed. This fund should be managed by the Department for International Trade and have a simpler application process, with wider eligibility criteria and larger grants available compared to its predecessor to help businesses to access the financial support they need.
A comprehensive impact assessment is needed on how new trading arrangements are affecting the UK’s economic structure. In particular, the impact on SMEs and the devolved nations and regions should be considered.
A more open relationship between the devolved administrations and the regions and the UK Government is needed, where information is shared openly, and all work together to achieve common goals.
SESSIONS
This session considered the likely short and long-term economic impacts of the change in the UK-EU trade relationship, from membership of a customs union and single market, to the Trade and Cooperation Agreement. Witnesses were asked to comment on the immediate impacts and longer term prospects for UK-EU trade, including integration within cross-European supply chains, and whether the effects on trade with the EU will be compensated for by greater trade with the rest of the world.
Economists outlined the likely negative impacts on UK trade because of new barriers with the EU, especially a disproportionate impact on SMEs. They expressed differing views on the scale of immediate losses and likely future performance; but agreed on the importance of tracking the impact on trade between Northern Ireland and Great Britain.
Witnesses: Julian Jessop (Institute for Economic Affairs); Thomas Sampson (London School of Economics); Vicky Pryce (Former Joint Head of the UK Government Economic Service).
Barriers to Trade and Small Businesses: Cases From the Front Line
This session heard evidence from SMEs on the ‘front line’ of changes to our new trading arrangements with the EU as well as industry membership groups including the British Chambers of Commerce, the Federation of Small Businesses and Confederation of British Industry. The small businesses present put forward powerful testimony on the unique challenges they faced, detailing a dramatic rise in paperwork and costs, for both imports and exports. It was repeatedly suggested that businesses were seeing unsustainable costs passed onto their activities which would either have to be subsumed, passed onto the consumer, or lead to relocation. The membership groups provided evidence that these issues were commonplace for many small businesses, calling for more support to be offered through an extension of the SME Brexit Support Fund with loosened eligibility requirements to ensure all businesses get the support they need.
Witnesses: Verder Ltd (Industrial pump manufacturer and distributor Castleford, Yorkshire); EA Martin & Son Ltd (Hand tools wholesaler Coleraine, Northern Ireland); Fluorochem (Chemicals supplier High Peak, Derbyshire); Foxglide Sportswear (Sportswear clothing manufacturer Troon, Ayrshire); Jin Talog (Organic gin producer Carmarthenshire, Wales); James Sibley (Federation of Small Business); Suren Thiru (British Chambers of Commerce); Russell Antram (Confederation of British Industry).
UK Trade Deals and the Impact of Devolution in Scotland and Wales
In this session, the UK Trade and Business Commission heard evidence from those with expertise on the relationship between Whitehall and the devolved Governments. Witnesses discussed the nature of the dialogue between the UK Government and the devolved administrations and the regions over the last five years, considering the way Brexit and other trade deals have affected the devolution settlements and the extent to which there has been meaningful consultation.
Ministers from both the Scottish and Welsh administrations present gave an insight into intergovernmental relations between their devolved nations and the UK Government on trade. Although some relationships were working, in general it is evident that the UK Government has largely failed to consult and engage the devolved governments in a meaningful and consistent way. Business leaders in both Scotland and Wales spoke favourably about their devolved Governments, but there was desire for greater consideration of their specific needs in future talks whether about UK-wide arrangements or international treaties. Witnesses across the whole session generally agreed there was a need for the devolved administrations to be more involved in UK Government talks with the rest of the world when negotiating future trade deals.
Witnesses: Ivan McKee MSP (Scottish Government Minister for Business, Trade, Tourism and Enterprise); Vaughan Gething MS (Welsh Government Minister for the Economy); Jess Sargeant (Institute for Government); Elspeth Macdonald (Scottish Fishermen’s Federation); Dylan Morgan (NFU Cymru); James Withers (Scotland Food & Drink)
TRADE IN GOODS
OVERVIEW AND FINDINGS
The UK has significant strengths in the manufacturing production of a wide range of goods. These goods include cars, pharmaceutical products and machinery, traded both as intermediate and final products, within regional and global supply chains. One of the biggest new challenges for the UK in maintaining its position arises within those supply chains. This is due to the new barriers to trade with the European Union which are not faced by other countries in the region. In addition, the UK also faces shortages of labour in some areas which take time or money to overcome, and have caused immediate supply chain issues.
