Brexit barriers hinder growth in Scotland’s service sector

A new report by the Fraser of Allander Institute (FAI) economics research centre at Strathclyde university and Prosper has highlighted the extent to which exporters of services in Scotland face Brexit-related barriers to trade.

Research of sectors such as law, accountancy, the performing arts, architecture and engineering was commissioned by the Scottish Government.

The findings are based on quantitative analysis undertaken by FAI economists and insights from business roundtables made up of organisations chosen from Prosper’s broad membership network.

Businesses say the loss of mutual recognition of professional qualifications for accountants and restrictions on short-term business travel, has limited access to the EU single market and constrained the growth potential of Scottish firms.

Some companies, particularly in the fintech sector, have reported that the UK’s post-Brexit regulatory freedom has enabled greater innovation, boosting competitiveness and access to markets in the rest of the world.

But with the EU the top destination of Scottish exports of financial, business and computing services and IT, the net result of Brexit has been improved access to less valuable markets outside of the EU.

Businesses said that Brexit has made it harder for Scotland to be viewed as part of the European business ecosystem, with some international work now being coordinated through European Economic Area (EEA) countries such as Norway and Switzerland rather than from Scotland.

Services businesses now account for nearly 41 per cent of Scotland’s international exports, up from around a third in 2008. While some of Scotland’s top goods exports, like whisky and salmon, have been subject to tariffs imposed by the Trump administration, the services sector has avoided some of these costs, demonstrating economic resilience.

Professor Mairi Spowage, director of the Fraser of Allander Institute at at the University of Strathclyde, said: “Scotland has an internationally competitive base of knowledge, expertise and specialist services.

“This report shows that the opportunity is substantial, but success depends on more than demand alone. Reducing regulatory friction, improving mutual recognition and helping firms build trusted relationships in key markets will be essential if Scotland is to convert its strengths into sustained export growth.”

Sara Thiam, Prosper chief executive, said: “Scotland has many strengths in international trade, with products and expertise valued by customers around the world. Exports from the services sector deserve greater attention, making this report particularly timely.

“The services economy is highly innovative, supports skilled jobs and drives growth across Scotland. While service exporters are less exposed to tariffs, they still face regulatory, mobility and administrative barriers that can limit access to markets and constrain growth.

“The Scottish and UK governments must better understand these challenges and ensure trade support reflects the needs of service exporters. Services exports should also be given equal priority to goods in free trade negotiations. By reducing barriers and improving market access, we can help more Scottish firms turn global ambition into commercial success.”

Tom Arthur MSP, Scottish Government minister for business and fair work, said “Services account for over 40 per cent of Scotland’s exports and support hundreds of thousands of high-value jobs.

“The Fraser of Allander Institute report makes clear that there are genuine opportunities in building skills and innovation, improving export support for businesses and taking a more joined-up approach to trade policy and delivery.

“It will help us better understand the international trade barriers that Scottish businesses face. We will study these findings carefully and set out our response in due course.”

The full report is here