The Prime Minister’s speech provided much-needed clarity, explaining that in the government’s view the UK cannot remain within the European single market as this would effectively mean not leaving the EU at all. Hmmm, not what I was hoping for. In a recent blog I stated that protecting the City should be a priority when formulating Brexit plans, hence the importance of holding onto the single market and retaining ‘passporting’ rights.
From the big banks’ perspective, the trading arrangement outlined by the Prime Minister represents the worst possible outcome. Following Mrs May’s ‘Brexit blueprint’ speech it is hardly surprising that UK bank bosses have launched a frantic lobbying effort to persuade their foreign counterparts to put on hold plans to shift operations to other European cities.
According to senior City figures attending Davos, international banks are being asked to resist moving jobs, ‘for the good of London’, until it becomes clearer that the UK can sort out a transitional deal with Brussels. The campaign is a concerted effort by the UK’s top banks to limit the damage that Brexit could inflict on the City’s status as the world’s premier financial hub. One source close to the talks said: “We are trying to get a permanent agreement for banks with London operations to access the EU. If we can’t do that, what we’ve asked for is a three-year standstill agreement. We don’t want to trigger contingency plans in advance because of a lack of certainty so we are saying ‘hold on’.”
All well and good, but for how long can they hold on?
Two of the City’s largest investment banks have said that some staff will definitely move abroad when the UK leaves the EU. HSBC’s chief executive Stuart Gulliver told Bloomberg he was preparing to move a thousand staff from London to Paris. And Axel Weber, boss of Swiss bank UBS, told the BBC about one-fifth of its 5,000 London jobs could be hit.
These comments raise the prospect of many thousands of banking jobs leaving London. Mr Gulliver said his bank was in no rush, but explained: “What will happen is those activities covered specifically by European financial regulation will need to move. Looking at our own numbers that’s about 20% of the revenue.” He added: “Some of our other fellow bankers have to make decisions pretty quickly now…about applying for banking licenses in some of the EU countries.”
UBS chief executive Sergio Ermotti told Bloomberg he would have a better idea towards the end of 2017 about how many jobs he will move out of London. But one of his senior executives, Andrea Orcel, said: “With Brexit we will have to [move] and the question is how many’’.
And while taking Barclays chief executive Jes Staley’s comments about London continuing to the ‘the financial lungs of Europe’ into consideration, even he admits that banks may have to move some activities away from the UK.
Some commentators will say this is purely bluster, but these warnings need to be taken seriously. It is vital to remember that Britain’s financial sector is dominant: according to research by PwC, banks, insurance companies and asset managers produce about 12% of the UK’s economic output and account for 11.5% in tax receipts.
I think the government should take heed now. We may be committed to hard Brexit, but there are several routes by which it can be achieved.