The Commission has heard evidence from a range of different sectors about their supply chain challenges and the problems this disruption is creating. This is most acutely felt in the food and drink, manufacturing and healthcare sectors. Issues include a lack of domestic skills, qualifications and training; new regulatory red tape as part of new customs processes and global supply chain issues caused by the Covid-19 pandemic.
The UK’s departure from the European Union means businesses big and small have faced rising trading costs. Smaller businesses in particular face delays when exporting products to Europe due to new regulatory red tape and increased costs for faster international deliveries. As a result, these new costs are being passed directly onto consumers resulting in cancellation of orders and lost business, while those European customers who do decide to buy from a UK supplier may face delays in receiving their goods. When these problems for small businesses are looked at in a wider context, the picture is clear: British exports to Europe are failing across the board.
This is limiting economic growth and the Government must take the necessary steps to support goods traders. The food and drink sector is particularly vulnerable, with many products facing long delays at borders and in some cases crossing borders multiple times. For perishable products with a short shelf-life, this is resulting in supermarket shortages and a backlog for other products moving through customs.
“If you’re a farmer and you want to remove a ditch from one of your fields you need to do an impact assessment and yet we had the biggest single trading change for the whole of the UK in our lifetime, affecting our biggest market, without that.”
James Withers, Scottish Food and Drink
“We all have food and drink producers in our constituencies, and for many of them the new obstacles are going to stop their exports, and therefore their growth. A Veterinary Agreement with the EU should be an absolute priority for their survival and growth.”
Dr Philippa Whitford MP
RECOMMENDATIONS
UK Government action is needed to tackle bottlenecks as they arise by working with the EU and other trade partners.
The UK Government must find urgent and sustainable solutions for the food and drink sector which has suffered a significant decline in trade since the 1st January 2021.
UK negotiators should work with their European counterparts to secure a comprehensive EU-UK Veterinary Agreement that would significantly reduce burdens for many exporting and importing businesses across the food and drink industry.
The UK Government should create a food standards agency that focuses on domestic production and compares it with both Europe and the rest of the world to ensure that British consumers continue to get quality products and that both retailers and producers can operate with greater confidence and remain competitive globally.
A long-term plan is needed to improve UK-EU trade.
The Commission appreciates the steps the UK Government is taking to reduce obstacles to trade between Great Britain and Northern Ireland, and we urge the Government to continue taking the necessary steps to resolve the problems affecting trade between the UK and the EU while implementing existing agreements in good faith.
SESSIONS
The food and drink sector is typically most affected by trade barriers (not just in the UK but globally), with both the highest levels of tariffs and the most onerous non-tariff barriers (typically sanitary and phytosanitary or SPS measures). This sector has been at the centre of stories about the impact of the changes to UK trade from 1st January 2021.
Experts from across the UK food and drink industry gave evidence to the Commission on the range of issues affecting the sector. It was generally accepted that the UK’s new position as a third country meant that trading with the European Union, and in particular exporting food and drink had now become more difficult, and in some cases was nearly impossible due to regulations. Witnesses discussed the importance of ensuring that food standards were kept equivalent or aligned with the EU. Creating a body to look at this could have a significant impact on ensuring that this was maintained going forward.
Witnesses: Emily Rees (ECIPE); Karin Goodburn (Chilled Food Association); Nick Allen (British Meat Processors Association); William Bain (British Retail Consortium).
“We have already heard from food and drink exporters that their business is suffering and it is now clear that this also applies to imports."
Sir Roger Gale MP
“The UK is a manufacturing success story, and the industry is firmly focused on helping maintain our international reputation. We need to see more action from the UK Government to sort out the issues we’ve seen with supply chains or it will be harder for us to continue producing world class products.”
Paul Girvan MP
Securing an EU-UK Veterinary Agreement
Veterinary specialists discussed the increased requirements for checks as a result of the Trade and Cooperation Agreement and the Northern Ireland Protocol compared to being in a single market; how paper-based UK systems are outdated; and why a comprehensive veterinary agreement between the UK and the EU on equivalent or aligned standards, plus groupage (the consolidation of goods from multiple suppliers in a single container), would drastically reduce barriers to trade in food products.
