The focus is on goods but services generate 80 per cent of national outputby Guy de Jonquières / January 22, 2019 / Leave a comment
Services industries are the engine of Britain’s economy. They generate 80 per cent of its national output, an even bigger proportion of jobs and almost half its exports, on which—unlike on goods—it earns a healthy surplus. And in a number of areas, such as banking and finance, media and legal services, they are world leaders.
Brexit threatens to deal a heavy blow to this flourishing sector, possibly even harder than to manufacturing. Yet, except for concerns expressed about the City of London’s future, the impact on services has received far less attention than on manufacturing, a far smaller sector of the economy. That is in part because the problems of goods trade across the Northern Ireland border have dominated the increasingly chaotic Brexit debate in Westminster.
The independent National Institute for Economic and Social Research estimates leaving the single market, where 40 per cent of Britain’s services exports are sold, and concluding a free trade agreement with the EU, would reduce UK-EU services trade by 61 per cent in the long-term, or more than a quarter of total UK services trade.
Services industries embrace a hugely diverse spread of activities, from hairdressing and street-cleaning to education, media and brain surgery.
Roughly two thirds of the UK’s services exports to the EU are supplied across borders from bases at home—something the single market has greatly simplified. It means a company based in London can supply customers in France or Germany almost as easily as in Scotland or Cornwall.
After Brexit, barriers are likely to go up around the EU, making exporting from the UK more complicated and expensive. That prospect is prompting many British services companies to safeguard their access to the single market by shifting operations and staff pre-emptively to locations in Ireland or on the continent, many of which are competing energetically to woo them.
Of course, as Brexiteers like to point out, the single market for services is incomplete, far more so than for goods. But it is still in some respects more integrated than the US market where, for example, many states restrict public procurement and construction contracts to local suppliers and do not recognise legal or medical qualifications earned in other parts of the country.
EU single market rules, by contrast, require all member states…