In my travels over the past months, whether it’s Asia, America or around Europe, everyone asks me what I think about the Brexit vote. What’s going to happen? What does it mean?
So I’m not going to write lots about Brexit, but every now and again it’s worth picking up the tone, especially as the GBP is taking a pounding at the moment, literally. Against the dollar it has fallen below $1.21 at one point this week, whilst against the euro it fell below €1.1. As a global traveller, I can remember just last year that our humble currency commanded $1.50 and €1.35 to the pound, which shows how much of a trumping it’s taking (ed: yes, I meant trumping).
Much of this is on the back of Theresa May’s Tory Party Conference speech, which made it clear that she wants to lead the country towards a hard Brexit. A hard Brexit is where Britain leaves the Single Market and flouts the core rules of the European Union’s free movement of people, goods, services and capital. A hard Brexit means that we lose open access to the European Union, and will cause the banks to shut down London ops for European trading and move it elsewhere.
How many jobs move to Paris, Frankfurt or elsewhere is unknown, but we are talking thousands, not a few. It also diminishes London’s stature as a global financial centre, as access to Europe will no longer be facilitated by the English-speaking London base. That will be big news for the economy and the future of the UK. Does Theresa May care? Apparently not. She claims Brexit means Brexit. Sure, but there is a choice between a hard Brexit and a soft one.
Most banks and businesses wanted a soft one. A soft Brexit would be a fudge, but is far more practical than a hard one. The idea of a soft Brexit is that we would keep access to the Single Market. It would keep passporting for banks, allowing free movement of capital across the markets. That is the aim of the City, but it’s looking far less likely to happen as Theresa May’s speech at the Conservative Conference made clear, and the immediate aftermath has been a wipe out of confidence in our country. The key statements she made include (you can read the speech in full here):
“Let’s be clear about what is going to happen. Article Fifty – triggered no later than the end of March. A Great Repeal Bill to get rid of the European Communities Act – introduced in the next Parliamentary session. Our laws made not in Brussels but in Westminster. Our judges sitting not in Luxembourg but in courts across the land. The authority of EU law in this country ended forever.”
This is meant to have given us clarity. Half the reason why not much happened after June 23 is because no one knew what Brexit meant, and no one in government had a plan for it. Now we have a government that’s made clear we will withdraw from the European Union by the end of March 2019 latest (Article Fifty signals the two-year process of withdrawal, and Theresa May announced that would start by March 2017 latest), but we still have no plan. However, the fact that she has added to this statement a clear intent to withdraw from European laws and the European Court of Justice, makes clear that this government intends to implement a hard Brexit.
“We are going to be a fully independent, sovereign country, a country that is no longer part of a political union with supranational institutions that can override national parliaments and courts … So it is not going to a ‘Norway model’. It’s not going to be a ‘Switzerland model’. It is going to be an agreement between an independent, sovereign United Kingdom and the EU.”
This means that we are not going to be part of the Extended Economic Area (EEA) that Norway, Iceland, Lichtenstein enjoy; nor are we going to be a neutral but fully immersed player in the European Union, like Switzerland. What it doesn’t say is what we are going to be. Hence, there’s no idea of what’s at stake here, apart from political grand-standing to say we are playing no part in Europe, our largest trading partner.
Another key part of her speech talked about citizenship and immigration: “if you believe you’re a citizen of the world, you’re a citizen of nowhere. You don’t understand what the very word ‘citizenship’ means.”
I fundamentally disagree with that sentiment, as do half the world’s global citizens. The issue is that Theresa May is trying to appeal to nationalism in an age of globalism. It may be good for political brownie points, but it just doesn’t make sense. It also creates lots of questions about our country’s future. Do Europeans in the UK get to stay? What happens to all those foreign workers who contribute massively to our economy? Do British folks still get holidays in Spain?
I find the whole thing disheartening to be honest, and now we are starting to see the consequences. As the pound takes a beating, banks are making their UK withdrawal plans clearer. Frankfurt, Paris, Berlin, Luxembourg, Liechtenstein and other cities are all licking their lips with glee as they see opportunities to attract banks away from London.
The mood is summed up well by Deutsche Welle who, reporting on a conference of bankers in London this week, give the following report:
Major banks in the City of London have warned they could start moving staff abroad as early as next year if there is no clarity on whether Britain will retain access to the European single market when it leaves the EU.
At a conference in London, senior executives from European divisions of some of the world’s biggest financial institutions expressed the view that the UK government’s tough rhetoric on immigration risked harming their business.
James Bardrick, the UK head of US-based Citibank, said the main dilemma facing the finance industry was how urgently it needed to act on contingency plans aimed at protecting their businesses. “How do we and when do we start making decisions ... knowing the plan is ready to go? It could be in the first quarter of 2017,” he said.
Rob Rooney, CEO of Morgan Stanley International, said his bank would also have to move parts of their operations from London if Britain were shut out of the single market. “It really isn’t terribly complicated. If we are outside the EU and we don’t have what would be a stable and long-term commitment to access the single market then a lot of the things we do today in London, we’d have to do inside the EU 27.”
Nearly 2.2 million people work in financial services in Britain and the sector contributed 190 billion pounds ($240 billion), or 11.8 percent of output, to the British economy in 2014, making it the UK’s top tax generator. The financial sector overall had campaigned to stay in the EU, but speakers also urged the industry to accept the referendum result and move on to shaping future relations with Europe.
Shriti Vadera, chairman of Spanish-owned Santander UK bank, who heads an advisory committee of banking, insurance and asset management chiefs, said: “Of course there is a lot of emotion around issues of access, and you are being pitted against political priorities, which are not illegitimate, they are legitimate, people voted on them. We have to accept and be humble in the face of that.”
All in all, this conference summed up the City’s reaction to the Prime Minister’s speech, which is not good. Now they realise that the UK will leave the EU by March 2019, they realise that there may not be enough time to negotiate transitional agreements to keep passporting available. Hence, most banks are now planning for a hard Brexit and making plans to restructure their European operations accordingly. In practice, that means leaving London and, just to make clear what that means, a Brexit report by Oliver Wyman published last week, concluded that a soft Brexit would result in the loss of 4,000 jobs and £500 million in tax revenue while a hard Brexit would result in the loss of around 70,000 jobs and £10 billion in tax revenue.
Congratulations Brexiteers. You’ve just stuffed our economy. For more on Brexit, read my other blog updates since June 23:
Chris M Skinner
Chris Skinner is best known as an independent commentator on the financial markets through his blog, TheFinanser.com, as author of the bestselling book Digital Bank, and Chair of the European networking forum the Financial Services Club. He has been voted one of the most influential people in banking by The Financial Brand (as well as one of the best blogs), a FinTech Titan (Next Bank), one of the Fintech Leaders you need to follow (City AM, Deluxe and Jax Finance), as well as one of the Top 40 most influential people in financial technology by the Wall Street Journal's Financial News. To learn more click here...
