IN 1553, London merchants funded a naval expedition to China via the North East passage. It got trapped in the ice in Russia’s White Sea and was forced to travel overland to Moscow where Ivan the Terrible granted it exclusive trading rights.
The group returned to London to set up the Muscovy Company. This became the model for future trading ventures in Africa, the Levant, Canada, the East Indies, Virginia and the Caribbean. In less than 100 years, the UK became the most outward trading nation in the world.
London was transformed from a small European trading centre into a global financial hub.
It is this spirit of global free trade that the UK can now rediscover by combining the exit from the EU’s restrictive single market and customs union with opening up our economy to the positive effects of full competition – unlocking a Brexit boost of up to £135bn a year. This dividend has been calculated by Economists for Free Trade – a 16-strong group of leading economists, including myself – who chart the course from Project Fear to Project Prosperity in a new report to be published this autumn.
Leaving the EU will enable the City of London to reclaim its mantle as the world’s financial powerhouse. It will give the UK the freedom to design a more attractive regulatory framework based on global standards. Not only would such a model attract business and liquidity to the UK, it would liberate financial services from the burden and increasing uncertainty of EU regulation.
In particular, we would remove the most unnecessarily onerous requirements of EU laws; move away from the EU’s process-focused approach to one based on outcomes; re-draft laws in common law style, which would bring far greater certainty and clarity compared with the “purposive” method of interpretation in the EU; move away from poor ECJ decision-making in the financial services context, which is insufficiently focused on fact-based analysis; and remove laws designed to provide for the EU Single Market.
Hence why it would make no sense to stick with our current high tax, high spend and high regulation format. This is a point made by Economists for Free Trade, who warn that Philip Hammond is unwise to rule out the UK’s ability to adapt our tax and regulatory regime to suit our new position as a champion of global free trade.
Nor should we be concerned about Europe “stealing” our financial services industry. The banking, asset management and insurance sectors contribute eight per cent to the UK’s Gross Value Added and 75 per cent of the UK’s trade surplus in services. The UK has the world’s fourth largest banking sector – with 17 per cent of all international bank lending, more than any other centre – the third largest insurance sector, and is second for assets under management at £6.2 trillion. The UK’s financial services industry is of great importance to the EU, with around 40 per cent of UK net financial services exports going to the EU: 60 per cent of the EU’s capital markets business is conducted through London, and UK banks are the biggest source of cross-border lending to EU banks and corporates with more than £1.1 trillion of loans outstanding.
It is as ridiculous to believe that the City of London will move to Paris or Frankfurt after Brexit as it is to believe that the French wine industry or the German car industry will move to the UK.
Brexit is a golden opportunity for Britain.
It is also a golden opportunity for the City of London to escape the clutches of the EU as a global financial hub and take the lead in the new digital revolutions of fintech and blockchain.