Government must tackle 'significant barriers' for small UK service businesses trading with the EU

British companies offering services face big challenges in doing business in the European Union following Brexit and small firms are being particularly hard hit, a report by House of Lords peers has warned.

The House of Lords EU Services Sub-Committee said despite the Trade and Cooperation Agreement (TCA), "the UK and EU still have work to do in overcoming the significant challenges that remain for trade in services".

With trade in services from the UK to the EU in 2019 worth £317bn in exports and £217bn the other way, the report said it was in both sides' "mutual interests" to ensure trade "continues to flow as smoothly as possible".

The TCA, that was agreed in December, made some agreements but lots of challenges remain. Among the points highlighted by the report were:

• The rules for what services businesses can do in the EU vary by member state which the committee said means business owners "face a patchwork of complicated rules". It warned that this is hitting "small operators the hardest" and "the government should do all it can to support and offer guidance to these businesses".

• Mutual recognition between the UK and EU of many professional qualifications have not been agreed which "could have a serious impact on many sectors". The report said "the government and regulators should explore all options, including a side agreement to the TCA, to alleviate this issue".

• The report recognised that the UK "punches above its weight" in the creative industries with the sector worth £100bn in 2019. After being hard hit by the COVID-19 pandemic, "getting the relationship with the EU right" is important but the committee said it was "deeply concerned about the potential impact of mobility provisions in the TCA on the over two million people employed in the creative industries, which could make touring prohibitively bureaucratic and expensive".

The Committee's chair, Baroness Donaghy, said:

"The EU-UK trade agreement has secured important trade liberalisation in some areas of trade in services. However, there are some significant gaps. The EU hasn't granted the UK the bulk of the financial services equivalence decisions required to enable transactions to flow freely. And the two sides are yet to agree on future regulatory cooperation.

"There will be real problems for UK professionals whose qualifications are not recognised in the EU under current arrangements. The TCA's business mobility provisions haven't been fully tested because of COVID-19 travel restrictions, but are a key concern for service providers. Opportunities available to students and universities are restricted without access to the Erasmus+ programme.

"The mobility provisions in the TCA will also make it very difficult for people working in the creative industries to tour in the EU. The Government must resolve this issue with the EU before international travel resumes.

"The services sector is at the heart of the UK economy, so it is essential that the government and EU makes improvements to smooth UK-EU services trade. Too much is at stake if we don't."

The report stressed the importance of the UK service sector saying it is "at the heart of the economy with "the UK...a world leader in many services industries". It  accounted for 80% of total UK economic output in 2019.

Services industries are spread across the UK, and many sectors consist mostly of small businesses, the Committee noted. In 2020, there were 4.5m businesses in the services sector, accounting for three quarters of all businesses in the UK.

**If you're a service business owner facing challenges in doing business with the EU, we want to hear from you. Email Dan and tell us your experiences, concerns and questions.

Get advice and insights on how small businesses and the self-employed can trade with the EU via Enterprise Nation's Brexit Advice Service.**