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CULTURE, TOURISM, EUROPE AND EXTERNAL AFFAIRS COMMITTEE

AGENDA

16th Meeting, 2020 (Session 5)

Thursday 25 June 2020 The Committee will meet at 9.00 am in a virtual meeting and will be broadcast on www.scottishparliament.tv. 1. Impact of COVID-19 on Scotland's tourism sector: The Committee will take

evidence from—

Fergus Ewing, Cabinet Secretary for Rural Economy and Tourism, Bettina Sizeland, Deputy Director, Tourism and Major Events, and Duncan Mackay, Sponsorship Manager, Tourism and Major Events, Scottish Government.

Not before 11.00 am

2. Negotiation of the future relationship between the European Union and the UK Government: The Committee will take evidence from—

Rt Hon Michael Gove, Chancellor of the Duchy of Lancaster and Minister for the Cabinet Office, and Lindsay Appleby, Deputy Chief Negotiator and Deputy Sherpa, Task Force Europe, UK Government.

3. Consideration of evidence (in private): The Committee will consider the evidence heard earlier in the meeting.

4. Work programme (in private): The Committee will consider its work

programme.

Stephen Herbert Clerk to the Culture, Tourism, Europe and External Affairs Committee

Room T3.40 The Scottish Parliament

Edinburgh Tel: 0131 348 5234

Email: stephen.herbert@parliament.scot

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The papers for this meeting are as follows— Agenda item 1

Note by the Clerk

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PRIVATE PAPER

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Agenda item 2

Note by the Clerk

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PRIVATE PAPER

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Agenda item 4

PRIVATE PAPER

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Culture, Tourism, Europe and External Affairs Committee

16th Meeting, 2020 (Session 5), Thursday 25 June 2020

Covid-19: Impact on the Tourism Sector

Note by the Clerk

Introduction 1. On 28 April 2020, the Committee launched a call for views regarding the impact

of COVID-19 on Scotland’s culture and tourism sectors. The Cabinet Secretary for the Rural Economy and Tourism previously gave evidence to the Committee on this issue on 14 May 2020.

2. This evidence session provides an opportunity for the Committee to question the Cabinet Secretary for Rural Economy and Tourism on the updated measures taken by the Scottish Govenrment to mitigate the impact of COVID-19 on the tourism sector and return to any outstanding issues discussed at the meeting on 14 May 2020.

Evidence session

3. The Committee will take evidence by video conference from: • Fergus Ewing, Cabinet Secretary for Rural Economy and Tourism; • Bettina Sizeland, Deputy Director, Tourism and Major Events; and • Duncan Mackay, Sponsorship Manager, Tourism and Major Events,

Scottish Government.

Supporting Information 4. The Committee has received a number of new responses to the call for views

which are attached in Annexe A. New responses have been received from—

• Anonymous • Association of Scotland’s Self-Caterers • Craigtoun Meadows Ltd • Deep Sea World • Ewelina Lacka • Explore Kintyre and Gigha • Graham Evans • Paths For All • Scottish Incoming Golf Tour Operators Association • Scottish Small Cruise Ships Association

5. The responses received to the call for evidence are updated regularly on the

Committee’s and can be accessed at—

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https://www.parliament.scot/parliamentarybusiness/CurrentCommittees/115079.aspx

6. Following the evidence session on 14 May 2020, the Convener wrote to the UK

Government’s Parliamentary Under Secretary of State for Sport, Tourism and Heritage on 22 May 2020 in relation to insurance cover for the tourism sector. This correspondence was also copied to the Financial Conduct Authority and the Association of British Insurers for comment. The Financial Conduct Authority replied on 12 June 2020 and the Association of British Insurers replied on 15 June 2020.

7. The Committee has requested monthly written updates from the Scottish Government on its COVID-19 related activity with regards to tourism. The most recent update is provided in Annexe B.

8. A SPICe paper providing context to the evidence session is provided in Annexe C.

Mark Johnson Assistant Clerk

Culture, Tourism, Europe and External Affairs Committee 22 June 2020

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ANNEXE A

Written Submissions Received Since Evidence Session on 14 May 2020

• CTEEA/S5/20/C19/T009: Ewelina Lacka (96KB pdf) • CTEEA/S5/20/C19/T010: Deep Sea World (89KB pdf) • CTEEA/S5/20/C19/T011: Anonymous (94KB pdf) • CTEEA/S5/20/C19/T012: Association of Scotland's Self-Caterers (117KB pdf) • CTEEA/S5/20/C19/T013: Scottish Incoming Golf Tour Operators Association

(98KB pdf) • CTEEA/S5/20/C19/T016: Craigtoun Meadows Ltd (100KB pdf) • CTEEA/S5/20/C19/T017: Scottish Small Cruise Ships Association (51KB pdf) • CTEEA/S5/20/C19/T018: Graham Evans (943KB pdf) • CTEEA/S5/20/C19/T019: Paths For All (115KB pdf) • CTEEA/S5/20/C19/T020: Explore Kintyre and Gigha (109KB pdf)

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ANNEXE B Correspondence from the Cabinet Secretary for Rural Economy and Tourism

to the Convener of 19 June 2020 Dear Joan, Thank you for your letter of 22nd May 2020 following the Committee session of 14th May. This letter provides you with an update, as requested, in advance of the Committee session on 25th June which I am attending. Parliamentary Statement of 10th June My statement of 10th June set out the Scottish Government’s proposal for a provisional timeframe of 15th July for the opening of the Tourism and Hospitality sector, in line with Phase 3 of the Route-map. The aim of providing an indicative and conditional date to the Tourism and Hospitality sector was to address the growing concern within industry that in the absence of any clarity on dates they cannot continue to sustain a holding position. The need to avert, if at all possible, business failures and job losses, and to provide lead times to prepare and take bookings, called for the Scottish Government to give what clarity it could on dates. This is entirely conditional on the scientific and public health evidence and the continued progress through Scotland’s route-map. Despite this necessarily being a heavily caveated and conditional timeframe, from engagement with the industry we know that it was well received. The tourism sector faces exceptional circumstances. It is a sector amongst those hit hardest from the crisis, and will take a long time to recover. The seasonal aspect makes it particularly vulnerable with much of the 2020 season destined to be lost before reopening. It will of course be necessary for ongoing engagement to manage the messaging and ensure it is fully understood that there are no firm guarantees, but we are sure that businesses will take such a message as a sign of hope for the future. also announced that I would be forming a new Scottish Tourism Recovery Taskforce. In addition to specifically addressing the sector’s recovery needs and developing a new domestic visitor marketing campaign, the STRT will be responsible for liaising with other tourism bodies, considering actions being taken by the UK Government, other devolved administrations and international best practice of similar countries in the European Union. A note of the Taskforce members and its draft remit are at Annex A. Publication of the guidance On 18th June the Scottish Government published guidance for the tourism and hospitality sector in Scotland. The guidance will aid the safe reopening of the sector,

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the majority of which has been given an indicative date of 15 July, pending progress to phase 3 of the route-map. Some parts of the sector may open in an earlier or later phase. The guidance sets out a risk based approach and the core public health measures that will need to be taken to allow safe reopening, including:

• Establishing physical distancing including organisational capacity, queue management, signage and markings;

• Enhanced hand hygiene measures and cleaning practice; • Advice on workforce planning, including training and equality issues; • Guidance for customers to ensure they know how to plan ahead and engage

safely with the tourism and hospitality sector The guidance has been developed in partnership with industry, unions, and the appropriate regulatory bodies. UK Government Engagement Our engagement with the UK Government continues as we seek to both press the UK Government to recognise and act on the need for ongoing support for the sector, and work with the UK Tourism Minister to deliver a coordinated approach to recovery which benefits the four UK nations. This collaborative approach taken on the fortnightly calls I have with my counterparts across the UK has been very helpful in discussing and progressing issues of mutual interest, concern and benefit and I expect this to continue over the coming months as the sector begins to reopen across the UK. Nigel Huddleston MP’s letters of 9th June, responding to my letter of 26th May, and the letter of 9th June from Kate Forbes and me to the Chancellor, are at Annexes B and C respectively. Engagement with the Tourism Sector Ongoing engagement with the sector has been a critical part of our response to the coronavirus. Between 23rd March to 16th June I have had around 50 meetings with sector, including regular calls with the Scottish Tourism Alliance Council, and numerous meetings with Chambers of Commerce, businesses and sectoral organisations to hear directly about the issues facing them both in terms of support and when they are preparing for reopening. I trust this will provide a sufficient update on the Scottish Government’s activity to support the tourism sector for now, and look forward to exploring these issue in more depth on 25th June. Yours sincerely, FERGUS EWING

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ANNEX A

Scottish Tourism Recovery Taskforce Remit of Group The Scottish Tourism Recovery Taskforce (STRT) is responsible for strategic oversight of, challenging, and advising on, recovery plans in response to the Covid-19 impact on Scottish tourism and hospitality. The STRT will not have responsibility for delivery of recovery plans. These will be delivered through the Scottish Tourism Emergency Response Group (STERG) and, specifically, its member organisations. The STERG will report regularly to the STRT on progress. STRT is responsible for liaising with other bodies/groups as necessary and for ensuring that the tourism recovery plan is fully coordinated with wider Scottish Government and other relevant sectoral recovery plans, and with our tourism strategy Scotland Outlook 2030. It will, also take into account in its activity, wider actions being taken by the UK Government, other devolved administrations and international best practice, including that of the European Union. Subgroups Subgroups of the STRT may be formed to support its work. Administrative arrangements It is intended that the group meet once or twice a month to allow work to flow to and from STERG. Meeting papers will be issued by the Secretariat around 3 calendar days before any meeting. Tabled meeting papers will be published online. A short note of the meeting will be produced by the Secretariat within 2 days of the meeting date. All notes of meetings will be published online within once month of approval by the taskforce Chair. Suggested initial workplan - Draft Based on initial analysis it is recommended that the new STRT gives early consideration to the following. This list is not exhaustive and we may also want to consider areas such as food and drink tourism, marine tourism etc. i) Urgent review of funding support access ii) Working with devolved administrations and UK Government on UK level interventions iii) Short to medium term stimulus package iv) Review of investment and ownership models for larger hotel chains and businesses

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v) Domestic visitor campaign vi) Employee training and skills development vii) Early consideration of events sector recovery viii) A public conversation about tourism and the benefits for local communities Membership Chair – Cabinet Secretary for Rural Economy and Tourism Vice Chair – Minister for Business, Fair Work and Skills Members Name Position / Organisation Malcolm Roughead CEO, VisitScotland Marc Crothall STA CEO Willie Macleod Executive Director, UK Hospitality

in Scotland Stephen Leckie CEO of Crieff Hydro & Chair STA Angela Vickers Apex Hotels, Chair HIT Scotland Gordon Dewar CEO, Edinburgh Airport Freda Newton MD, Jacobite Cruises Robbie Drummond CEO Calmac Duncan McConchie SOSE board, owner of Laggan

Outdoors Peter Duthie MD of SEC David Sutherland Director, North Highland Escapes Jeanette Wilson British Holiday & Home Parks

Assoc Rebecca Brooks CEO Abbey Tours, VS Board Alastair Dobson MD, Taste of Arran Mark Tate Scottish Chambers of Commerce Calum Ross Proprietor, Loch Melfort Hotel,

Chairman UKH Scotland Malcolm Buchanan Chair of Scotland Board RBS Lucy Husband Scotland Food & Drink, UK Market

Development Director Susan Morrison ASVA, CEO Scotch Whisky

Experience Susan Russell Chair, Women in Tourism Lord Thurso Chair, VisitScotland Stephen Montgomery President, SLTA Alan Rankin Chief Executive, Sail Scotland Professor Anna Leask Tourism & Languages Subject

Group, The Business School, Edinburgh Napier University

Colin Smith CEO, Scottish Wholesale Association

Lucy Byatt Director, the Hospitalfield Trust, Arbroath.