Witnesses: James Russell (British Veterinary Association); Gary McFarlane (Chartered Institute of Environmental Health in Northern Ireland); Richard Griffiths (British Poultry Council); Gail Soutar (National Farmers Union of England & Wales).
Driver Shortages and Effects on Supply Chains
This extraordinary session of the Commission was held in response to the pressing supply chain problems over August and September 2021, following reports of staff shortages in haulage and food production, empty shelves in supermarkets and petrol shortages. Expert witnesses across the retail and logistics sector were asked which factors they considered to be causing these difficulties, from driver shortages, to immigration policies, food security, complex supply chains, and Brexit.
Witnesses discussed the immediate and real concerns facing many retailers across the county as well as the longer-term effects they could have on the domestic economy. It was noted that an absence of workers from the European Union acted as a contributing factor behind these issues, but that there were other issues affecting the domestic economy such as historic pay for HGV drivers and other customs issues.
Witnesses: Andrew Opie (British Retail Consortium); Richard Harrow (British Frozen Food Federation); Alex Veitch (Logistics UK).
Protecting UK Manufacturing in a Global Supply Chain
Trade experts and industry representatives were invited to give evidence on a historic UK trade success story: manufacturing. Our witnesses acknowledged that there was much to be positive about in terms of UK manufacturing, but highlighted issues around the Government’s wider approach to the sector.
Industry experts urged the UK Government to pursue a more holistic approach to investment in manufacturing, including a nationally sustained programme and longterm strategy, to prevent the sector from becoming a “brain drain” for talent. Witnesses also warned that the UK’s reputation for innovation would be threatened without a long-term vision, and a failure to adapt to new technologies and trading environments would lead to fewer manufacturing jobs in the future.
Witnesses explained that the UK has the necessary resources to secure large scale manufacturing projects but the government’s limited understanding of global supply chains, short-term investment and an absence of industrial strategy has created a precarious position for the sector.
This position has become even more fraught since the UK’s exit from the EU, with new changes to the trading environment negatively impacting supply chains, and new red tape adding extra barriers to businesses. During the session, Richard Rumbelow, Director of International Trade and Member Relations at Make UK, which represents 22,000 firms across the country, told the Commission that 66% of his members were already reporting that new import checks brought in from the 1st January 2022 were hampering their businesses.
The Commission also heard how SMEs were being particularly impacted despite playing a fundamental role in both supplying the domestic market and in exporting, with witnesses urging the government to simplify processes for them. The Commission has previously made recommendations to the government to reintroduce and expand the criteria for the SME Brexit Support Fund, which was scrapped in June last year.
Witnesses: Tim Ward (Principal Consultant, Trade in Goods/Rules of Origin); Professor Jillian MacBryde (Strathclyde University); Dr Carmen Torres-Sánchez (Loughborough University) Simon Collingwood (University of Sheffield AMRC); Jack Semple (Manufacturing Technologies Association); Richard Rumbelow (Make UK).
TRADE IN SERVICES
OVERVIEW
The UK’s services industry accounts for a significant proportion of our economic output. Our strengths are diverse, including financial, cultural and creative industries, and hospitality as key contributors to the UK as a services superpower. As well as selling remotely, there is also a reliance on labour being able to move to and from the UK in many parts of the services sector; with Europe being particularly important as the nearest market. Since our departure from the EU, the hospitality industry as well as the cultural and creative industries have struggled, with negative impacts being enhanced by the Covid-19 pandemic.
Whether for moving data or selling products, equivalence is a big issue in financial services and other digitally focused sectors, exacerbated by the diminishing influence that Britain now has in setting global rules. At one session, a witness suggested that “There are jobs in Bournemouth, Manchester, Glasgow, Belfast that could find themselves at risk of being moved to Estonia, Poland, Lisbon. Not because of the regulation but because firms have had to rethink their whole business model as a result of Brexit.”
We already see Amsterdam, Dublin and Frankfurt taking on greater responsibilities following the UK’s departure from the EU, and while it is clear that London will always be a global financial hub, the extent to which it does is uncertain, and requires careful policy planning.
