How we vote on Thursday will have an impact on the whole country, but on Britain’s financial services industry in particular. There will, of course, be an immediate reaction in the markets. But Thursday’s decision will also help determine the future size and shape of our financial sector.
Financial services are important because they are Britain’s single most important industry, and biggest contributor of tax – £67bn last year. We need the industry to succeed not just because of jobs and growth, but because it contributes so much to our public services.
As things stand, London’s economy and Londoners’ jobs benefit enormously from Britain’s membership of the Single Market. Over the past decade, the surplus from the UK’s trade in financial services has more than doubled to £58bn. And London has once again been rated the most competitive financial centre in the world. To claim, as some do, that London is somehow being strangled by EU regulation is patently absurd.
This success has a lot to do with London’s intrinsic strengths – its skilled workforce, its language, its time zone, its flexibility. But financial firms from all over the world come here for another reason: because it gives them virtually untrammelled access to the EU, the biggest market on the planet. That means banks, asset managers and insurance companies based in London can offer their services right across Europe.
And on top of that, Britain’s particular position – in the EU and its Single Market but not in the Banking Union, able to trade in transactions denominated in euros but keeping its own currency and not liable for Eurozone bailouts – explains why so many other countries think that Britain has the best of both worlds.
If EU membership, far from holding our economy and financial services back, is one of the reasons for its strength, what about the alternative?
The Leave campaign has, at last, been clear what Leave means: it means leaving the Single Market. That guarantees that firms based in Britain would have less access to their single biggest export market. It means that there would be nothing to stop the remaining EU member states from ending London’s ability to trade in euro-backed derivatives.
It means that British businesses would lose the right to “passport” their services, to sell them across Europe. It means that access to the Single Market would be determined by difficult and highly technical equivalence negotiations. I recently completed one such negotiation for the EU with the US on one narrow issue. That alone took four years, even though both sides wanted to do a deal and do it as quickly as we could.
That experience brought home to me that it is an illusion to claim that the rest of the world would fall over themselves to offer Britain trade deals if we left. The Americans negotiate hard for their interests but, since I represented a European economy even bigger than theirs, I could negotiate as an equal. The UK on its own would not be in that position.
So it is beyond reasonable doubt that leaving would hurt the City. I’m not claiming it would be the end. But loss of market access and the prospect of years of uncertainty would see many institutions moving jobs and capital out of London as they establish new bases in other EU countries where they know they can keep their market rights. Some firms – such as JP Morgan, HSBC, Citigroup and ING – have said openly that they will have to do this. Many other businesses have told me the same. The hub that is the driver of London’s success would start to shrink.
In turn, other firms who depend on their business would lose out. The damage would cascade outward as the economy took a hit, including to parts of the UK’s financial sector outside London. Tax revenue, which pays for our public services, would fall.
But if Britain votes to remain, the economic future will be brighter. First, Britain would maintain its current strong position – something not to be sniffed at. But there will also be new opportunities for Britain as we work to build a deeper Single Market for capital. Those new avenues for investment will in turn contribute to a stronger EU economy from which we all benefit.
Everyone must work out for themselves what matters most to them and vote accordingly. But if you’re thinking about the economy, about financial services and London’s future, staying in the EU’s Single Market means removing barriers to business between countries; and leaving it puts them up. London’s financial services industry has gone from strength to strength by being part of that European market. By remaining in it, it can grow stronger still.