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Suzanne Cumisky Chair SLAED / P&K Council The group will be quorate with two-thirds attendance. Official Support Secretariat is provided by The Scottish Government Tourism & Major Events Division. An official from each of HIE, SE and SOSE to be invited in a supporting capacity.

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ANNEX B Dear Fergus, Thank you for your letter of 26 May on tourism businesses accessing the UK Government's economic support package. As I said in our recent call, my department continues to monitor COVID-19's extensive impact on the tourism industry. We remain in regular contact with stakeholders, including UKHospitality, and I value all the Devolved Administrations' readiness to share information with us throughout the crisis. Thank you for notifying me of industry members' suggestions for new support measures which would need funding from the UK Government. I also appreciate you sharing the Association of Scottish Visitor Attractions' survey detailing some of the Scottish companies with rateable values over £51,000. The retail, hospitality and leisure business rates relief and the associated grant fund represent a targeted relief scheme aimed at small businesses. Her Majesty’s Treasury (HMT) has set the rateable value threshold at £51,000 to reflect that. As previously mentioned, I encourage ineligible businesses to fully engage with the other strands of the government's UK-wide support package. I'm glad to hear further positive feedback from the tourism sector on the Chancellor's recent extension of the Coronavirus Job Retention Scheme (CJRS). I am aware of how strongly many tourism businesses feel about introducing flexibility into the scheme as they plan for the recovery period. The Chancellor has now set out more details on how the CJRS will continue to support jobs and business as people return to work, following the announcement of an extension of the scheme on 12 May. From 1 July, employers can bring back to work employees that have previously been furloughed for any amount of time and any shift pattern, while still being able to claim CJRS grant for their normal hours not worked. When claiming the CJRS grant for furloughed hours, employers will need to report and claim for a minimum period of a week. To be eligible for the grant, employers must agree with their employee any new flexible furloughing arrangement and confirm that agreement in writing. The scheme will close to new entrants from 30 June. From this point onwards, employers will only be able to furlough employees that they have furloughed for a full three-week period prior to 30 June. From August the level of the grant will be slowly tapered to reflect that people will be returning to work. More details on the CJRS extension can be found here: https://www.gov.uk/government/news/chancellor-extends-self-employment-support-scheme-and-confirms-furlough-next-steps. I understand that further guidance on flexible furloughing and how employers should calculate claims will be published on 12 June. I recognise the sector's desire for clarity on this and I will keep you fully briefed on any developments through our calls. We will continue to monitor the situation in the tourism and hospitality sectors as restrictions are gradually eased. We will relay intelligence to HMT and will alert them if any specific challenges develop for the sector over the coming months. In the

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meantime, I encourage hospitality and leisure businesses to continue to make full use of the UK Government's support package. On your final point, I recognise that these are extremely difficult conditions for coach operators. Coaches are a vital part of the UK tourism industry, and I know they play a vital role each year in connecting visitors with Scotland's areas of natural beauty. I am also acutely aware of the seasonal nature of many coach companies' trade. I will continue to hold discussions with stakeholders - as well as with my colleagues at the Department for Transport and HMT - on the specific issues facing coach operators. Thank you again for raising these issues with me. I look forward to holding further constructive discussions with you alongside our Welsh and Northern Irish counterparts on helping UK tourism through this crisis and into the recovery period. Nigel Huddleston MP Parliamentary Under Secretary of State for Sport, Tourism and Heritage

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Annex C

Dear Rishi, SUPPORT FOR THE TOURISM AND HOSPITALITY SECTOR We are writing to outline the devastating impact of COVID-19 on the hospitality and tourism sector in Scotland and to ask for your urgent support to develop measures to mitigate the worst impacts of this crisis. We continue to support Scotland’s businesses by passing on every penny we receive from the UK Government for this purpose, and more, directly to businesses. Our package of support now totals over £2.3 billion and has been tailored to recognise that Scotland’s economy is different to the rest of the UK. For example, based upon our analysis of Non-Domestic Rates data, we estimate that the proportion of properties in the hospitality sector is significantly higher in Scotland (12.9%) than in England (8.2%), although lower slightly lower than in Wales (14%). Recognising the importance of the sector to the Scottish economy, we have developed specific support not available elsewhere in the UK including our £30 million Creative, Tourism & Hospitality Enterprises Hardship Fund and our £120 million Pivotal Enterprise Resilience Fund. These help deal with some of the gaps, but we only have the resources to go so far. The Scottish Government welcomes the measures that the UK Government has taken to help support businesses since the onset of the pandemic. The Coronavirus Job Retention Scheme (CJRS) and the Self-Employed Income Support Scheme (SEISS) have been valuable as short-term solutions, however, they are insufficient to support the hospitality and tourism sector into recovery. We have previously raised some of these issues with DCMS (22 April and 26 May letters to the Minister for Sport, Tourism and Heritage) and with yourself on CJRS (most recently, 26 May letter from the Cabinet Secretary for Economy, Fair Work and Culture), however the sector cannot continue to wait. The seasonal nature of tourism means that many businesses rely on a successful summer season to provide the revenue which sustains the business throughout the rest of the year. The July – September period accounted for almost 38 per cent of domestic and international overnight spend in Scotland in 2019, while April - June represented a further 28 per cent. Our businesses stand to lose a substantial part of their trade for this year on top of the income lost through the lockdown period and may not see a return to demand until 2021. Under such circumstances, businesses simply cannot afford to pay NI and salary contributions to keep employees on furlough when there is no prospect of income. Already we are seeing mass redundancies as a result: Crieff Hydro Group, InterContinental Group and Moorfield in Shetland are the latest to start redundancy consultations with hundreds of jobs under threat. Without further support, tens of thousands of jobs are at risk and a huge reservoir of skills, which the industry has built up over decades, could be lost in a matter of a few weeks. The potential economic, social and personal impacts of such an eventuality would be deeply damaging. There are over 15,000 tourism businesses in Scotland registered

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for PAYE or VAT, accounting for 8.6 per cent of Scotland’s total enterprises. The sector employs 218,000 people, representing 8.3 per cent of the Scottish workforce across a range of occupations and skills, with larger employment shares in Edinburgh and the Highlands. To put this in context, tourism businesses represent 6.3 per cent of registered enterprises in the UK overall, while tourism accounts for 7.8 per cent of the GB workforce. Prior to the pandemic, day and overnight visitor spending supported £7 billion of Scotland’s GDP, making tourism a key growth sector for the Scottish economy, contributing to sustaining employment and economic activity in Scotland’s major cities and rural communities, as well as supporting some of Scotland’s most fragile areas. CJRS and SEISS are providing welcome assurance and interim support, however further specific bridging support is needed for the tourism and hospitality sector taking into account the unique circumstances and pressures it is facing: legally enforced closure, the collapse of international tourism (re-enforced by the quarantine), as yet unknown issues regarding confidence of the customer base, and the challenges of social distancing and hard surface hygiene. Continued support will be needed for tourism, culture, events, hospitality and their wider supply chain in the longer term, either through extension of CJRS and SEISS or through specific arrangements for these sectors. Support will also be needed for the aviation industry which is so vital for our tourism sector. These are points echoed in English regions as well as by colleagues in Wales and in Northern Ireland. They have been raised regularly in the four nation Economy discussions with Minister Zahawi. We firmly believe that all measures must be taken to protect jobs and that all areas should be revisited to see how they can support that ambition. The Scottish Government has long taken the view that VAT is an unnecessary barrier to growth and competitiveness for the sector, with some of the highest rates in Europe already making Scotland and indeed the UK less competitive. We have already deferred our plans to introduce a tourist tax and we would welcome discussion on VAT to help alleviate some of the pressures on business hindered by this measure. We also note the actions taken by the French Government, which has unveiled a package of support for its tourism and hospitality businesses worth €18 Billion. We urge your Government to show a similar level of support for the sector across the UK as has been seen in France. Doing this would provide vital further support for this sector and ensure that it is in a strong position to recover. The Scottish Parliament will be discussing these matters tomorrow. We want to work with the UK Government to consider continued support for sectors that remain adversely affected beyond October, recognising that any such support should be responsive to the different public health guidance in each of the four nations and that employers will need to know about any continued support arrangements well in advance. We will keep you updated on the situation and ask that you convene talks with Scottish Government and relevant industry representatives as a matter of urgency to discuss a flexible furlough approach which can tide the industry through to March next year, taking account of seasonality of the sector. Kate Forbes & Fergus Ewing

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ANNEXE C

Culture, Tourism, Europe and External Affairs Committee

Impact of COVID-19 on Tourism in Scotland Introduction The Committee launched a call for views on the impact of COVID-19 on Scotland's culture and tourism sectors on 28 April 2020. The Cabinet Secretary for the Rural Economy and Tourism, Fergus Ewing MSP, gave evidence to the Committee on this issue on 14 May 2020. For context on the tourism sector and details on the Scottish Government’s initial response in relation to tourism and COVID-19, see the SPICe Spotlight blog ‘Destination unknown: tourism, coronavirus (COVID-19), and getting to reboot’ (April 2020). This paper sets out a range of topics related to the impact of COVID-19 on people, organisations and businesses in Scotland’s tourism sector. It covers—

• economic indicators show the scale of impact on tourism • reopening the tourism sector (sector guidance, possible ‘Good to Go’ scheme,

community concerns) • coordination with other sectors (transport, access to toilets) • social distancing and business viability • Scottish Tourism Emergency Response Group (STERG) and Scottish

Tourism Recovery Task Force • industry support from government and wider public sector

Economic indicators show the scale of impact on tourism Monthly Scottish GDP estimates were published recently (17 June). These showed that Scotland’s GDP was provisionally estimated to have fallen by over 20% in real terms over March and April.