We also heard about people and skills issues. Witnesses suggested that the UK was becoming a less attractive destination, and Europe a more difficult environment for UK workers. Seasonal workers have faced significant barriers to accessing paid work in Europe, and in the cultural and creative industries, experts cited challenges faced by UK touring artists given the new rules and regulations now in place
“The UK lost trust and confidence from our services sectors by wasting time in negotiations and grandstanding before exiting the EU. We lost business opportunities, and the economy will suffer. While places like Amsterdam are thriving, we’re looking for faraway opportunities when we had great access to European markets on our doorstep.”
Professor L. Alan Winters
RECOMMENDATIONS
The government should focus on reducing tensions and rebuilding trust with the EU to create the political goodwill needed to improve current arrangements for UK services trade. This approach would benefit a range of the UK’s world-leading services industries, from financial services to the creative industries, as well as consumers.
Visa rules need to be flexible for UK businesses to maintain many of their operations. Whether it’s British workers wanting to undertake seasonal work, or European artists and designers contributing to UK fashion and music industries, trade is more difficult, generating higher costs to be passed on to consumers.
The UK Government should regularly revisit the TCA and make necessary adjustments where possible, to ensure particularly that services sectors are best supported. Areas such as data adequacy and financial regulation are particularly dynamic, and UK interests need careful consideration of EU developments in these areas.
The creative industries need a comprehensive support package. Our cultural sector is a hugely successful UK export. The Commission urges the Government to find solutions for UK touring professionals facing work permit and visa problems.
The UK must establish itself as a more attractive destination for the best talent around the world and improve conditions for domestic workers too. If the UK does not make the necessary changes, it will lose out on long-term foreign investment, global talent and the opportunity to develop new technologies.
SESSIONS
This session considered the short and longterm impact of the Trade and Cooperation Agreement on the UK’s financial services sector. Witnesses were asked to outline the nature of UK trade in financial services, the impact of new barriers to trade with the EU, and opportunities available elsewhere.
Witnesses suggested that lack of trust between the EU and UK was undermining the chances of securing better market access for the UK financial services sector. The session also heard how the lack of a more substantial financial services deal with the EU was leading to assets and jobs moving abroad and a decline in UK tax revenue. William Wright of New Financial LLP explained how 10% of assets in the UK banking system have moved abroad, which could result in a hit to the public finances equivalent to around 1% of total tax receipts.
Witnesses: William Wright (New Financial LLP); Emma Reynolds (TheCityUK); Nick Collier (City of London Corporation in Brussels); Philip Wood CBE (Former Head of Allen & Overy Global Law Intelligence Unit).
“There are jobs in Bournemouth, Manchester, Glasgow, Belfast that could find themselves at risk of being moved to Estonia, Poland, Lisbon. Not because of the regulation but because firms have had to rethink their whole business model as a result of Brexit.”
William Wright, New Financial
This session drew on evidence from experts in data and digital trade who highlighted the impact of changing regulations in this area on small businesses and the associated compliance costs that accompany a divergence from current regulations. Experts on digital trade and data warned of significant costs for SMEs and risks to protections for UK citizens if the Government dilutes current data protection rules by signing new trade deals which expose UK rules to legal challenge.
Witnesses: Adam Bowering (European Parliament); Sabina Ciofu (techUK); Javier Ruiz (Digital Policy & Advocacy Consultant); Dr Emily Jones (University of Oxford); Jim Killock (Open Rights Group); Duncan McCann (New Economics Foundation); Nick Ashton-Hart (Geneva Representative of the Digital Trade Network).
“Businesses need confidence, and uncertainty in many services sectors during the Covid-19 pandemic has been exacerbated by additional red tape and burdens from leaving the EU. It is harder to work in the rest of Europe, and even more difficult for their residents to work in the UK. If visas aren’t relaxed, and general deals around equivalence aren’t agreed with the EU, we will see productivity drop off, and many businesses will find it more difficult to trade and bring revenue to our economy. The EU is the largest trading bloc and a vital market for UK businesses. Decimation of access to that market is not an option.”
