Brexit Means U.K. Lawyers and Bankers May Not Be at Your Serviceby
Architects, lawyers, broadcasters may be among Brexit losers
U.K. must negotiate ‘monstrously complicated’ deal with EU
A decade ago, Fraser Bell set up his Northern Star technology company in London. After the Brexit vote, he’s not sure he’d do it again.
“Until politicians can stop politicking and just get on with it, I wouldn’t make a major investment in London,” says Bell, 51, who now employs 20 people. “Because you’re never going to be sure of the return.”
So far, much of the debate around Brexit has focused on the impact on manufacturers operating in the U.K. such as Nissan Motor Co. Yet, service providers like bankers, lawyers and technology firms now account for about 80 percent of the economy and are also starting to fear the worst as tension between the U.K. and the European Union mounts. Inside the EU, they can sell across world’s largest trading bloc, mostly without significant barriers. Outside, they could face hurdles.
“Architects, lawyers, accountants, those more regulation-intensive sectors, they really do profit a lot from the European single market in services,” said Ingo Borchert, an economist at the U.K. Trade Policy Observatory. Striking a free-trade agreement for services with the EU will be “monstrously complicated” given the short time period.
Britain is the globe’s second-largest exporter of services after the United States. In 2016, total service exports amounted to almost 250 billion pounds ($322 billion), compared with 300 billion pounds of goods.
Outside the EU, services firms could face restrictions such as limits on taking stakes in European companies, and controls on access to some sectors, according to London First, a group that campaigned against Brexit.
Already, banks operating in London such as JPMorgan Chase & Co. are scoping out other bases in the EU, and other sectors are also keen to remain inside the EU.
Last week, cybersecurity company Tenable Network Security Inc. opened its new international headquarters in Dublin, on the banks of the River Liffey. Tenable employs about 35 people in both Dublin and London, but chose the Irish capital to expand. It now plans to add more than 70 people in Ireland over the next two years.
“The decision was already in process before the Brexit vote but certainly it reinforces our decision,” Amit Yoran, Tenable chairman, said.
U.K. Prime Minister Theresa May is aiming to strike a wide-ranging free-trade accord with the EU that provides similar access to the current arrangements. For some sectors, like air transport, though, there’s no detailed precedents to draw on, and if the FTA fails, services fall back on World Trading Organization terms.
Trouble is, “most WTO founding members did not make very ambitious commitments on market access and national treatment,” said Borchert.
If EU members imposed restrictions to the full extent allowed by the WTO, the cost to the U.K. would be around 27 billion pounds in services exports, London First said.
Take broadcasting. More than 600 channels based in the U.K. including Disney, Sony, NBC and the Discovery Channel all need just one license to broadcast across the EU in multiple languages.
“If they want to keep exporting channels, they’ll have to move someplace in the EU where those channels can be licensed. It would certainly be a reason to move not insubstantial operations to the continent, or to Ireland,” said Alice Enders, director of research at Enders Analysis. There’s no precedent of a free-trade agreement with audiovisual services, and “that’s why people are worried,” she said.
About 800 England and Wales-qualified lawyers were admitted to the Irish Roll of solicitors last year, a move driven by Brexit, according to the Law Society’s Director General Ken Murphy. He described the influx of new lawyers as a “tsunami.” Another 200 have registered this year.
Some spy opportunity, though. Scurri, an Irish company that connects retailers with shipping providers, plans to open a London office within a year. Founder Rory O’Connor isn’t concerned about changes to EU cross-border data sharing currently allowed by the single market.
“This is going to be advantageous for us, in that the more complexity that’s there, which everybody else will hate, we make simple,” O’Connor, 43, said. Scurri helped its customers ship to more than 200 countries last year, so it’s used to dealing with non-EU regulation, he said.
As for the London office, which will focus primarily on U.K. sales, “the market is big enough to warrant it,” he said.
Moreover, many European countries apply more liberal regimes than the WTO demands, and services companies are continuing to invest in the U.K. Last year, for example, Facebook Inc. said it planned to increase its U.K. headcount by 50 percent.
Back at Northern Star, Bell still worries.
“At the moment, we can just jump on the Eurostar and get to Paris or Brussels with very little border control, and it’s achievable to deliver a day’s worth of work in those countries and get back to the U.K. the same day,” Bell said. Changes “may make that unworkable, or certainly increase costs,” he said.