• Tourism related industries had the largest falls across all Scottish sectors in output over these two months with Accommodation & Food Services (down 85% over two months) and Arts, Culture & Recreation Services (down 51% over two months).

• By comparison at a UK level over February to April Accommodation & Food Services fell by 41%.

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This significant scale of decline is unique in the data series and demonstrates the scale of the economic crisis faced by tourism sector. The first labour market statistics to include a full month of lockdown measures were released last week and show clearly the scale of the challenge facing Scotland as a result of the coronavirus pandemic. Unemployment rose by 30,000 to 127,000 in Scotland between February and April. The jobless rate in the three months up to April was 4.6%, which is an increase of 1.1% on the previous quarter. There have been a number of recent announcements of potential job losses across hotel operators and in the Visitor Attraction sector (e.g. Crieff Hydro, National Trust for Scotland, Macdonald Hotels) which could have devasting implications for the future of the sector. As the furlough support begins to unwind through the rest of this year, and firms are having to make decisions about their future workforce needs post lockdown, it is expected that there will be further job losses. Industry believe the sector faces a “tidal wave of closures and mass redundancies”. A submission from ‘Explore Kintyre and Gigha’ highlights that that almost all businesses in Kintyre have furloughed employees and once the furlough scheme is brought to an end up to 200 people could be looking at job losses across the area. The dire economic outlook is further illustrated by survey findings that over 20% of businesses do not think they will make it into August under current restrictions. A further 30% cannot see themselves making it beyond October. Thus, by the end of October, Kintyre could lose 50% of its hospitality businesses. By Christmas it could be over 75%. This would have devastating impacts on the local economy and on employment. For workers affected by tourism related job losses across Scotland, this will be a very difficult time. Aside from the immediate hardship of losing their job, there are likely to be far fewer employment opportunities in the economy for them to seek. We know that even relatively short periods of unemployment can have long–term negative effects on individuals, particularly on young people. Reopening the tourism sector Following the Scottish Government route-map for easing lock-down, reopening outdoor areas for pubs and restaurants is included in phase two. At the review point on 18 June for phase 2, the First Minster announced that pub, bar and restaurant outside areas will not be able to reopen until at least July, although the country is now moving into the second phase of the route map, a decision on outdoor areas will not be taken until 2 July. There is now the possibility that outdoor hospitality is now likely to be pushed back to phase 3 after July 9 – given the First Minister’s observation that “there is emerging evidence that places such as pubs, restaurants and gyms can be hotspots for transmission." The STA responded that many in outdoor hospitality “will be bitterly disappointed” that reopening outdoor areas will not now be possible until July.

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In a statement to Parliament on 10 June, the Cabinet Secretary for the Rural Economy and Tourism indicated that some businesses, including bars and restaurants, should start to prepare for a provisional return to trading – with appropriate safety guidelines – on 15 July 2020. This will be dependent on virus levels remaining low and the review on 9 July. At the time of writing, key concerns from industry about reopening included—

• The importance of reducing the social distancing guidelines from 2m to 1m (discussed further below)

• Clarity on the opening date for pubs and restaurants with outdoor spaces that are identified in Phase 2. There are many factors to be considered e.g. licensing, planning, access to toilets etc.

• In Phase 3 clarity is required on the reopening of gyms, pools, spas etc, can the full product be opened on 15th July?

• An announcement is expected in the UK Parliament about English Conference centres being re-classified and placed under the same category as pubs, hotels and restaurants in England, differentiating these venues from mass gatherings. Could this also be considered in Scotland?

Sector guidance for reopening On 18th June 2020, the Scottish Government published guidance for the tourism and hospitality sector in Scotland. The purpose of the guidance is to aid the safe reopening of the sector, the majority of which has been given an indicative date of 15 July, pending progress to phase 3 of the route-map. Some parts of the sector may open in an earlier or later phase. The guidance sets out a risk-based approach and the core public health measures that will need to be taken to allow safe reopening, including: • Establishing physical distancing including organisational capacity, queue management, signage and markings • Enhanced hand hygiene measures and cleaning practice • Advice on workforce planning, including training and equality issues • Guidance for customers to ensure they know how to plan ahead and engage safely with the tourism and hospitality sector The guidance has been developed in partnership with industry, unions, and the appropriate regulatory bodies. The Sector reopening guidance can be viewed here: https://www.gov.scot/publications/coronavirus-covid-19-tourism-and-hospitality-sector-guidance/ Possible ‘Good to Go’ scheme? The “Good to go” scheme, (an online self-certification platform showing businesses have adapted practices in response to COVID10), developed by VisitEngland, has

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now been approved by the VisitScotland board. VisitScotland will be discussing the scheme further with VisitEngland, VisitWales and Tourism Northern Ireland. It was noted by STERG that the scheme does not yet have approval from the Scottish Government and there were still further questions to be answered before it would be put before Ministers for approval. It was highlighted that industry have been asking for such a scheme and would be very supportive of VisitScotland’s decision to approve. Community concerns There are many differing views towards reopening coming from communities and from tourism businesses themselves. STERG meeting notes suggest that there is a lot of activity happening at a local level to address this. However, STERG stressed that messaging at a local level and a national level should be consistent. VisitScotland are developing a plan which addresses this involving the regional VisitScotland teams and Keep Scotland Beautiful. The plan includes showcasing best practice and positive examples from different destinations. It was suggested that local councillors and the local chambers of commerce have a role to play in community engagement. STERG has agreed that securing community support was critical to following the Route map and getting businesses to open safely. Coordination with other sectors, e.g. transport and access to toilets Logistical issues will be a particular challenge for coordination between the tourism sector and other sectors, such as transport and infrastructure providers. Coordination between the tourism sector and transport operators is a particular issue of concern for some regions of Scotland. Last week concerns were expressed that Arran will lose out on tourism traffic because social distancing measures have led Caledonian Macbrayne to reduce the number of passengers it carries on services to the island. The Arran Ferry Action Group, which has around 1,400 members, warned that the reduced capacity is “potentially catastrophic for the island economy”, putting hundreds of jobs at risk. In response Cal Mac stated that the physical distancing rules of two metres mean they can only carry around 17% of usual passenger numbers with the car deck restricted to 91% on large ferries and turnaround times will also be longer due to physically distanced queues and cleaning regimes on board. Cal Mac are exploring all options and discussing future timetable options with Transport Scotland. Access to toilets is another issue of concern. Meetings are ongoing with local authorities across Scotland discussing the implications of the reopening of tourism, such as the need for toilets. COSLA in discussion with STERG stated that local authorities are alert to these needs, however the ability to respond is being challenged by the availability of resource, as many staff have been redeployed into other areas.

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Social distancing and business viability There is significant concern from industry on the issue of social distancing measures restricting the optimum level of income that many businesses require. The STA held discussions with the First Minister on 10 June. With regard to the two-metre rule, the First Minster has stated—

“We’re not sticking to two metres just for the sake of it. Everything has a reason and we will move as quickly away from these situations as is safe to do. Scientists who advise us are saying don’t change the rule at the moment – they’re not necessarily saying never change the rule. The book on this is not closed and we will continue to consider this carefully. I have to be satisfied about the balance of risk and satisfied that the risk we are taking is not unacceptably high. The situation with ferries may be very different for the situation in a pub. Scientists consider where the virus spreads more easily – that may be in places where, e.g. the pattern of breathing is different because you’re shouting. In places like pubs, restaurants, clubs the risk may be greater”. The balance may change over time as evidence emerges and the virus begins to recede”.1

The STA is gathering data (via surveys) on the potential impact of the two metre social distancing rule on restaurants and accommodation providers in relation to loss of employment and business viability to feed back to the Scottish Government week commencing 22 June. Initial results show that 162 hotels reported that their business would not be sustainable if trading at two metres physical distancing for more than two months and without any additional support. Research by the Scottish Beer & Pub Association (SPBA) found that “Scotland’s pubs could be decimated if social distancing guidelines are not re-examined in time for the provisional re-opening of premises on 15 July”. The survey reported that it would not be financially viable for almost nine out of ten landlords to reopen their doors if the two-metre distancing guidelines were still in place – potentially leading to the direct loss of over 23,600 jobs within the trade. Scottish Tourism Emergency Response Group (STERG) and National Action Plan The Scottish Tourism Emergency Response Group (STERG) has been re-established in March 2020 to help support industry. The STERG is chaired by VisitScotland and includes representatives of the industry, the Scottish Government Tourism Team, Scottish Tourism Alliance (STA), Scottish Enterprise (SE), Highlands and Islands Enterprise (HIE), South of Scotland Enterprise (SoSE), COSLA, Skills Development Scotland (SDS), transport sector and tourism organisations.

1 The STA speaks with Scotland's First Minister, STA Update, 11 June 2020

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STERG has prepared a national action plan. This Plan has four phases – RESPOND, RESET, RESTART, RECOVER – in line with the Scottish Government’s economic recovery plans. There are detailed actions linked to the first three phases, however at the time of writing, the recovery phase details and actions had yet to be published.

• Respond: immediate provision of information and support to businesses (March 2020 - May 2020)

• Reset: support, planning and preparation to encourage restart (June 2020 - September 2020)

• Restart: support and guidance to begin safe re-opening (June 2020 - February 2021)

• Recovery: direction and support for operating in a new post covid-19 environment (June 2020 - December 2022) – detail still to be finalised and published and likely be linked to the newly announced Scottish Recovery Tourism Taskforce.