Tamara Cincik
Commissioners heard how the professional and business services are particularly strong for the UK, and that the UK benefits from these services being digitally enabled. There was discussion around how environmental services are fast growing, offering global opportunities for the UK. In terms of trade, witnesses gave evidence that both services exports and imports from the EU are significantly down.
Skills were discussed in greater detail in the second half of the session, with attention focused on the tourism sector, particularly in terms of seasonal workers. Witnesses agreed that the UK is now a less attractive working destination and that it has become increasingly difficult for British people to work in Europe due to new red tape introduced since leaving the European Union.
Witnesses: Sally Jones (EY UK); Conor James McKinney (Free Movement Law); Dr Ingo Borchert (UK Trade Policy Observatory); Professor Jun Du (Aston University); Charles Owen (Seasonal Business in Travel); Mark Hilton (London First); Ross Archer (Association of International Certified Professional Accountants).
Cultural and Creative Industries
This session heard from experts in the music, theatre, touring and fashion industries. Witnesses highlighted similar problems across their individual industries, with cabotage and visas cited as particular areas of concern. Witnesses emphasised that the UK’s global standing was being harmed because of new regulations over visas and working requirements.
Witnesses: Patrick Grant (Norton & Sons of Savile Row); Kash Bennett (National Theatre Touring Productions); Paule Constable (British Lighting Designer); Craig Stanley (Marshall Arts Ltd); Julian Bird (Society of London Theatre); John Horner (Models 1 Ltd); Simon Chambers (Storm Model Management); Deborah Annetts (Incorporated 22 Society of Musicians)
THE UK'S INTERNATIONAL RELATIONSHIPS
OVERVIEW AND FINDINGS
Whether it is general UK-EU relations, the specific case of Northern Ireland and the ongoing negotiations on the Protocol, or relationships with third countries such as Australia, it is clear that the UK Government has much to learn about how to conduct international negotiations outside the EU. Evidence suggests that the UK has signed and continues to sign agreements that, at best, do not deliver adequately for all parts of the UK economy, and at worst, could threaten the UK’s international standing with our main trade and diplomatic partners in the EU and US.
In particular, witnesses emphasised repeatedly that the UK needs to build trust with our partners, while pursuing the interests of the whole country. Strong, trusting relationships are the basis for trade deals with mutual benefits, that in turn provide legal certainty for business. The Government must carefully consider long term implications. We have already seen problems with the Northern Ireland Protocol being agreed in 2019 despite significant opposition from some local political parties, and witnesses suggested that the impacts of the Australia FTA on UK agriculture may not be felt for up to 15 years.
Regarding the EU, we heard that the UK Government has been slow to realise that negotiating as a big member state inside the EU is a radically different experience to negotiating as a third country. As the UK seeks to establish our new position, the government must use all the assets at its disposal to improve trade deals for the UK. This requires greater openness. While relations have been damaged, there remain shared interests and desire for better relations from many in the EU.
We also need to carefully consider the diplomatic implications of our commitments. Whether it is the unprecedented response of the US refusing to agree a deal on steel tariffs, the UK’s threat to invoke Article 16 of the Northern Ireland Protocol, or the precedent set by the removal of tariffs on Australian food for other countries with whom we negotiate, our actions have consequences. We need far greater consideration of how our behaviour is seen by the international community.
“It has to very much be a Team UK approach in the future.”
Georgina Wright, Institut Montaigne
“I was quite startled when the British Government agreed to the Protocol in its current form.”
David Lidington, Former Chancellor of the Duchy of Lancaster
RECOMMENDATIONS
The UK Government needs to be seen as a trustworthy partner, working in collaboration with businesses, devolved nations and regions and others, to achieve more of our goals. We need less megaphone diplomacy and more patient diplomatic emphasis on building productive relationships.
Given that international treaties have such lasting implications, the process by which the UK Government has negotiated and ratified these, with only limited scrutiny and involvement from stakeholders, has great potential to damage our interests, therefore a far better and more defined process is required.
“The UK should no longer do diplomacy through a megaphone and it needs to begin rebuilding trust with partners across the world. It is imperative that the UK Government begins to work collaboratively with business and parliamentarians and that it looks to adopt a much more proactive and positive approach when speaking with Europe and the rest of the world.”
