The UK government published the first of a number of “future partnership papers” on Tuesday, laying out its future customs relationship with the EU and the need for a transitional relationship after Brexit.
The document is very wide ranging and although quite vague, shows what the government is thinking regarding the Customs Union.
It isn't known yet whether the EU will agree to the terms laid out, and it is unlikely to start negotiating on a transitional customs union until the issues of the UK’s exit bill and Irish Border have progressed.
Regardless of whether a customs deal is reached it will only apply to goods, and there is little in the document to indicate how the UK will approach services trade with the EU.
The paper is pro-trade in tone and in general is keen to promote the UK’s services industry, which makes up 45% of all exports, the largest proportion in the G7.
It proudly boasts that the UK is the second greatest exporter of services in the world and to “capitalise fully on those opportunities, the UK will need an independent trade policy, with the freedom to set for ourselves the terms of our trade with the world.”
But there is little information on how the UK intends to minimise disruption in the trade of services with its largest trade partner, the European Union.
It also misses that the justification for many financial services firms to set up shop in the UK, London in particular, which is primarily to act as a base for trading with Europe.
London is not a particularly appealing as a trade hub for Asia, North America or Australasia and the need for firms to have clarity on European trade was quickly grasped by financial services advocate TheCityUK.
“While a transitional customs period is crucial to UK trade and exports, it’s important to remember that the majority of UK exports are services,” Miles Celic, CEO at TheCityUK said in a statement. “In fact, Britain’s trade surplus in financial and related professional services is greater than all other net exporting industries combined.
“Alongside a transitional customs arrangement, we also want to see urgent agreement by the UK and the EU27 on a broader transitional arrangement which includes services.”
Celic noted that in the absence of clarity on these transitional arrangements, firms are already starting to activate their contingency plans.
With no set contingency plan for the financial services industry even being mooted by either side, there is a real risk that firms will tire of background assurances from the UK government, and substantially reduce their presence in the UK, in favour of the greater certainty which will come from a substantial presence in the EU.
If that happens, the UK financial sector will be the ultimate loser. The government needs to urgently set out its plan for financial services trade with the EU, or risk the drain of firms and jobs to the continent continuing.