STERG highlight that the Plan document will continue to evolve in line with the scientific evidence and government advice on the reopening of the tourism industry. To respond most effectively, all work on Scotland Outlook 2030, the new national tourism strategy and the supporting action plan is temporarily on hold, as the entire focus has been shifted to supporting the STERG National Action Plan. The STERG National Action Plan will however look to align with Scotland Outlook 2030. Scottish Recovery Tourism Taskforce A new Scottish Recovery Tourism Taskforce, announced 10 June, will assist with the ongoing reset of the sector. The taskforce will look at the sector’s recovery needs as well as actions being taken by the UK Government and the development of a new domestic visitor marketing campaign. At the time of writing there was no detail available on the membership of the Scottish Tourism Recovery Taskforce or information in its operation. STERG meeting notes would suggest this Taskforce will be key for the implementation of the ‘Recovery’ stage of the STERG Action Plan. STERG meeting notes show that work to develop recovery actions include—

• a review of all content generated for the Advisory Group Economic Recovery submissions (incl. STA response and Outlook 2030 assessment)

• light touch scenario work which the Scottish Government are leading on and which the Tourism Consultants Network will contribute towards

• output from Scottish Enterprise scenario planning work. Support for the industry In response to COVID-19, a range of business support interventions have been announced by both the Scottish and UK governments. The primary support for the tourism sector has included:

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• Non-Domestic Rates linked relief and a package of grants - NDR based grants will close on 10 July

• Creative, Tourism & Hospitality Enterprises Hardship Fund – now closed • Pivotal Enterprise Resilience Fund (PERF) – now closed • Tourism Destination and Sector Support Fund – now closed. A total of 81

membership organisations were successful in applying. In addition to the above, the Scottish Government £3 million support fund for B&Bs operating from a personal bank account opened for applications on 15 June. There was frustration from industry with regard to the Resilience and Hardship funds. Issues included: demand significantly outstripped finding supply, lack of feedback on application rejections, and the bureaucracy associated with applications. Lack of detail on beneficiaries We do not yet have details on the Resilience and Hardship Funds in terms of volume of applications, success rates, and sector breakdowns. We do know all PERF applicants in the HIE area, whose application was unsuccessful, now have the opportunity to discuss the reasons why their application was unsuccessful with a HIE member of staff. It is not clear if this feedback was provided in SE areas. At close on 16 June 2020, Local Authorities (LAs) reported that over 93,000 applications have been received for the Small Business Grant Scheme and the Retail, Hospitality and Leisure Business Grant Scheme across Scotland. Of these applications, over 77,000 grants valuing over £875m had been awarded. There is no sector breakdown of these grants – therefore it is not clear how different parts of the tourism industry have benefitted. The closing of the NDR grant funding on 10 July has raised the question as to what would happen to the balance of the funds. For example, could they be allocated to businesses with a RV >£51k or could local authorities be given the discretion to do something with the balance? STERG noted that there was a project group meeting to discuss this issue. UK Government Engagement The Scottish Government’s written update (Annexe B) states that: “engagement with the UK Government continues as we seek to both press the UK Government to recognise and act on the need for ongoing support for the sector, and work with the UK Tourism Minister to deliver a coordinated approach to recovery which benefits the four UK nations. This collaborative approach taken on the fortnightly calls I have with my counterparts across the UK has been very helpful in discussing and progressing issues of mutual interest, concern and benefit and I expect this to continue over the coming months as the sector begins to reopen across the UK.” A series of written exchanges between the UK and Scottish Government are reproduced in Annexes B and C of the Scottish Government update (Annexe B).

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Further support from both SG and UKG Recently published HMRC figures published show 628,000 employees (25% of all employees in Scotland) have been furloughed via the Coronavirus Job Retention Scheme in Scotland as of May 31, while there were 146,000 claims for Self-Employment Income Support in the same period. There are no sector breakdowns for Scotland and therefore it is not known what proportion of these totals are from the tourism sector. The Economy Secretary last week wrote to the UK Government calling for coronavirus employment support to continue beyond October or to introduce sector-specific support. She stated—

“It is already clear that there will be some sectors of our economy – including tourism, hospitality, arts and culture, oil and gas, childcare, retail, and our rural and island economies – that will not have fully recovered by October, or who will continue to face restrictions.”

Industry bodies have been pushing SG and UKG for the following support—

• long term financial support to ensure the industry can survive through until 2021 • recognition of the devastating effect that the virus has had on the wider supply

chain to the tourism sector, it is vital to ensure that these businesses survive in order to support the tourism sector to reopen.

• need to lift quarantine regulations which will stifle any recovery in Scotland’s international markets.

• alignment on reopening between the UK Government and the Scottish Government particularly for international markets.

• the need for changes to VAT and Business Rates to stimulate recovery and to maintain Scotland’s competitiveness on the global stage. It was also stressed that it was vital for Scotland to be seen as more attractive and affordable to the domestic market.

A submission from ‘Explore Kintyre and Gigha’ reports that 64% of local tourism businesses believe that they may need additional grant support to see them through the out of season / winter months. The submission specifically highlights—

• financial support to help with restocking / re-provisioning, assistance with meeting the requirements of ‘new normal’ measures / restrictions, assistance to sustain them over the winter / out of season months

• extension of the furlough scheme • SG/UKG to take action on behalf of the sector including negotiation at a national

level with utility suppliers, lenders, landlords to set up a scheme to defer payment of bills, loans, mortgages or rent payments.

Support to implement social distancing and operate safely STERG noted that it was difficult to get a feel for whether businesses would require additional financial support to adapt their businesses in order to operate safely when

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they reopen. It was acknowledged that some businesses will require support to make the necessary changes to their businesses however it is hoped that grants or loans will have been set aside to cover this. Once the guidance has been published the requirements of businesses will be more apparent. VAT and tourism tax The Scottish Government has put the Transient Visitor Levy (TVL) legislation on hold. With Air Passenger Duty / Air Departure Tax, there are no imminent plans to change it due to the issue over the devolution of this tax. On VAT, the Scottish Government has confirmed they will join the STA in making the case to the UK Government on lowering VAT. Skills and training support SDS confirmed to STERG that key themes being discussed in terms of response to the crisis focusing on protecting apprenticeships, responding to adult unemployment, upskilling and re-skilling the workforce and supporting the FE/HE sectors to deliver in the post-COVID world. The PACE initiative is also gearing up to respond to large scale redundancies across all sectors. Insurance In the Committee’s last evidence session with the Cabinet Secretary issues with the insurance sector around business interruption (BI) insurance were discussed. Following the meeting, the Committee wrote to, and have received responses from, the Financial Conduct Authority (FCA) and the Association of British Insurers (ABI). The FCA response provided detail on the High Court case they are pursuing. This encompassed further detail on the proposed court action, including identifying the representative sample of policy wordings to be examined in the test case, insurers that use those wordings, and which of those insurers they have invited, and have agreed, to participate in the proceedings. ABI’s response noted that they are in regular contact with the Scottish Government on insurance and COVID-19 and earlier this month ABI met with the Cabinet Secretary for Rural Economy and Tourism. ABI highlighted that—

“…the majority of business interruption policies do not provide cover for business interruption due to a pandemic, as the Financial Conduct Authority recognises, and unfortunately only a minority of businesses will have purchased additional levels of cover for pandemics. In evidence to the House of Commons Treasury Select Committee the ABI gave an initial estimate of £1.2bn to be paid out on COVID-19 claims, with £900m of that on business interruption claims”. “ ABI recognises the need to find better solutions so insurance coverage can be more widespread in the event of a future pandemic. For such insurance to

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be affordable to tourism businesses and other sectors, there would likely require significant levels of state support. No country in the world routinely provides affordable standard insurance cover against the risks of a global, viral pandemic but we will continue to look for future insurance solutions and to discuss this with Governments and industry”.

Sector specific concerns Within the tourism industry various sectors and related supply chains will have their own unique concerns that will likely need tailored policy measures rather than generic tourism policy responses. Examples include: aviation sector – airports and their extensive supply chains; conference and business tourism sector; Scottish small cruise ships (see submission); and events and festivals. There is also the Coach sector, which was discussed when the Committee last took evidence from the Cabinet Secretary. In May when asked about support for the Coach sector, the Cabinet Secretary provided the following response:

“If we do not have a coach sector, we do not have a complete tourism jigsaw—we do not have the whole provision that is required to successfully provide enjoyable vacations for visitors. Moreover, if social distancing is to be the norm, which seems likely to be the case for the foreseeable future, fewer people will be able to travel on coaches. That raises questions about the viability of a business operating on low margins. In addition, we do not know whether coach operators’ vehicles will be required for public transportation, if each vehicle can take only one quarter of the passengers that were formerly accommodated. It is important that we understand the importance of the coach sector. What should be done about the issue? I am seeking a meeting with the responsible UK Government minister—I believe that that is a minister in the Department for Transport; it is not Nigel Huddleston. I will be putting it to the UK Government that serious consideration should be given to providing a bespoke package for coach operators because, without coaches, tourism will be affected in many ways. That is a serious piece of work.”

Self-catering is another area with specific challenges. The Association of Scotland’s Self-Caterers (ASSC) welcomes the announcement of an indicative date for the reopening of tourism businesses on 15th July 2020. However, they are asking for a change to the provisional date to allow self-catering operators to open on either Saturday 4th July or Saturday 11th July 2020. According to ASSC—

• the potential lost revenue opportunity in Scotland for the professional self-catering sector by opening on 15th July compared to 4th July is £20,155,422.

• if the sector were allowed to open on 11th July, the potential lost revenue opportunity would be £16,772,904.

ASSC state that these: (a) are conservative estimates; and (b) represent lost opportunity in rental terms - the ancillary spend in local economies, in terms of employment and supply chain, has not been estimated.

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Alison O’Connor Senior Analyst, Financial Scrutiny Unit

22 June 2020

Note: Committee briefing papers are provided by SPICe for the use of Scottish Parliament committees and clerking staff. They provide focused information or respond to specific questions or areas of interest to committees and are not intended to offer comprehensive coverage of a subject area.

The Scottish Parliament, Edinburgh, EH99 1SP www.parliament.scot

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Culture, Tourism, Europe and External Affairs Committee

16th Meeting, 2020 (Session 5), Thursday 25 June 2020

Negotiation of the future relationship between the European Union and the UK Government

Note by the Clerk

Introduction 1. The Committee is currently holding a series of evidence sessions assessing the

current position of the future relationship negotiations between the EU and the UK Government. Details of the Committee’s scrutiny of the negotiations can be accessed at— www.parliament.scot/parliamentarybusiness/CurrentCommittees/114740.aspx

Evidence session

2. This meeting is intended to provide an opportunity to obtain the UK Government’s perspective on the future relationship negotiations. The Committee will take evidence in a virtual meeting from—

• Rt. Hon. Michael Gove MP, Chancellor of the Duchy of Lancaster and Minister for the Cabinet Office, and Lindsay Appleby, Deputy Chief Negotiator and Deputy Sherpa, Task Force Europe, UK Government

Supporting Information 3. The Secretary of State for Scotland, Alister Jack MP, previously gave evidence to

the Committee on the future relationship negotiations on 5 March 2020. On 30 April 2020, the Convener wrote to the Chancellor of the Duchy of Lancaster seeking the UK Government’s current assessment of the degree of progress in the negotiations, in recognition that a wide range of devolved competences are engaged in the negotiations, and specifically with regard to the following issues as follows—

• An update on what discussions have taken place between the Scottish and UK Government’s with regard to the negotiating position being adopted by the UK Government in the negotiations;

• An update on the position being adopted by the UK Government in the negotiations particularly with regard to issues dealing with devolved competences, such as fisheries, and a clear indication of the UK Government’s position with regard to continued participation in Erasmus + and Horizon 2020;

• Given the impact of Covid-19 upon all aspects of government, including the

future relationship negotiations, the Committee would welcome an update on what assessment the UK Government has made of the impact of the global

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pandemic upon the ability for agreement to be reached, and the scope of any such agreement, within the current timetable for the negotiations;

• Details of what contingency planning the UK Government is undertaking for a No Deal outcome and what assessment has been made of the capacity of the UK Government to manage a No Deal outcome in the context of Covid-19; and

• An update on what discussions have taken place the Scottish Government

with regard to the deliberations of the Specialised Committee on the Ireland / Northern Ireland Protocol.

