Speakers at today’s (31 January) UK in a Changing Europe (UKICE) conference on the state of the UK economy have said that the country’s advantage in services exports is not being fully exploited, and that making the most of it requires a clearer, dedicated services strategy.
Beyond finance
Jonathan Portes and Sarah Hall of UKICE presented on a new report on the prospects for the UK’s economy and exports, which contends that, though the UK economy is in a troubled position, exports is one of several areas in which improvements could be made.
Portes, a professor at King’s College London, noted a recent report, covered previously by the IOE&IT Daily Update, that found that the UK’s services exports were becoming less reliant on financial services, with everything from legal to architectural services contributing to growth for the sector.
He said:
“The UK economy is not just a highly-paid financial services sector with a ‘backward’ rest of the country. There are other high productivity service sectors that are increasingly and arguably more important than the financial sector in the medium-to-long term.”
UK investment, however, is at the lowest rate of all countries in the G7, something which Hall – a professor at Cambridge University – described as often a result of a “lack of certainty”, stoked in part by short-term thinking in policymaking – a recurring theme throughout the presentation.
UK advantage
Turning to the global picture, she said:
“A large part of global economic growth in the future is likely to come from high-productivity services. That’s an area of comparative advantage for the UK.”
The UK’s service industries have maintained their high levels of performance following the country’s exit from the EU, particularly compared to the country’s manufacturing exports.
Yet there are areas where it has yet to fully develop is comparative advantage, she said, noting services working towards net zero and AI development in particular.
She stipulated that these opportunities are not “unique to the UK”, and added that it was important to adjust the country’s regulatory framework to avoid unnecessary extra burdens on firms compared to those in the US and EU.
Strategy needed?
Turning to the UK’s trade policy post-Brexit, Hall said “we need to be realistic” regarding the prospects for a major trade deal with the US.
However, she said there was opportunity for deals with rapidly growing economies that could fully utilise the UK’s advantage in high productivity services, noting that “there is scope for the UK to be clearer on what its services trade strategy is”.
“That said, there are some interesting innovations in the trade agreements that the UK has struck, particularly regarding data and digital services. The UK has demonstrated innovation in the Japan deal, for example.”
She also marked out the recent deal with Switzerland on financial services. This, she suggested, used a “different method for granting access to each other’s markets” in the form of a regulatory deference model. This kind of innovation regarding services trade could be a foundation for a more cohesive services trade strategy.
The calls for a stronger services export strategy echo those of the ‘Global horizons: realising the services exports potential of UK nations and regions’ report issued last year by the Institute of Export & International Trade (IOE&IT) in partnership with Flint Global. It can be found here.
'Short-term’ focus
Developing such a strategy requires a move away from what both Hall and Portes labelled a short-term focus in UK policymaking.
As an example, Portes noted the UK government’s recent raising of the salary threshold for visas to work in the UK, something he said was sound in terms of its underlying rationale regarding the UK workforce but which had been done abruptly with little consultation.