Why I’m sticking up for our financial institutions
Tony Ward is chief executive of Clayton Euro Risk
Back to my favourite topic. Yes, discussions around Brexit are back in the news. I make no apologies for this as impending decisions on negotiations are just too important to ignore. None more so than those surrounding the City of London and our vital financial institutions.
So, to the latest: senior City sources warned on Friday that Theresa May risks crippling the economy unless the City of London is prioritised immediately in Brexit talks. There are concerns that the Prime Minister will shy away from putting financial services, the backbone of the economy, at the top of the agenda as the UK begins its negotiations with Brussels. Instead, they believe the government is prioritising sectors such as car manufacturing and fisheries, which the public regard as more important than banking or financial services but that employ fewer people and generate less tax. An urgent rethink is needed, senior city figures said, with Britain fast running out of time.
No beating around the bush here. Let’s say it how it is. And regular readers of my blogs know that I support views that protecting the city should be at the forefront of negotiations – albeit not ignoring other sectors.
My fears reflect those that warn that the longer it takes for the government to strike a deal ensuring the city continued access to clients and markets in the European Union, the more likely it is that banks, insurers and asset management firms will move significant numbers of jobs to the continent. Of course, what people forget is that many of these roles pay high salaries and their departure will inevitably result in reduced tax for the Treasury.
William Wright, managing director of think tank New Financial, said: “The focus since the election has been on a free-trade agreement for goods with UK politicians talking about German cars, Italian prosecco and French cheese. But the most complicated area of any future agreement with the EU will be services, especially financial services. Banks, asset managers and insurers will have to assume the worst-case scenario unless they get the answers they need in the next few months.”
One banking source said: “It is hard to tell whether the government doesn’t want to be seen to be giving the city preferential treatment given the political toxicity of the banks or, worse, they still don’t understand the complexity, urgency and necessity of getting a deal done.”
Well, yes. So many people work in financial services and contribute much in the way of output and tax revenue. Mark Carney, governor of the Bank of England, emphasised the importance of the city to the economy, saying: “One million people across this country work in financial services. The industry contributes 7% of output and pays taxes that cover almost two thirds of the cost of the NHS.” No small contribution, then.
In April, the Bank gave city firms until 14 July to reveal their plans for coping with Brexit and preparing for all eventualities, including a ‘no-deal’ Brexit. Many banks, insurers and asset managers feel that they will have to start implementing those plans if the UK does not spell out what the country’s transitional agreement with the European Union will be sooner rather than later.
Andrew Parmley, Lord Mayor of London, suggested that overseas banks and financial institutions are desperate to establish footholds in the City of London, even amid this uncertainty but emphasised the importance of retaining as much access as possible to the single market. He went on to say that something ‘very similar to passporting’ was attainable and emphasised the need for London to ‘’attract the best people with the best ideas for the best jobs’’. Agreed.
We’ve heard much rhetoric from the likes of David Davis, Philip Hammond and Theresa May but so far little detail. A transitional arrangement is imperative. Mr Davis, the Brexit secretary, has said that ‘‘we will provide a clear forum for government to engage across the board with all relevant sectors’’. Let’s put financial services at the heart of this. We only have one chance to get this right. If we mishandle these negotiations, it will be our loss.