Paul Blomfield MP
“A successful UK is one that is clear in adopting strong and well-thought out strategies, and works with other countries to achieve its interests."
Alison Williams
“As exporters we know the importance of relationships with other governments to facilitate trade, we need to be able to rely on these to trade successfully.”
Dr Geoff Mackey
SESSIONS
Witnesses explained how a free trade agreement with Australia would have a real impact on British farmers, with meat produced to lower standards undercutting the domestic market, but potentially with effects only seen over 15 years. Concerns were raised that this would repeat itself in future trade deals, and that this was acting as a proxy for future trade agreements with the likes of the USA in which food standards are of significant concern. The UK Government could have done better but was in a hurry to sign a deal at any cost. Points were also raised about animal welfare, as well as more broadly around long-term food security.
Witnesses: Jilly Greed (Ladies in Beef); Phil Stocker (National Sheep Association); Séan Rickard (Former Chief Economist at the NFU); David Bowles (RSPCA); Dmitry Grozoubinski (Former Australian Diplomat & WTO Trade Negotiator).
State of EU-UK Diplomatic Relations
This session saw witnesses from the EU and UK give evidence on the state of relations, discussing issues around the Trade and Cooperation Agreement, the Northern Ireland Protocol, general diplomacy, and the conduct of negotiations. Witnesses suggested that elements of megaphone diplomacy had found their way into everyday political discourse, making cordial relations more difficult. Given the shared cross-border challenges such as climate change and regional security issues, there will be a continued interest in working together, but the UK must realise its position is much changed from that of a large member state, and that strong relations are not an EU priority.
Witnesses: Georgina Wright (Institut Montaigne); Nathalie Loiseau MEP (Former French Minister for European Affairs); Terry Reintke MEP (Vice Chair of the Greens/EFA Group in European Parliament); Lord Peter Ricketts (Former British Senior Diplomat and Crossbench Peer); Ambassador João Vale de Almeida (EU Ambassador to the UK).
We considered several issues around the negotiation, implementation, and operation of the Northern Ireland Protocol, and the potential implications of the UK invoking Article 16, including a possible trade war with the EU, and cooler relations with the US. There was general agreement that such threats have not been helpful, particularly as the UK would suffer more from any EU response. When asked how the UK Government and EU should work better with the political process in Northern Ireland, witnesses suggested that elected officials and business leaders in Northern Ireland should be brought in more closely. There was also acknowledgement that a formal structure to enable constructive discussions would be very beneficial, and that a lack of trust between the EU and the UK Government was problematic.
Witnesses: The Rt Hon Sir David Lidington KCB CBE (Former Chancellor of the Duchy of Lancaster); Professor Katy Hayward (Queen’s University Belfast); Seamus Leheny (Logistics UK, Northern Ireland); Alan Beattie (Financial Times)
SUSTAINABLE MODERN TRADE
OVERVIEW AND FINDINGS
Modern trade is diverse, often highly complex, underpinned by a dense web of local, national and global rules, and it has a profound impact on livelihoods and the environment. While EU members share rules to allow barrier-free trade, for other countries there is a need to carefully balance different elements such as trade and regulation, alongside global challenges like the climate emergency
Many of the UK’s global strengths come in the most complex areas where international collaboration means navigating multiple rules, from advanced manufacturing in multi-country supply chains to scientific research featuring international collaboration. To maintain or strengthen our position we need to understand properly the many challenges we face, which will differ across sectors.
For example, copying EU regulations will not replicate the seamless trade of member states. Yet, divergence may be costly, as one witness said of a key issue, “there’s always going to be this spectre of the UK’s data protection laws changing and then that data adequacy decision being taken away from us” 3 . In chemicals, the cost of non-tariff barriers has been estimated as nearly four times that of the EU WTO tariffs. Examining a different field of research publications, we heard that in 1981 only 5% had international co-authors, now it is closer to 55%.
In the case of medicines research, these issues can be matters of life and death. Our choices will also affect local economies and the climate emergency. Consumers want access to safe, cheap products, and producers want access to other markets at competitive prices, as well as expert staff at reasonable visa cost.
Navigating modern trade requires consistent decisions that lead to deep, trusting relationships between business and the UK Government, as well as internationally between countries. They will be particularly vital as we start to reimagine trade for a zero-carbon future.
