Service Sector To Struggle Amid Brexit: Industry experts warn of job cuts if action is not taken now

November 2, 2020


2 min read

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What's going on here?

The EU Services subcommittee Report warns that the professional services industry could suffer a “catastrophic hit” post Brexit. 

What does this mean?

The House of Lords, in a report published, stressed concerns that the UK’s service sector has been largely neglected by the government in trade negotiations with the EU. Some key industries of concern include the legal sector, consulting, accounting, engineering, and architecture. There are a number of cross-cutting issues facing the services industry that have been flagged in the report if the UK enters a no deal or a poor deal Brexit.  These include trade barriers relating to business mobility, mutual recognition of professional qualifications, recognition of registered and unregistered designs, and data adequacy. 

If the government does not address these issues soon, it is thought this will have a profound impact on UK exports. This sentiment is echoed by Baroness Donaghy, chair of the committee fears that “the sector, and the people who depend on it for their livelihoods will suffer”.

What's the big picture effect?

The absence of a bespoke trade deal could be a huge shake up for the UK economy – service exports accounted for £225bn of the UK’s gross added value (GVA), and 4.6 million jobs in 2019

If the UK’s heavy reliance on services is threatened, there could be massive economic repercussions. From a client perspective, commercial law firms will see a resurgence in certain practice areas. Commercial lawyers can be expected to advise clients on how to restructure their businesses as they are faced with increasing expenses. Also, contractual disputes may arise given the added difficulty of providing services. Many businesses will be unprepared in navigating around the new rules and red tape, and so lawyers will be expected to provide advice in the face of uncertainty. 

The UK’s legal sector will need to be aware of sector-specific challenges a no deal Brexit could bring. In particular, law firms will be exposed to a number of establishment and investment barriers in European countries. For example, domestic lawyers in France, Spain, and Sweden are prohibited from partnering with peers from third countries. UK lawyers may also be prevented from operating in the EU under UK-specific corporate structures, such as Limited Liability Partnerships (LLPs). 

Although the idea of a “Canadian Style” trade deal (where tariffs and quotas are avoided) has been floated, it is unlikely to be much of a saving grace for law firms and the service sector at large. This is because EU countries can still use “national reservations” to protect their firms from competition through adopting domestic corporate structures, or demanding that foreign professionals become resident in a certain country. 

With the clock ticking, it is clear the UK desperately needs to forge a deal with the EU that adequately deals with the trading barriers at stake. This is to not only prevent catastrophic hardship but also to allow businesses to make preparations. Will the UK and EU begin to prioritise this crucial issue? Or will the service sector be catapulted into chaos?

Report written by Jessica Jirh

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