It is too narrow a lens through which to view the advantages enjoyed by our financial services companiesby George Magnus / September 25, 2016 / Leave a comment
Read more: The City will decline—and we will be the poorer for it
It is not surprising that the City is a central issue in the Brexit discussion. It’s a pretty important part of the economy. Financial services in general account for about 12 per cent of GDP, run a £72 billion balance of payments surplus and raise about £66 billion in tax revenues. Inside the City, there is a handful of well-known Brexit supporters amid a predominantly pro-EU, pro-Single Market consensus. Outside it, opinion is divided also between those who think it important to preserve the operating environment for the City, and those don’t mind at all if the industry shrinks and becomes less important. The most surprising view though is the idea that Brexit is an opportunity for the UK financial services industry to thrive, regardless. This was the main message of a piece in The Times last week by Ed Conway, who comments on economics and finance for Sky News, under the heading “Resilient City will take Brexit in its stride.” This falls under the same category of headings as “Global warming good for summer holidays.” So what’s this all about?
No one knows where the Brexit referendum result is leading us, least of all Her Majesty’s Government, which has yet to articulate a strategy, let alone a workable one. There is no precedent for leaving the EU, no template, and no clarity about how to restructure an array of complex political and economic relationships, including those relating to the City.
The optimistic view is that the City has survived two world wars, the Great Depression and more, and Brexit is just another, maybe smaller, challenge. Conway’s focus is specifically on the issue of “passporting,” or the right enjoyed by banks, insurance companies and asset managers based in one EU member state, to provide services in all other member states without having to set up separately capitalised, funded and regulated subsidiaries in each country. Out of the Single Market, companies would lose that right, and face higher costs, higher demands for capital at a time when they are under significant regulatory pressure to do so anyway, and greater fragmentation in their businesses. Or, they would back away and the industry will shrink, creating higher costs and dislocations for…