UK trade in non-financial services
15.The UK is a leading exporter of services globally, second only to the US.11 Services account for 44% of the UK’s total global exports, and the majority of services exports are in non-financial services (72%). As with goods, the EU remains a key trading partner and is the destination of 39% of the UK’s exports.12 According to the ONS, unlike goods, the UK’s services exports to the EU as a percentage of GDP are growing, up from 3% in 1999 to 4.8% in 2015.13
16.At 25%, services represent a relatively smaller proportion of the UK’s total imports. However, 94% of service imports are made up of non-financial services, of which approximately 50% come from the EU.14
17.Trade in services differs dramatically from trade in goods. In a recent report, HSBC and Oxford Economics note that while trade in goods is often associated with “container ships transporting manufactured products, or bulk carriers laden with commodities like wheat and copper”, it is “much harder to conceptualise trade in services, because services are less visible and tangible”.15 They define services broadly as being “intangible, non-storable activities”, which may require physical interaction between producer and consumer. They conclude: “Although services account for two-thirds of output in most developed economies, they still represent only around 20%–25% of international trade.”16 This observation is reflected in the UK, where services make up three-quarters of economic output but only 44% of trade.17
18.At the same time, technological advances and the growing interconnection of economies around the world have “multiplied the opportunities for trading services across borders”. Examples of commonly traded services include business-to-business services (such as providing legal and accountancy services), tourism services, transportation services, financial services and information and communications technology (ICT) services.18 HSBC and Oxford Economics found that services’ share of total world trade was growing.19 The Institute for Fiscal Studies reported that the UK’s trade in all types of services (including non-financial services) increased from 31% of exports in 1999 to 44% in 2015.20 This chapter explores the trends in the UK’s trade in non-financial services and the statistical difficulties in accurately assessing the value of services trade.
33.Services are a competitive, profitable and growing part of the UK’s trade. This is only partly reflected in the statistics on the UK’s trade in services. The data in the Pink Book only capture some of the ways in which services can be traded and probably underestimate the importance of services trade for the UK.
34.As with goods and financial services, the EU remains a critical trading partner for the UK’s trade in non-financial services. Trade with the EU in professional business services, digital and creative services generated a surplus of £9.8 billion for the UK’s trade balance in 2015. This was offset by large deficits in the UK’s trade in tourism and, to a lesser extent, transportation services with the EU (£11.4 billion and £1 billion respectively).
35.Nonetheless, the total volume of UK exports to the EU of non-financial services (£62.9 billion) is growing, and is much higher than the volume of exports of financial services (£26 billion). More jobs are also linked to trade and investment in these sectors.
36.In preparing its negotiating strategy, the Government will need to take account of many factors, such as the value of the sectors’ exports, the number of jobs that depend on them, whether the sectors are growing or declining, and, their strategic importance to the UK economy and the Government’s longer-term trade and industrial strategies, together with a range of cross-sectoral issues.
37.The Government therefore needs more accurate and detailed statistical information on trade in non-financial services than is currently available, particularly in relation to trade in modes 3 (establishing a commercial presence abroad) and 4 (the temporary movement of service providers across borders). Entering negotiations without such data could risk long-term, unintended consequences for the UK economy.