4. The Chancellor of the Duchy of Lancaster replied to the Convener on 6 June 2020.

In addition, the Cabinet Secretary for the Constitution, Europe and External Affairs referred, at last week’s Committee meeting, to a letter jointly written by the Cabinet Secretary and the Welsh Government Minister for European Transition, Jeremy Miles MS, to the Chancellor of the Duchy of Lancaster. Copies of these letters are provided in Annexe A to this paper.

5. The Committee has received a range of written submissions with regard to the future relationship negotiations. Since the Committee’s meeting last week, the Committee has received one new submission from Professor Sarah Hall of Nottingham University which provides additional evidence with regard to the impact of Brexit upon financial services firms in Scotland following her evidence session with the Committee on 11 June 2020. This submission is provided in Annexe B to this paper. All of the written submissions received by the Committee on the future relationship negotiations can be accessed on the Committee’s website.

6. The issue of inter-governmental relations and the extent to which the Scottish Government, and indeed the Northern Ireland Executive and Welsh Government, has any input into the UK Government’s negotiating position has been a constant theme throughout the Committee’s scrutiny of the Brexit process since 2016. In this regard, it is useful to recap aspects of the Committee’s scrutiny of IGR during the current Parliamentary session. An overview of key recommendations made by the Committee in relation to IGR is provided in Annexe C.

7. The UK Government’s lead negotiator, David Frost, wrote to the European Union’s lead negotiator, Michel Barnier, on Tuesday 19 May, following the publication of draft legal texts by the UK Government. These letters provided an overview of the positions of the two parties to the negotiations in mid-May. These letters are provided in Annexe D.

Supporting Information

8. Publications on the future UK-EU relationship negotiations of relevance to this evidence session include—

• European Commission Draft text of the Agreement on the New Partnership

with the United Kingdom, 18 March 2020

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• UK Government’s draft legal texts, Our Approach to the Future Relationship with the EU, 19 May 2020.

Stephen Herbert Clerk

Culture, Tourism, Europe and External Affairs Committee 22 June 2020

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ANNEXE A

Correspondence from the Chancellor of the Duchy of Lancaster to the Convener of 9 June 2020

Dear Joan Many thanks indeed for your letter of 30 April regarding the future relationship negotiations between the UK Government and the European Union. I would like to start by thanking you for your warm words, and the Secretary of State for Scotland and I would also like to extend our sincerest regards to you during these difficult times. The UK Government remains committed to regular engagement with the devolved administrations throughout these negotiations. While international relations remain a reserved matter, the Paymaster General has regular discussions with the Cabinet Secretary for the Constitution, Europe and External Affairs, and the Minister for Europe and International Development, both before and after each negotiation round to ensure the Scottish Government has the opportunity to contribute. I also chaired a meeting of the Joint Ministerial Committee (EU Negotiations) on 21 May. Further, UK Government officials continue to hold regular discussions with their Scottish Government counterparts on the negotiations. In relation to your specific point on EU programmes, we are considering participation in the next generation of these, including Horizon 2020 and Erasmus+, which are due to begin in 2021 and are currently under negotiation. Where it is in the UK’s interests, we are open to participating in some EU programmes, including elements of Erasmus+ on a time-limited basis, provided they are in line with UK interests and we can agree a fair and proportionate financial contribution. The UK Government is considering a wide range of options with regards to the future of international education exchange, including a domestic alternative. More generally, we remain fully committed to the negotiations and reaching an agreement before the end of the year. The transition period ends on 31 December 2020, as enshrined in UK law, which the Prime Minister has made clear he has no intention of changing. In relation to your comments on operational readiness, the UK left the EU on 31 January on the basis of a deal. The issue that now faces both us and the EU is what kind of trading relationship, and other forms of cooperation, we will have in future. The UK will leave the EU’s customs area and the EU’s single market. This means that there will be new processes that exporters and importers will have to comply with, whether we reach an agreement or not. Businesses will need to prepare for life outside both at the end of 2020, and many have already done so. I understand that the issue of readiness is an important one and work is ongoing at official level between the UK and Scottish Governments in this area. The Specialised Committee on the Ireland/Northern Ireland Protocol met for the first time on 30 April. Discussions at that meeting covered updates from both sides on work to implement the Protocol, and preparatory work for future decisions to be taken by the Joint Committee. The UK and the EU also agreed to convene the Joint Consultative Working Group established under the Protocol, which will be a further forum for discussion in relation to the Protocol. The Paymaster General provided an

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update on this meeting during a recent call with the Cabinet Secretary for the Constitution, Europe and External Affairs. Following on from our initial engagements in the Joint and Specialised Committees, we set out the UK’s approach to implementing the Ireland/Northern Ireland Protocol in our Command paper, published on 20 May. The second meeting of the Withdrawal Agreement Joint Committee will take place on 12 June. Both the UK and the EU will provide further updates on the implementation of the Withdrawal Agreement. I would be pleased to accept your invitation to appear before the Committee and will ask my officials to liaise with the Clerk to agree the timing. My ministerial colleagues and I acknowledge the importance of engaging with the devolved legislatures, as I’m sure Ministers in the DA’s do with in respect to the UK Parliament. With every good wish, Rt Hon Michael Gove MP Chancellor of the Duchy of Lancaster and Minister for the Cabinet Office

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Correspondence from the Convener to the Chancellor of the Duchy of Lancaster of 30 April 2020

Dear Michael FUTURE RELATIONSHIP NEGOTIATIONS Despite the current public health emergency, the future relationship negotiations between the European Union and UK Government remain ongoing. The Committee is acutely aware that the deadline for any extension of the current transition period is 1 July 2020. The Committee intends to continue scrutinising the negotiations during this current period and we look forward to inviting you to give evidence to the Committee in the near future. At the stage, and in recognition that the UK Government’s current position is that it does not intend to seek an extension to the transition period, there are a number of areas where the Committee would welcome an update, in writing, on the Scottish Government’s current assessment of the degree of progress in the negotiations. Firstly, the Scottish Government’s perspective on the UK Government’s position that it does not intend to seek an extension to the transition period. Secondly, what degree of involvement or discussion the Scottish Government has had to date with the UK Government with regard to the UK Government position in the negotiating rounds that have taken place to date. The Committee recognises that negotiating rounds that have taken place have dealt with devolved areas, such as fisheries. Thirdly, the Committee recognises the impact that the Covid-19 pandemic has had upon the Scottish Government, however, the Committee would welcome an update on what contingency planning the Scottish Government is making for a No Deal outcome from the future relationship negotiations. The Committee would also welcome the Scottish Government’s perspective on the scope of any deal it considers to be achievable within the current timetable. Lastly, the Committee notes that the Specialised Committee on the Protocol on Ireland / Northern Ireland is meeting today. I would welcome an update on what discussions the Scottish Government has had with regard to the deliberations of the Specialised Committee and the impact of the Protocol on Scotland and, in particular, the South West of Scotland. I recognise the significant pressures that the current Covid-19 pandemic has created and therefore there is no deadline for a response to this letter although the Committee requests a response before you next give evidence to the Committee. Instead, my Clerks would be happy to discuss an appropriate timescale for a response with your officials if that would be helpful. Yours sincerely, Joan McAlpine MSP Convener, Culture, Tourism, Europe and External Affairs Committee

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Joint letter from the Cabinet Secretary for the Constitution, Europe and External Affairs and the Welsh Government’s Minister for European Transition

to the Chancellor of the Duchy of Lancaster of 17 June 2020 Dear Michael In our joint statement of 14 June, which expressed disappointment in your decision not to request an extension to transition before we had an opportunity to discuss this crucial matter ahead of the high level political stocktake, we said that we would write to you on the subject of ‘rebooting’ the process of engagement between the UK and Devolved Governments on the EU-UK negotiations. This letter sets out our thinking on this important subject. We have, in the meantime, received your letter of 14 June responding to our statement. As you acknowledged, we have different views on the way forward and our governments are not going to agree on the core fundamental positions with regard to the EU-UK future relationship. To our mind, this is all the more reason for us to re-double our efforts to work together for the benefit of business and communities in all parts of the United Kingdom, particularly as the option of an extension will no longer be open to the UK after the end of this month. It was because of the immutability of that deadline within the Withdrawal Agreement that we were so disappointed that the final decision was taken in advance of the meeting. While we have had the opportunity to register our views on this issue on several occasions, we would point out the difference between the quantity of meetings and other contacts between our administrations, and the quality of the engagement. That is why we remain so dissatisfied with the engagement and why we believed – and still believe – that your approach to this issue failed to respect the position of the devolved governments. The final straw was the fact that you choose to tweet your decision despite a letter on the matter sent that very morning to the Prime Minister by the First Ministers of our respective countries. None the less we remain committed to try and move things forward. A positive step in terms of making our discussions more meaningful would be for us all to reaffirm the terms of the reference of the Joint Ministerial Committee (European Negotiations). Whilst respecting reserved and devolved responsibilities, we should use the committee to seek to agree the UK approach, and to have collective oversight of the negotiations. We would propose that the JMC (EN) should meet virtually with yourself in the Chair at points in advance of key decisions being taken, whether in UK Cabinet, XS meetings or elsewhere, presumably in mid-July and again at one or two key decision points in the summer. The agenda for these discussion should focus on the high level strategic choices facing the UK Government and how these might impact the Devolved Governments. Beyond this, improved working relations could be embedded by the following:

• There should be a schedule of meetings over the July and August negotiation period, based on the addendum to the terms of reference to the negotiations published last week.

