There is an angst hanging over the City. The merchants of doom and gloom have spread the message far and wide that, post-Brexit, the City will be in a battle for its very survival. Utter twaddle.
Here are 10 reasons why the City won’t just survive, but could thrive post Brexit. If the government makes the right decisions, the City faces the prospect of renaissance rather than decline. Of course, this is not guaranteed, but as we will see, the downside risk has little to do with Brexit and much more to do with our confidence as a nation to ditch the EU regulatory state.
So here’s my starter for 10 for a City renaissance.
Number 1: If the UK were to choose unilateral free trade with zero tariff and non-tariff barriers post-Brexit, it would solidify its position as a global champion of free trade. This would mean that the world’s financial centre was located in the world’s leading advocate of genuine free trade. Talk about great alignment and branding.
And there’s so much more.
The global economy is on the cusp of a technological revolution unmatched in human history. Genuine friction-free capitalism is bringing together buyers and sellers, savers and investors, in an unprecedented way.
If there is one moment in time when the City should shine, this is it. But the City will only shine if it is unshackled, so that its light can burn brightly.
Number 2: There is no example in economic history where a high-value added sector with real economic freedom has not prospered. Free from the EU’s regulatory embrace and desire for centralised control, why on earth should the City fail to thrive?
Freedom (with responsibility) is the key to economic success. Whether it was the emergence of the Eurodollar market or Big Bang, the City has a track record in exploiting liberalisation.
Number 3: The breadth and depth of the City is enormous – what economists call agglomeration economies. If the UK were to pursue unilateral free trade, it would put “skin in the game” in free trade agreements which would have a profound boost for UK exports in business and professional services across the City.
Number 4: Being outside the Single Market will permit labour market deregulation, hitherto prevented by the EU cover under which it was introduced.
Number 5: The alarmist estimates of potential City losses from Brexit – such as the Oliver Wyman study – have been shot to pieces.
Actual at risk revenues are minimal, and that is before companies take any remedial action to offset the threat.
Number 6: Before we forget, the City has an enormous competitive edge from the English language, British law, and its GMT time zone. That isn’t going away.
Number 7: The rest of the EU doesn’t really “get it” with regard to the paramount importance of City institutions to the modern economy. The more the EU pursues a financial transaction tax which excludes the City, the more the City will prosper.
Number 8: Eurozone bank balance sheets are shot to pieces. Future Eurozone growth will need to be financed by deep pockets in the City.
Number 9: Centripetal forces have continually sucked more business into the City, despite the attempts of other financial centres, such as Paris or Frankfurt, to divert business elsewhere.
Number 10: Post-Brexit regulatory models based on equivalence still leave the EU as the rule maker. Cool reflection is likely to reject this as far too risky, freeing the UK from Brussels-based decisions.
Despite these 10 reasons for optimism, there are no grounds for complacency. The City, especially after the 2008 financial crisis, is hardly everybody’s favourite uncle. There is a massive public relations campaign to be done to educate the public as to why capital markets work for the good of society.
Until this is done, my 10 grounds for optimism will likely remain sadly overlooked.