It’s no secret that the financial sector plays a huge role in the British economy. Not only does it employ hundreds of thousands of people, but it generates a substantial share of the revenue which funds our essential public services.
No wonder then that, during the referendum, the Remain campaign talked about Brexit’s impact on ‘the City’ in apocalyptic terms. Voters were warned that the world’s biggest financial institutions would be scrambling for the exit door, taking their jobs and taxable profits with them.
Suffice to say, this hasn’t happened. According to the Office for National Statistics in 2017, the first full year since the Brexit vote, the financial sector generated more than seven per cent of all the value created in the UK economy. The House of Commons Library reports that relocations have been at the “lower end” of predictions and that only one bank – Russian-owned VTB – has announced any plans to move its HQ from London.
This isn’t surprising. Many of London’s key strengths as a global financial centre have nothing at all to do with Britain’s EU membership. Amongst other things, the Bank of England identified a large pool of skilled labour, the English language, and a convenient time zone as being crucial factors, and they aren’t going to change.
Nor should anybody overlook the fact that London is simply a much more exciting city to live and work in than would-be rivals such as Frankfurt – especially when you have a bonus to spend!
In fact, Brexit offers a bright future for the City. There are many reasons for this, but one of the most important is that taking back control of our regulatory and trade policy will allow the Government to protect our dynamic, global-facing financial sector from Brussels’ protectionist meddling.
Just as in so many other areas, the EU’s policy regarding financial regulation places a premium on centralising power and imposing uniform standards. Brussels has proven time and again that it is unwilling to make allowances for the needs of industries which are vital only to one or two Member States.
Let’s take one example. The UK has the largest insurance sector in Europe, amounting to more than a fifth of the entire European market (and 6.4 per cent of the global market). However, only a comparatively small share of British exports in the insurance and pensions sector go to the EU – just 12.4 per cent in 2014.
Despite this, the entire sector is forced to abide by regulations set in Brussels, often at huge cost. The ‘Solvency II Regime’, introduced in 2009 to harmonise the regulation of insurance, is estimated to have imposed costs of £3 billion on British firms. Andrew Bailey, now Deputy Director of the Bank of England, branded it “indefensible” whilst Prudential, a major provider, announced in 2015 that it might move its HQ to Asia to avoid the burden. Brexit might not be driving financiers oversees – but Brussels is giving it a go!
Across the financial services sector more widely, polling has found a clear majority of those working in it believe that the costs of EU membership, with all of Brussels’ incessant centralising, outweigh the benefits – and that’s before we fall victim to new proposals such as the ‘financial transaction tax’ (estimated to cost the UK another £3.6 billion) and the raft of other measures being considered as part of the plan to create a so-called ‘Capital Markets Union’.
Protecting ‘the City’ isn’t just about London: two thirds of financial and related professional services jobs are based outside the capital, including 156,700 in Scotland, 54,300 in Wales, and 32,000 in Northern Ireland. The tax revenue it generates helps to support the NHS and other services we all depend on. That’s why it’s so important that we take back control of this vital sector.