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• Meetings, including the JMC (EN)s referred to above, should be timed so as to deliver meaningful engagement before and after each of the scheduled negotiating sessions.

• These meetings would be more productive if supported by an advanced agenda of issues that the talks will consider in each week, together with more transparency about the UK Government’s approach.

• At each of these meetings we would be seeking opportunity to input to the development of the UK Government negotiating position, drawing on specific expertise in our administrations relevant to the negotiating strands which are taking place. We would expect JMC (EN) to receive a report of the extent to which the position taken by the UK Government was influenced by our input.

• After the negotiation sessions, we assume the meetings would be principally readout sessions, led by Task Force Europe.

While we have appreciated the way in which the Paymaster General has sought to be an ‘honest broker’, it seems to us that as a general rule these readout sessions should as a default occur at the level of officials where they may benefit from simpler coordination arrangements and greater technical detail. If important issues need to be resolved and there is insufficient time to arrange a JMC (EN), then we could revert to a Ministerial format. We understand that it was confirmed at official level last week that a working group on the NI protocol with the Devolved Governments will be established, meeting a commitment to starting a joint workstream agreed at the January 2020 JMC(EN). We would like to request this is established as a matter of urgency, and as a show of good faith in re-setting relations. We also request confirmation that in the negotiations on participation in EU Programmes, the UK Government will respect the devolution settlement by asking for, where appropriate, the option for devolved administrations to continue participating even where you have decided on behalf of England not to do so. We will continue to provide additional policy specific positions of the our devolved governments through our usual channels. We trust that we can move to a new footing in our relations over the important coming months of UK-EU negotiations. We also look forward to constructive joint working in the related area of domestic readiness. We are copying this letter to the First Minister and deputy First Minister of Northern Ireland, and to the Paymaster General. Jeremy Miles AS/MS Michael Russell MSP

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ANNEXE B

Written submission from Professor Sarah Hall, Nottingham University

Brexit and financial services in Scotland 19 June 2020 Sarah Hall, Senior Fellow UK in a Changing Europe and Professor of Economic Geography, University of Nottingham Martin Heneghan, Research Fellow, University of Nottingham The size and shape of Scotland’s financial services sector Scotland is the UK’s largest financial centre outside of the City of London. TheCityUK estimates that financial and related professional services account for 9.4% of the Scottish economy. Scotland’s strengths lie in banking, life assurance and pensions. It also has a large asset management sector and is emerging as a leading hub in Fintech. Employment in financial services Edinburgh and Glasgow are the major Scottish centres, employing collectively around 62,000 people in financial services, insurance and auxiliary activities (see table 1). Edinburgh has a long reputation for providing banking services, life insurance and investment management. The Royal Bank of Scotland and Scottish Widows have their global headquarters in Edinburgh. Glasgow on the other hand, specialises in finance and asset administration activities. CYBG, which owns Clydesdale Bank, Virgin Money and Yorkshire Bank has its European Headquarters in Glasgow. Financial centres are ranked annually through the Global Financial Centre Index. The ranking is based on a number measures of financial centre competitiveness including the strength of the local labour market and the regulatory and legal environment. In the 2020 index, Edinburgh rose 12 places and now finds itself in the Top 20 with its ranking of 17. It is categorised within the report as an ‘Established International’ financial centre. This puts it in the second tier below ‘Established Global’ financial centres such as New York, London and Tokyo and on a par with San Francisco, Melbourne and Munich. Glasgow rose 5 places and is currently ranked 65th on the index.

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Table 1: Financial Services Employment in Scotland (April 2019) by financial services activity and local authority Local Authority: county / unitary (as of April 2019)

64 : Financial service activities, except insurance and pension funding

65 : Insurance, reinsurance and pension funding, except compulsory social security

66 : Activities auxiliary to financial services and insurance activities

Total

City of Edinburgh 18,000 9,000 10,000 37,000 Glasgow City 11,000 2,500 11,000 24,500 Fife 2,500 150 400 3,050 South Lanarkshire 2,500 0 400 2,900 Stirling 225 1,500 600 2,325 West Dunbartonshire

2,000 0 125 2,125

Perth and Kinross 225 20 1,500 1,745 Aberdeen City 600 10 800 1,410

Source: NOMIS Business Register and Employment Survey Beyond Edinburgh and Glasgow, West Dunbartonshire, Stirling and Inverclyde also have important financial services labour markets (see table 2). In the case of West Dunbartonshire, it is even more concentrated than Glasgow. However, Edinburgh stands out as the most significant centre for financial services activity within Scotland. Only the City of London and Tower Hamlets have a higher proportion of their workforce dedicated to financial services in the UK (see table 3). Table 2: Financial Services as Proportion of Total Employment (%) Local Authority: county / unitary (as of April 2019)

64 : Financial service activities, except insurance and pension funding

65 : Insurance, reinsurance and pension funding, except compulsory social security

66 : Activities auxiliary to financial services and insurance activities

Total

City of Edinburgh 5.2 2.6 2.9 10.7

West Dunbartonshire

6.5 0.0 0.4 6.9

Glasgow City 2.7 0.6 2.7 6.0 Stirling 0.5 3.3 1.3 5.1 Inverclyde 3.3 0.2 0.9 4.4 Perth and Kinross 0.4 0.0 2.3 2.7 South Lanarkshire 2.2 0.0 0.3 2.5 Fife 1.9 0.1 0.3 2.3

Source: NOMIS Business Register and Employment Survey

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Table 3: Local Authorities in Scotland with the highest concentration of financial services employment (%) Local Authority: county / unitary (as of April 2019)

64 : Financial service activities, except insurance and pension funding

65 : Insurance, reinsurance and pension funding, except compulsory social security

66 : Activities auxiliary to financial services and insurance activities

Total

City of London 16.0 3.0 16.0 35.0 Tower Hamlets 16.1 0.2 6.4 22.7 City of Edinburgh 5.2 2.6 2.9 10.7 Swindon 6.0 1.7 1.3 9.0 Calderdale 5.5 1.7 1.0 8.2 West Dunbartonshire

6.5 0.0 0.4 6.9

Financial services exports Some financial services, like high street banking are not traded internationally. However, others are. This includes services such as private banking where a customer in Italy chooses to use the services of a private bank based in Edinburgh for example. Currently these exports can be undertaken as part of the UK’s membership of the single market which means that a bank can use a passport to serve customers in any other member state. The single market also makes it easier to set up branches in other member states than is typical within free trade agreements. Once a bank or financial services firm is established and authorised in one member state, it can apply for to open branches in other member states with relatively little additional regulatory clearances required through a process called passporting. Scottish based financial services firms have taken advantage of both of these ways of exporting into the EU. As chart 1 shows, financial and insurance activities were the largest source of exports in 2017, the latest full year for which this data is available. This was followed by professional, scientific and technical activities which includes legal services. This is important to note when considering Brexit and financial services because there are very close working relationship between financial and legal services in the delivery of wholesale financial products. More of Scotland’s financial services were exported to the rest of the world than to the EU in 2017. However, financial services still represented the most important component of Scotland’s exports to the EU which shows how the EU is a more important export market for financial services than would be expected for the size of its economy compared to the rest of the World (see chart 2).

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Chart 1: Scotland Service Exports by Industry (£ millions)

Chart 2: Scottish Service Exports by Industry and Destination

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Financial Services in Scotland Scotland, and Edinburgh in particular has a long history in financial services dating back at least as far as the opening of the Bank of Scotland in 1695. Edinburgh also played an important part in the development of life insurance providing cover for soldiers during the Napoleonic Wars. This history has grown into a diverse set of activities. Banking Scotland is home to the headquarters of a number banks including The Royal Bank of Scotland, Clydesdale Bank, Tesco Bank, Virgin Money and The Bank of Scotland (part of Lloyds Banking Group). Many other UK and international banks have sizeable operations in Scotland, including HSBC and Barclays. Some of the services provided by these banks will be sold to domestic clients in Scotland and the rest of the UK and hence not effected by any additional non-tariff barriers at the end of the transition period. However, those that are exported will be. Fund Management Fund Management in Scotland is made up of both large institutional companies and smaller bespoke firms that provide investment services to institutional and personal clients around the world. Scotland Financial Enterprise estimates that funds under management in Scotland stand at over £800 billion or 8% of the total funds managed in the UK. Some of the major asset management providers based in Edinburgh include Aberdeen Asset Management, Baillie Gifford, Kames Capital, Blackrock and Standard Life Investments. Within the asset servicing side are HSBC, Citi Group, BNY and State Street. The largest proportion of asset management-related jobs in Scotland relate to operations, fund administration and corporate finance. Around 7,500 people are employed directly in asset management in Scotland. Asset servicing is a key growth area in Scotland's financial services industry and Scotland is now a leading European centre for asset servicing offering a comprehensive range of services, including; custody, securities servicing, investment accounting, performance measurement, trustee administration, shareholder services, compliance, client management and retail fund administration. Insurance, Life Assurance and Pensions Scotland has a long history and strong international reputation in general insurance, life assurance and the pensions. Life insurance is particularly important, accounting for 24% of the UK’s employment in this sector. Notable life insurance companies in Scotland include Standard Life, Scottish Widows based in Edinburgh and Scottish Friendly, which is based in Glasgow. This focus on insurance in Scotland is important in the context of Brexit because insurance is typically more domestically focused and less reliant on EU exports than other parts of the financial services sector.

