U.K. Services Left Out of Brexit Talks, Think Tank Warns

(Bloomberg) -- Britain's dominant services industry is being left out of the country's post-Brexit trade negotiations, putting a large part of the economy at risk of profound damage, according to a report by the U.K. in a Changing Europe.

Services account for 80% of the nation's economy and about 30 million jobs, yet the government has paid the sector little attention, the think tank based at King's College, London said on Thursday.

The European Union is the primary destination for Britain's service exports, and the single market has allowed greater cross-border trade than is typical of free-trade agreements, according to the group.

Even if Britain and the EU strike a trade deal this year, the sector will still suffer and, without one, exporters would face significant barriers because the World Trade Organization's rules “are much weaker for services than goods,” the think tank found.

Financial services firms would depend on a unilateral EU decision on equivalence, which could be revoked at short notice, it said.

There is also the risk that service industries like finance, health, education and haulage could face staff shortages when free movement of people ends.

“This serves to underline the largely political nature of the government's Brexit priorities, focused on regulatory autonomy rather than any economic implications,” Anand Menon, the U.K. in a Changing Europe's director, said in a statement.

Negotiations between the U.K. and its biggest trading partner appear to be deadlocked, with the latest talks set to end Friday without a breakthrough. That raises the prospect that Britain will crash out of the bloc without a deal at the year-end -- heaping more pain on businesses already reeling from the coronavirus.

Another risk is that the U.K. is forced to “do some sort of skinny FTA, under duress,” Jill Rutter, senior research fellow at the think tank, said on a webinar Thursday.

“The things that are too difficult to negotiate, because they're new, they're different, and raise lots and lots of issues for the EU, will be those demands on services,” she said. “So you will end up with an FTA that probably works quite well for the EU -- an FTA that gives zero quotas, zero tariffs, everyone will hail it as a triumph -- but it won't meet the specific needs of the U.K. service sectors.”

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