Don’t forget us in trade talks with EU, UK service providers say

The United Kingdom must not exclude its huge services industry from a planned trade deal with the European Union as the price for reclaiming control over its economy, a group representing UK employers said on Monday.

The Confederation of British Industry (CBI) urged Prime Minister Boris Johnson to secure a post-Brexit deal that will not leave out service industries, such as finance, something many employers fear if London and Brussels stick to their guns.

Avoiding costly red tape and customs complexities were also vital for goods companies, the CBI said.

The UK and the EU are expected to begin talks for a trade deal next month, leaving little time before a post-Brexit standstill period expires on December 31.

Most economists polled by Reuters this month thought the most likely outcome would be a goods-only deal.

Relations between Johnson and some business groups have been strained by his dismissal of their concerns about the UK’s exit from the EU.

Carolyn Fairbairn, the CBI’s director-general, said UK companies backed many of the government’s objectives for the negotiations, such as securing zero trade tariffs and allowing free flows of data.

“In other areas, how the government strikes the balance between access and control is less clear,” she said. “All efforts must be made in these talks to save exporters time and money, avoiding new paperwork, costs and delays.”

The CBI said it accepted that its once-favoured scenario of the UK remaining in the EU’s customs union was now dead, posing challenges for the world’s fifth-biggest economy.

London and Brussels are far apart on key issues, chief among them the UK’s insistence that it must be free to set its own rules for business while the EU wants a so-called level playing field on issues such as the environment and state aid.

The UK is also turning to a potential trade deal with the United States, with Johnson prepared to begin talks with the US in the coming two weeks, UK news outlet the Telegraph reported on Sunday.

The UK government’s “red lines” for the trade negotiations, due to be published next week, are expected to push back against US demands for its pharmaceutical firms to have greater access to the UK market, the report said.

The CBI said it agreed with the government that the UK had to be able to seize new opportunities by setting regulations for emerging technologies in areas such as artificial intelligence, digital payments and quantum computing.

“But for the UK to truly be spear-heading this new frontier, its world-leading industries must not be distracted by significant new burdens on their exports,” it said.

Higher taxes inevitable

On top of trade negotiations, the UK’s first post-Brexit budget may raise taxes if the government wants to ramp up spending, according to the Resolution Foundation, a British think-tank.

New finance minister Rishi Sunak, whose predecessor Sajid Javid unexpectedly quit less than two weeks ago, is due to announce the tax and spending plans of Johnson’s government on March 11.

Javid’s surprise departure led to speculation that Johnson wanted to raise spending by more than Javid’s budget rules allow. 

Johnson plans to help voters in struggling regions who backed him in December’s election by spending more on infrastructure, a big shift for the Conservative Party which has focused on fixing the public finances for the past 10 years.

“But new roads and rail lines are only part of the story,” Jack Leslie, a Resolution Foundation economist, said.

Johnson has also announced the biggest increase in spending on day-to-day public services in 15 years.

“Higher spending will require higher taxes,” Leslie said.

The UK’s fiscal forecasters assess each budget against fiscal rules that the finance ministry sets itself. Javid’s rules aimed to balance day-to-day spending against tax revenue within three years.

The Sunday Times reported that Sunak was considering pushing back that target to five years.

“The big question for (Sunak) is the extent to which he undoes big spending cuts to day-to-day public services, and how that is paid for,” the Resolution Foundation said.

Sunak could increase tax revenues by cutting back incentives for private pension contributions, fixing loopholes in inheritance tax and reforming property taxes, it said.