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Fintech Fintech Scotland counts 120 Fintech companies in Scotland and reports a rapidly growing sector. There is a strong enabling environment for Fintech. This is particularly true in Edinburgh, where the concentration of financial services, universities and public policy bodies is enabling the inter-firm linkages needed to design products for the market. Notable Fintech companies in Edinburgh include The ID Co., Money Dashboard, Nucleus, Float, FreeAgent, Zonefox, Symphonic Software, Wallet Services, The Lending Crowd and Payfont. There are also Fintech companies in Glasgow, Aberdeen, Stirling, Dundee and Perth. Edinburgh has a higher concentration of Fintech jobs than in London. The fintech sector is a diverse blend of startups, global corporations, universities and the public sector. Deloitte summarised this in their assessment of Fintech hubs stating that:

Edinburgh has all the component parts to enable a thriving FinTech ecosystem and in an area roughly of one suare mile across the city centre, one can access major Financial Services organisations, deeply experienced technologists, highly intelligent and practical academics and secure early stage funding. There are not many other cities that have an ecosystem concentration like Edinburgh!1

The fintech sector is particularly reliant on EU nationals for labour. The salary threshold proposed by the government of £25,600 for migrants entering the UK, lower in the case of those holding PhDs – is unlikely to pose a significant barrier to entry for this secotr under the government’s proposed post-Brexit migration regime that it intends to implement once freedom of movement ends. However, employers will still have to go through the bureaucracy of applying for visas and there will be significant extra costs to pay that do not apply now to EEA nationals coming to work in the UK. Financial services in Edinburgh Financial services are a significant part of Edinburgh’s economy. Indeed, outside of the City of London and Tower Hamlets, the City of Edinburgh has the highest concentration of financial service employment in the United Kingdom. Table 2 takes a conservative estimate of the proportion of people employed in financial services in Edinburgh and estimates that 10.7 percent or 37,000 employees work in the sector. Broader estimates of the number of people employed in financial services in Edinburgh put the figure close to 50,000 and contributing 25.2% in GVA to the economy of Edinburgh. Outside of London, Edinburgh has the UK’s largest centre for banking and is a major international location for fund management; and Glasgow and Edinburgh are the biggest insurance centres. 1 Deloitte: A tale of 44 cities Connecting Global FinTech: Interim Hub Review 2017

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Chart 4: Financial Service Exports Edinburgh

Financial services are the main service export Edinburgh accounting for close to half of all service exports (see chart 4). They are almost five times larger than Information and communication services, which is the next largest discreet category of service exports. Edinburgh remains a significant market for life assurance with one quarter of the UK’s life assurance employees based there. It’s the chosen headquarters for major financial institutions, such as the Royal Bank of Scotland Group, Standard Life and Scottish Widows. Multinationals also have a large presence in the city Including JP Morgan Chase, BlackRock, HSBC, and The Bank of New York Mellon.

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Chart 5 Service Exports Edinburgh by Industry and Destination

Brexit and financial services in Scotland Full details of how different outcomes to the UK-EU trade negotiations may impact the financial services sector more generally can be found in our report Services and Brexit and in evidence previously submitted to the Committee. Like financial services in the rest of Scotland, Edinburgh exports a higher value to the rest of the world than it does to the EU. This suggests that as a financial hub it may be less exposed to leaving the single market than London is. However, there are close interlinkages between different parts of financial services so any disruption in one area can impact other parts in terms of the attractiveness of Edinburgh as a financial centre. It is important to note that because the EU’s single market goes further in supporting financial services trade than is common in free trade agreements, the ability to export from Scotland to the EU will most likely change with or without a trade agreement in place. In the face of this uncertainty, some financial institutions in Scotland, in common with those in the UK have begun to initiate their Brexit plans by moving assets, and or employees, to European hubs including Amsterdam, Paris, Frankfurt, Dublin, Frankfurt and Luxembourg. They are doing this to maintain single market access when passporting rights end at the end of the transition period. It is hard to provide definitive figures on this but below are some notable examples

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1. Scottish Widows transferred its European portfolio to a new legal entity in

Luxembourg called Scottish Widows Europe in March 2019. Policies mainly sold in Germany, Austria, Italy and Luxembourg under the Clerical Medical Brand which were sold through Scottish Widows’ European branch and broker networks were transferred which shows that Scotland’s strengths in insurance have made corporate strategy changes in light of Brexit.

2. Standard Life Aberdeen has opened a portfolio management and distribution service in Dublin to service clients in the EU 27. This can be understood as a response to the end of passporting and the end of single market access that will bring for financial firms. Opening within the EU27 makes sense in terms of maintaining that market access. They have also expanded the size of their Luxembourg office

3. Royal Bank of Scotland began operating a banking entity in the Netherlands, based in Amsterdam in March 2019. They are using this to serve from of their non UK EEA customers. They use this as a base for a network of branches (in London, Dublin, Frankfurt, Madid, Milan, Paris and Stockholm). They have also established Natwest Bank Branch in Frankfurt to support Euro Payments and Euro Liquidity through the Bundesbank.

Summary Scotland, and Edinburgh and Glasgow are significant financial services hubs. Their strength is reflected in the proportion of people employed in these sectors and in their strong export markets. Access to EU labour, that is particularly important in some parts of financial services like fintech and EU export markets will change with or without a deal at the end of the transition period. There is some evidence that because of Scotland’s strengths in insurance, it may be less exposed to the end of transition than London’s financial centre. However, financial services are best thought of as an ecology and any potential risks to one part can have knock on consequences in other areas, particularly given the uncertainty surrounding what the UK’s future trading relationship with the EU will be. In the face of this uncertainty, some high profile Scottish financial firms, including in insurance, have begun to move parts of their operations to other financial hubs within the EU.

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ANNEXE C Inter-governmental relations 1. The Committee in its first report of the current Parliamentary session ‘The EU

referendum result and its implications for Scotland: Initial Evidence’ recommended that—

“We agree with our counterparts in other parliamentary committees across the UK that parliaments and assemblies must have a role to play in these discussions and will work closely with them on this. We welcome the First Minister’s commitment to keep this Committee informed of progress as highlighted in the Parliament’s Resolution of 28 June 2016. We expect the principles of the Scottish Government’s Written Agreement on Intergovernmental Relations to underpin Government’s engagement with the Committee and to be kept informed both before and after formal inter-ministerial meetings on issues relating to Brexit.” (para. 147).

2. The Committee then followed up on this issue, in the report ‘Determining Scotland's

future relationship with the European Union’, and reached the following recommendations unanimously in relation to IGR—

“It has never been more important that the mechanisms for intergovernmental relations between the Scottish Government, the UK Government and other devolved administrations are fully effective. This was already the case with the growth of the shared space and powers that have come from enhanced devolution arrangements and the Scotland Act 2016. Brexit has increased this need exponentially. The UK’s withdrawal from the European Union will be the most significant change to this country for decades. It will fundamentally alter Scotland’s place in the world and impact on the devolved competences of the Scottish Parliament whether that is in terms of the UK’s new relationship with the EU, the repatriation of previously EU competences (for example in agriculture or fisheries) or the process of establishing new free trade agreements with other countries. The Scottish Government has always, to some degree, been involved alongside UK Government ministers in negotiations with their counterparts in other Member States in meetings of the Council of Ministers. Scottish Ministers have participated in negotiations following the prior agreement of a UK negotiating line and set of priorities. This principle should apply to the withdrawal agreement and any new free trade agreements. In relation to negotiations prior to the triggering of Article 50, we support the intensification of discussions in the joint ministerial committees, in bilateral meetings and at the official level. These meetings should be approached in a constructive spirit by all parties. The Committee is concerned that this may not always have been the case.

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Given that the terms of reference of the Joint Ministerial Committee (European Negotiations) commits all governments to “discuss each government’s requirements of the future relationship with the EU and seek to agree a UK approach to, and objectives for, Article 50 negotiations”, we expect the UK Government to provide a response to the Scottish Government on Scotland’s Place in Europe before Article 50 is triggered. We also expect the UK Government to say whether the Scottish Government’s objectives for a differentiated solution will be set out in the letter from the UK Government to the EU to trigger Article 50. Once the UK has agreed its negotiating position and Article 50 has been triggered, we recommend that ways are found to involve the Scottish Government and its officials in the negotiations that follow with the EU, both at the high-level and on the technical detail. Such involvement has been commonplace in the past in areas such as fisheries, agriculture, regional development, judicial co-operation etc. in the Council of Ministers and various working groups. Brexit should be no different. As the negotiations on withdrawal proceed, it is already apparent that the UK Government, and the Department of International Trade in particular, is participating in preparatory discussions with third countries on new free trade agreements. We are encouraged to hear from the Cabinet Secretary for the Economy, Jobs and Fair Work that some joint working is already underway. This should be built upon and intensified. We recommend that a means is found to involve the Scottish Government in bilateral and quadrilateral discussions on future trade deals. This could include the creation of a Joint Ministerial Committee on International Trade. This could also include government officials and organisations such as Scottish Development International meeting regularly with their UK counterparts. Finally, in relation to parliamentary scrutiny and accountability, we believe that it is important that the recently established Written Agreement is augmented to ensure the flow of appropriate information from the Scottish Government to this and other parliamentary committees once Article 50 is triggered and also in relation to discussions on future free trade agreements.”

3. The Committee has engaged in a range of correspondence with parliamentary

committees in other legislatures in the UK with regard to IGR. For example, in April 2019, the Committee responded to a letter from the House of Lords European Union Select Committee stating that—

“your report highlights the important role that the UK Government envisages the Northern Ireland Executive fulfilling in the formal inter-institutional structures set out in the Withdrawal Agreement. The Committee considers that this creates a significant imbalance in the degree of involvement of devolved administrations within these structures. The Committee, therefore, welcomes your recommendation that there is a case for devolved

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administrations be ‘in the room’ when devolved competences or interests are engaged within these structures. More generally, the Committee considers it imperative that the Scottish Government be part of the decision-making process that underpins the UK’s participation within these governance mechanisms. Accordingly, the Committee welcomes your recommendation that the UK Government should explain what it means by an ‘enhanced role’ for the Scottish Government in the future relationship negotiations. Furthermore, the Committee supports the recommendation that this should, at the very least, involve a role for the devolved administrations in dialogue at summit, ministerial and technical level”.

