The financial services sector is one of the primary engines of our economy and a key source of jobs, wealth and opportunities for our city.
Not only does it attract inward investment from around the world, enriching our communities and raising the living standards of many Londoners, but it generates huge tax receipts that fund public spending across our country.
The health and success of London’s financial businesses is pivotal to the national interest. Banks and other financial institutions that operate out of the Square Mile and Canary Wharf play a vital role in financing businesses, start-ups and critical infrastructure projects in every corner of the UK.
It is therefore alarming that the financial services sector could be on course to become a major casualty of the Government’s wrongheaded approach to the Brexit negotiations.
Despite my warnings and those of leading financial sector voices, such as the City of London Corporation’s Catherine McGuinness, Ministers have failed to take account of the importance of the City’s role as Europe’s financial hub as part of the negotiations.
Very early on, we called for regulatory equivalence for financial services to be at the heart of a post-Brexit trade deal. But the Government has instead placed its red lines around symbolic, but relatively niche ground.
As things stand, the financial services sector remains uncertain about its future relationship with European markets once the transition period ends with the EU on 31 December 2020.
What this means in practice is that come the end of the year, the City and the whole UK financial services sector will face significant barriers to doing business directly with a market to which it currently exports around £26 billion of financial services every year. This would be a catastrophic outcome, but one that’s looking increasing likely.
If a deal which includes financial services is not secured, the City will have no option but to try and navigate the legal and financial regimes of individual EU countries. Not only will this add cost and complexity for our financial institutions, but, in some cases, it may not even be possible at all as not every EU country has its own national regulations in place.
When it comes to financial services, the Government has a strong hand that it’s failing to play. A trade deal that works for the City will work for the EU as well.
It’s in the interests of European economies and businesses to retain full access to London’s financial services, its insurers, exchanges and clearing houses, and for London to retain its competitive edge as a global centre for trading in shares and derivatives.
The Chancellor, Rishi Sunak, has gambled on allowing EU-based financial companies to operate here in the hope of reciprocation, but it should have been part of the wider negotiations.
We have already seen assets moved from the UK to EU. This was an inevitable consequence of Brexit. But we can and must stem the flow, and that means the Government taking a stronger position to ensure London’s financial services can remain open to European business.
‘A diminished country’
Playing fast and loose with a sector that is fundamental to growth and prosperity in this country – as the Government appears to be doing – is deeply irresponsible. The reality is our financial sector is key to serving the real economy, and a diminished financial services sector would only lead to a diminished country.
That’s why the Government must now pull out all the stops to safeguard the interests of this vital sector, which is a major employer across the UK and is as important to the British economy as the automotive industry is to the German economy.
The false narrative that’s been built around how the Conservative party can always be trusted to be pro-business means that this Government is too often able to get away with massively damaging, anti-business policies without the scrutiny it deserves.
The fact the Government has almost entirely excluded banking, insurance and asset management from meaningful Brexit negotiations is an extraordinary failure – and one that will go down as a historic mistake, especially at a time when we need our financial sector to be firing on all cylinders so we can recover from the economic fallout of COVID-19.
Some argue that London is perhaps too overly reliant on the financial sector, but unlike the Government’s approach to levelling up, which appears actually to be about levelling down – I want London to be home to other globally leading industries, but not to the detriment of a world-leading financial services sector.
I am calling on those that work in and know about the risks faced by financial services sector to join me in calling – once again – on the Government to urgently wake up and realise that it will not get a strong national recovery without a London recovery.
And that the latter will only occur if steps are urgently taken to shield, not sacrifice, our financial services sector as part of the Brexit negotiations.