We can’t afford to play chicken with financial services
Tony Ward is chief executive of Home Funding
Was it only a month ago that I wrote about my biggest Brexit concerns? Sorry it needs repeating now; the treatment of our banks and financial services sector during the Brexit negotiations. I was certainly hoping for more clarification by now.
To reiterate, financial services firms are immensely important to the economy, generating record £72bn in tax in the past year. That, according to PwC, is 11% of the UK’s tax take. The financial services sector employs more than 3% of the country’s workforce and pays for 11% of total public spending, according to the Corporation of London. So why so little progress in Brexit negotiations? There seems to be a lot of rhetoric but little in the way of action.
Last week, a House of Lords committee said that businesses will have to put costly contingency plans into action unless the government clarifies its objectives for the second phase of Brexit talks. Companies, particularly those in financial services, need to be able to plan for various outcomes, a report from the EU financial affairs sub-committee warned. Quelle surprise.
Baroness Falkner of Margravine, the sub-committee’s chair, said that greater coherence was needed. “The financial services sector needs greater clarity from the government about what it wants after Brexit, and it needs it now,” she said.
Well yes. It’s certainly not forthcoming. David Davis, the Brexit secretary, has recently said that Britain wants to continue to benefit from the EU’s free-trade agreements with other countries during a transition period and would seek an ‘appropriate process for this temporary period’ to ensure that it still had some input in any rule changes that affect its interests. However, he also admitted that there were differing views among senior minister on the ‘tactics’ of leaving the EU. No real coherence here, which is concerning.
Recently the City of London’s policy head, Catherine McGuiness, claimed that the financial services industry would suffer far fewer job losses from Brexit than first feared. However, over the weekend she changed her stance, suggesting that the government’s failure to publish its Brexit blueprint for financial services is putting jobs in the sector at risk. Ms McGuiness said she was ‘very disappointed’ by the absence of a position paper on the City’s future trading arrangements. She said the full range of 3,000–75,000 job losses forecast in a 2016 report is ‘still on the table’: “People will make premature decisions to move jobs elsewhere. There’s a great danger of complacency.”
Couldn’t have put it better. I mean, where is the detail? Estimates about the scale and impact of the potential job losses have varied considerably. The City expects 5,000–13,000 job losses among the 1.1 million people employed in the sector across Britain. The Bank of England said that 10,000 was a plausible figure, while consultants such as Oliver Wyman have forecast losses of 75,000 or far higher, although over several years.
This week, Swiss investment bank UBS said it wants London to remain Europe’s financial hub and it will try to keep as many staff in the City as possible. Speaking to Bloomberg TV at the World Economic Forum in Davos, UBS’s investment banking head Andrea Orcel said the Zurich-based bank wanted to keep ‘as much as we can in the UK’. So good news? Not so fast. He warned that ‘everybody has a plan on how to redeploy and relocate’ staff and said banks needed to see progress on Brexit trade talks – including an agreed transition period – by March at the latest. Mr Orcel said: “Now we are beyond maximum time, so all investment banks need to take a view and need to start executing, so March is really the deadline.”
Other European financial hubs including Paris, Frankfurt, Dublin and Amsterdam are courting City firms in the hope they will relocate staff. French finance minister Bruno Le Maire told Reuters that Paris could overtake London. “There will be a new leader after Brexit,” he said.
The chief executive of JP Morgan, Jamie Dimon, said it could cut its 16,000 UK workforce by more than a quarter if financial rules diverge after Brexit. He said he would revise his long-term estimate of job losses upwards if Brexit talks failed to produce an outcome close to the current arrangements. Mr Dimon added that such a scenario would harm London as a financial hub. “If we can’t find reciprocal recognition of rules – and there are a lot of people who are mad with the Brits for leaving and want their pound of flesh – then it could be bad. It could be more than 4000,” he said. When asked if that outcome would represent a real threat to the future success of London as a financial centre, he gave a single word answer: “Yep.” Separately, Lloyd Blankfein, chief executive of Goldman Sachs, said his bank was close to the point of not being able to reverse the contingency planning it is making for Brexit: “Every month, incremental steps are taken and at some point we do things that are not going to be undone.”
Warnings aplenty. The government really needs to get its act together and offer something that is coherent and reassuring for financial services. Before it is too late.