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ANNEXE D

Correspondence from David Frost to Michel Barnier of 19 May 2020 Dear Michel UK DRAFT LEGAL TEXTS As I indicated during the last negotiating Round on 15 May, the Government has decided to make public the various draft legal texts we have sent you in recent weeks. The texts are available at https://www.gov.uk/government/publications/our-approach-to-the-future-relationship- with-the-eu and you may of course now share them, and this letter, direct with Member States. We are making the texts public as a constructive contribution to the negotiations, and in particular as a response to your suggestions in the last two Rounds that it would help you explain our proposals in more detail to Member States. We are very clear that we are not seeking to negotiate directly with Member States and that it is for you, as the EU’s negotiator, to manage any differences of perspective that may emerge. I hope that today’s publication will facilitate that work and clear up any misunderstandings about the purpose and effect of what we have put to you. I would like to make three specific points that may help in that process. First, we have tried to be clear consistently that we are looking for a suite of agreements with a Free Trade Agreement at the core. We do not seek to remain part of the Single Market or Customs Union, as we do not believe this is in the UK’s interest. Accordingly, as you know, our legal texts draw on precedent where relevant precedent exists (and we have made pragmatic proposals where it does not, for example on road transport or energy cooperation). So, for example, our draft FTA approximates very closely those the EU has agreed with Canada or Japan. Our draft fisheries agreement is very close to the EU / Norway Agreement. Our aviation proposals are similar to those the EU has agreed with other third countries. Our draft civil nuclear agreement is very close to similar cooperation agreements that Euratom (and indeed the UK) has concluded with other third countries. And so on. Given this reality, we find it perplexing that the EU, instead of seeking to settle rapidly a high-quality set of agreements with a close economic partner, is instead insisting on additional, unbalanced, and unprecedented provisions in a range of areas, as a precondition for agreement between us. Second, we find it surprising that the EU not only insists on additional provisions, but is also not willing even to replicate provisions in previous FTAs. For example, your proposals to us contain no provision for mutual recognition of conformity assessment (which the EU agreed with or proposed to Canada, Australia, New Zealand and the

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US); no sector-specific provisions for key industries with particular technical barriers such as motor vehicles, medicinal products , organics and chemicals (agreed with or proposed to one or more of Canada, South Korea, Chile and the US, among others); and no equivalence mechanism for SPS measures (agreed with or proposed to Canada, Japan, New Zealand, Australia, Mexico and Mercosur). In services, the EU is resisting the inclusion of provisions on regulatory cooperation for financial services, though it agreed them in the EU-Japan EPA. The EU’s offer on lengths of stay for short-term business visitors (Mode 4) is less generous than CETA, and does not include the non-discrimination commitment found in EU-Mexico. The EU has also not proposed anything on services which reflects the specific nature of our relationship: indeed your team has told us that the EU's market access offer on services might be less than that tabled with Australia and New Zealand. Overall, we find it hard to see what makes the UK, uniquely among your trading partners, so unworthy of being offered the kind of well-precedented arrangements commonplace in modern FTAs. Third, on the “level playing field”. We agreed in good faith a set of commitments in the Political Declaration in this area. Although it continues to be suggested that we are not willing to deliver on these commitments, as you know, our text sets out a comprehensive set of proposals designed specifically (as the Political Declaration puts it) to “prevent distortions of trade and unfair competitive advantages”. Our proposals are closely modelled on similar arrangements already agreed by the EU with similar countries, notably in the Canada FTA. Commissioner Hogan described the Canada provisions in March as “solid and anchored in a vast network of underlying international conventions and agreements", and no doubt this is why the EU has found it possible to come very close to zero-tariff, zero-quota access in this and other agreements (some eliminating tariffs on over 99% of tariff lines) without finding it necessary to go beyond such standard “level playing field” provisions. The EU is now asking the UK to commit to much more than that. Your text contains novel and unbalanced proposals which would bind this country to EU law or standards, and would prescribe the institutions which we would need to establish to deliver on these provisions. To take a particularly egregious example, your text would require the UK simply to accept EU state aid rules; would enable the EU, and only the EU, to put tariffs on trade with the UK if we breached those rules; and would require us to accept an enforcement mechanism which gives a specific role to the European Court of Justice. You must see that this is simply not a provision any democratic country could sign, since it would mean that the British people could not decide our own rules to support our own industries in our own Parliament. Similar issues manifest themselves across labour, environment, climate change and taxation. We have been clear that the UK will have high standards and, in many cases, higher standards than those in the EU. However, we cannot accept any alignment with EU rules, the appearance of EU law concepts, or commitments around internal monitoring and enforcement that are inappropriate for an FTA. The EU has used various arguments to justify its proposals:

- You claim that we are being offered a future relationship of unprecedented

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depth. As I have set out, this is not obvious on the basis of the evidence we have so far. We have nevertheless suggested that, if it is the mutual commitment to zero tariffs that makes these provisions necessary in your eyes, then we would be willing to discuss a relationship that was based on less than that, as in other FTAs. You have said that you are not willing to have such discussions.

- You claim that it is the level of economic integration between the UK and the EU which justifies such provisions. In fact, as a share of our economy, the UK is already less integrated in trade terms with the EU than Switzerland, Norway, or Ukraine. Alternatively, you justify it in terms of trade flows: yet the EU did not insist that the US made any “level playing field” commitments in the TTIP negotiations beyond those typical to an FTA, although US and UK trade flows with the EU are roughly similar.

- You claim that the provisions are required on grounds of “proximity”. This is a

novel argument in trade agreements and is hard to justify from precedents elsewhere. The US and Canada, for example, trade together through a trade agreement without provisions of the kind the EU would like to see. This proximity argument amounts to saying that a country in Europe cannot expect to determine its own rules, simply on the grounds of geography, and that it must bend to EU norms. That is not an argument that can hope to be accepted in the 21st century.

I could set out similar concerns about the EU’s approach in other areas:

- on fisheries, where the EU’s position that access to our waters after the end of this year should be the same as now is clearly not realistic;

on governance arrangements, where you propose a structure that is not replicated in other EU agreements with third countries except those which aspire to join the EU

on law enforcement, where you describe EU proposals as providing for an unprecedentedly close relationship, but in fact they do not go beyond agreements you have made with other third countries, many of whom have far less data to offer the EU and are less closely involved in the mutual fight against crime. We do not agree that the simple fact of putting a set of standard measures into a single agreement can itself justify the exceptional and intrusive safeguards you are seeking in this area Overall, at this moment in negotiations, what is on offer is not a fair free trade relationship between close economic partners, but a relatively low-quality trade agreement coming with unprecedented EU oversight of our laws and institutions. It does not have to be like this. I remain convinced that it would be very straightforward for us to agree a modern and high-quality FTA and other separate agreements, like those you have agreed with other close partners around the world, and that we could

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do so quickly. I do hope that in the weeks to come the EU will think again about its proposals in a way that will enable us to then find a rapid and constructive alternative way forward. I am copying this letter to Jeppe Tranholm-Mikkelsen, Secretary General of the Council, and David McAllister at the European Parliament. With best wishes DAVID FROST Sherpa and EU Adviser

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Correspondence from Michel Barnier to David Frost of 20 May 2020 Dear David, Thank you for your letter of 19 May 2020 regarding the publication of various UK draft legal texts that day. We welcome this publication. In line with our transparency policy, the Commission had already made public, on 18 March 2020, a draft legal agreement for an ambitious, modern, and comprehensive future EU-UK partnership, covering all areas of the negotiations as outlined in the Political Declaration agreed with Prime Minister Johnson seven months ago. I share your commitment to helping the process move forward together. I do not think, however, that an exchange of letters regarding the substance of the negotiations is necessarily the best way to discuss on substantial points. It cannot be a substitute for serious engagement and detailed negotiations and, in particular, I would not like the tone that you have taken to impact the mutual trust and constructive attitude that is essential between us. Let me make three points in order to clarify some of the points you made in your letter and which concern the overall context of our exchanges. First, the EU agreed in October 2019 a Political Declaration with Prime Minister Johnson setting out the framework for our future relationship, with an agreed balance of what we had set out to achieve. This is the only precedent that the EU is following. We have remained faithful to the Political Declaration in the legal text we have proposed to the UK, which shows how the objectives that we had jointly defined in October 2019 can be translated into a comprehensive agreement. Our ambition is to achieve, as part of our comprehensive economic partnership, a free trade agreement, with no tariffs or quotas on any goods. Of course, our new trading relationship will never be as fluid as the current situation within the Single Market or the Customs Union. This reflects a sovereign and independent UK choice, which we respect and do not question. Such a choice comes with consequences. The EU and the UK are equally sovereign and as such will set the conditions for access to their respective markets. Regardless of what your letter suggests, there is no automatic entitlement to any benefits that the EU may have offered or granted in other contexts and circumstances to other, often very different, partners. Every agreement that the EU has concluded is unique, with its own balance of rights and obligations, tailored to the partner and era in which it is concluded. There is no model, no uniform precedent to follow in EU trade policy. Neither is there a right to what you admit are unprecedented UK proposals in a number of areas. Just as we do not accept selective benefits in the Single Market without the corresponding obligations, we also do not accept cherry picking from our

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past agreements. The EU is looking to the future, not to the past, in these negotiations. Second, you mention specifically a few areas of divergence, and focus on the question of level playing field. The UK cannot expect high-quality access to the EU Single Market if it is not prepared to accept guarantees to ensure that competition remains open and fair. The EU has been clear about this since 2017. This was unequivocally stated by the European Council guidelines of 23 March 2018 mandating “work towards a balanced, ambitious and wide- ranging free trade agreement (FTA) insofar as there are sufficient guarantees for a level playing field”. Given our geographic proximity and economic interdependence, there must be robust level playing field safeguards to avoid distortions of trade and unfair competitive advantages, to the benefit of consumers and companies on both sides. Modern high-quality trade and economic agreements go beyond the traditional goal of simply eliminating tariffs and need to protect – or even raise – social and environmental standards, in the general interest of citizens and consumers. This means upholding the common high standards applicable in the EU and in the United Kingdom at the end of the transition period in the areas of state aid, competition, social and employment standards, environment, climate change, and relevant tax matters. It also requires appropriate mechanisms for the effective implementation of these standards domestically, as well as for enforcement and dispute settlement. This does not mean that the UK would be bound by EU law after the end of the transition period in these areas; the UK will remain entirely free to set its own higher standards. But we need to give ourselves concrete, mutual and reciprocal guarantees for this to happen. In this regard, whereas I believe detailed discussions on substance are for the negotiating table, I would like to respond once again to your proposal to reduce the ambition of our future economic partnership by letting go of our shared commitment for a “zero tariff, zero quota” agreement (which you describe as a “low-quality trade agreement”). As I mentioned to you last week, apart from the fact that we do not have necessary time for a negotiation on each tariff line, the EU has always made clear that any future trade agreement between us will have to include strong level playing field guarantees, irrespective of whether it covers 98% or 100% of tariff lines. Third, and with regard to law enforcement and judicial cooperation, the EU has never previously offered such a close and broad security partnership with any third country outside the Schengen area. Some UK demands in this area go well beyond the well- precedented approach it declares to be taking. In particular, UK seeks continued access to EU or Schengen databases. Such access is linked to the obligations that Member States have to comply with and would go beyond what some of them have today. These are also all areas that by their nature require strong safeguards in terms of protection of fundamental rights. We need the UK to provide those guarantees, as agreed only seven months ago in the Political Declaration, such as adequate data protection standards.

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In conclusion, I would like to state again that the success of our negotiation will only be possible if tangible and parallel progress is made across all areas of negotiations, including engagement on and commitments to a level playing field and appropriate governance mechanisms, as well as to balanced, sustainable and long-term arrangements on fisheries. The next round must bring this new dynamism in order to avoid a stalemate. I remain convinced that with mutual respect and constructive engagement by the UK across the board, on all issues on the negotiating table, we can move forward in the limited available time. Yours sincerely, Michel Barnier