Leaders of the UK’s financial sector are alarmed that the government’s negotiating proposals will place the City of London at a major disadvantage.
The fear is that the loss of independence will boost New York, Singapore and other financial centres. Moreover, the proposals – likely to be accepted by European Union negotiators – would encourage the relocation of banks and other institutions to Paris, Frankfurt and Dublin.
The strategy was unveiled in a White Paper negotiation proposal that was published last week. But the discussion of total trade, including only a few pages to financial services, has been widely criticised by Brexiteers and Remainers. Several parts are written in obscure “gobbledygook” language and some statistics, available elsewhere, are well out of date.
Clients need to translate poorly written White Paper
The nub of the financial services proposal is that the City of London will be subject to current and future EU regulations. The City is thus furious with Philip Hammond, the UK Chancellor of the Exchequer, for allowing a policy U-turn. He originally proposed that there would be “mutual recognition” for both the EU and UK financial regulations. But the new proposal would be “equivalence” which means that the EU would decide whether the UK meets its own standards. Since UK banks and other institutions would become “rule takers” instead of “rule makers”, the expectation is that business would shift to other competitor markets.
The White Paper estimates that “over 75 per cent of the EU27’s capital market business is conducted through the UK”. UK firms manage £1.2 trillion (S$2.2 trillion) of pension and other assets on behalf of European clients. “The UK is also responsible for 37 per cent of all European initial public offerings”, claimed the White Paper, failing to disclose the time period.
City fury that May is on verge of Brexit sell-out
“Today’s Brexit White Paper is a real blow for the UK’s financial and related professional services sector,” the City of London’s policy chairman Catherine McGuinness said. “With looser trade ties to Europe, the financial and related professional services sector will be less able to create jobs, generate tax and support growth across the wider economy. It’s that simple.”
Miles Celic, the head of The City UK, which represents the whole of the UK financial services industry described the government’s plans as “regrettable and frustrating”.
“The overriding issue for financial and related professional services firms is the ability to continue serving customers and clients,” he said. “Mutual recognition would have been the best way to achieve this.”
In an article in The Observer newspaper, Peter Mandelson, former business and trade secretary in Tony Blair’s Labour government and a former EU trade commissioner, damned Premier Theresa May’s Brexit negotiating proposals.
“It’s a spatchcocked, half-in, half-out plan and the business response was frustration. It is better trade news for goods but a disappointing hard Brexit for services,” wrote Lord Mandelson, who has been a vocal “Remain” supporter.
“This plan neither allows us to receive the economic benefits of being fully inside the EU’s trade perimeter nor will it give us the freedom to market ourselves independently to the rest of the world. It is a halfway house that will leave us hanging by a thread, subject to the EU’s rules – whatever they are in future – with no say in their formulation . . . it is services rather than manufacturing that make up the bulk of the UK economy, and to relegate them makes no sense.”
Financial Services a significant contributor to the UK’s economy and trade
According to a March 2018 House of Commons study, the financial services sector in 2017 contributed £119 billion to the UK economy or 6.5 per cent of total economic output. London generated 50 per cent of the output. Some 1.1 million or 3.2 per cent of all jobs, are in financial services. UK financial services’ exports were worth £61 billion in 2016 and imports £11 billion, resulting in a trade surplus of £51 billion. The report continues that 44 per cent of financial services exports went to the EU and 39 per cent of financial services imports came from the EU. The sector contributed £27.3 billion in tax in the period 2016/17.
“Every aspect of the plan is fraught with uncertainty about how it will operate in practice and whether it will endure,” Lord Mandelson wrote. “It will not be agreed on by the EU in its present form because of the issues of principle it raises for EU trade policy. If it is somehow accepted as a starting point for negotiation, there is no chance of the detail being agreed by next March; and its probable unworkability will only be exposed after Britain has left the EU – when Britain will have even less bargaining power than it has now.”
© copyright Neil Behrmann
This editorial was first published in The Business Times, Singapore
Neil Behrmann is London correspondent of The Business Times. Jack of Diamonds his thriller on global diamond mining and smuggling, has recently been published. It is the sequel to the thriller, Trader Jack, The Story of Jack Miner.
See reviews of both books on https://www.amazon.co.uk/Neil-Behrmann/e/B005HA9E3M