“Decisions on the UK’s future regulatory choices are hugely important, yet we have a [UK] government that seems to want this to all be secret, under some simplistic banner of EU bad, rest of world good.”
Caroline Lucas MP
RECOMMENDATIONS
A policy framework that prioritises long-term decisions on issues such as regulations, visas, and funding, which are not subject to constant change. Such decisions should be made through an open process for wide buy-in.
An approach to EU regulations where we seek to maintain alignment unless there is a strong UK interest in not doing so, which could be for trade advantage or greater consumer or environmental protection.
A single point of contact in the UK Government that leads on modern and inclusive trade and produces a strategy on the subjects covered - not a simple export target, but a whole of UK Government approach including e.g. research collaboration.
An independent assessment by the UK Government of how individual trade deals will impact our zero-carbon ambitions.
“We are starting to hear about increased bureaucracy around clinical trials and we just feel really strongly we’ve got to try and reduce that as much as possible. This is why the UK was so involved in harmonising those research regulations that led to the EU clinical trial regulation.”
Laura Williams, Cancer Research UK
“What’s really missing in this landscape of regulation post-Brexit is quite a comprehensive and systematic audit of where the regulations stand post-Brexit and what are the choices that the UK wants to make going forward.”
Anton Spisak, Tony Blair Institute
SESSIONS
Science, Research and Innovation
It is widely accepted that the UK is a science superpower, but funding questions and prolonged uncertainty around the level of access to the EU Horizon programme could jeopardise the UK’s future in this field. Expert witnesses across science, research and innovation cited visa costs and staffing shortages as emerging issues. In a world of ever greater international collaboration it was generally accepted that having access to Horizon is important, alongside more certainty and long term stability as regards funding for research and development.
Witnesses:: Geeta Nathan (Innovate UK); Irene Graham OBE (ScaleUp Institute); Naomi Weir (Confederation of British Industry); Jamie Arrowsmith (Universities UK International); Professor Chris Pearce (University of Glasgow); Martin Smith (Wellcome Trust).
COP26: Updating Trade for the Climate Crisis
This session heard evidence from a range of experts on climate change, with witnesses highlighting that the UK Government must pursue sustainable trade deals. There was acceptance that the UK is vulnerable to fossil fuel dependency. It was recommended that the UK Government create a strategy for targets around emission reductions, as well as being prepared for a future in which the price of fossil fuels will be very low.
There is a global disconnect between trading priorities and climate change mitigation, which needs to be addressed and underpinned by proper environmental impact assessments. There was discussion about the UK’s decisions to increase trade with countries which are further away. It was generally felt that products should be sourced more locally where possible, but in some cases the comparative benefits of countries (i.e. climate geared towards producing particular products) can be more environmentally efficient. There was commentary around the UK-Australia free trade agreement ‘incentivising poorer climate practices’ with the carbon footprint of Australian beef being quoted as a main driving factor for these concerns.
Witnesses: Professor Paul Ekins (UCL Institute for Sustainable Resources); Professor Tim Jackson (University of Surrey); Katie Kedward (UCL Institute for Innovation and Public Purpose); Ruth Bergan (Trade Justice Movement); Emily Lydgate (University of Sussex); Charles Arden-Clarke (Former Head One Planet Network (10YFP) Secretariat, UN Environment Programme).
Regulatory Approaches: Pharmaceuticals, Medicines & Chemicals
This session saw witnesses from the EU and UK give evidence on the state of relations, discussing issues around the Trade and Cooperation Agreement, the Northern Ireland Protocol, general diplomacy, and the conduct of negotiations. Witnesses suggested that elements of megaphone diplomacy had found their way into everyday political discourse, making cordial relations more difficult. Given the shared cross-border challenges such as climate change and regional security issues, there will be a continued interest in working together, but the UK must realise its position is much changed from that of a large member state, and that strong relations are not an EU priority.
Witnesses: Emily Crossley (Duchenne UK); Mark Dayan (Nuffield Trust); Laura Williams (Cancer Research UK); Anton Spisak (Tony Blair Institute for Global Change); Kate Ling (NHS Confederation); Dr Michael Warhust (CHEM Trust).