EVENT REVIEW: After Brexit – The Future of the City of London

 

INTRODUCTION:

Parliament Street hosted the first of a series of panel discussions based upon policies for a post Brexit UK. This discussion focused primarily upon the future of the City post Brexit.

The discussion was chaired by Olivia Cooper, Consultant lawyer with DMH Stallard LLP, she was joined by the Right Honourable John Redwood MP for Wokingham and Mr John Mills Chairman of JML and long term Labour supporter.

This synopsis reviews the panel’s reactions to key questions as posed by members of the audience.

OVERALL VIEWPOINT POST BREXIT:

The panel was in agreement that the overall outlook for the UK economy post Brexit was extremely positive and that the UK would be able to grow and improve its economic status far quicker and more securely outside of the EU than in.

It was agreed that in the short term there would be some difficulties but these would be greatly outweighed by the improvement in the UK’s future economic stability.

WILL FINANCIAL SERVICES & BANKING INDUSTRY RETAIN STATUS AS PRIMARY ECONOMIC SECTOR POST BREXIT:

The UK services sector runs a large surplus in contrast to our manufacturing sector which is in deficit. The financial services sector is therefore of great importance to the UK economy. It should be recalled however that the City and indeed the financial services sector is a globally trading sector, with the EU consisting of only 15% of the sector’s work.

The UK in leaving the EU will be able to look towards its main competitors in this field being New York, Hong Kong and Shanghai and ensure that London and the UK’s financial services sector remain competitive in this market. The fear is not losing business to financial centres in the remaining EU member states such as Paris or Frankfurt but to our global competitors.

By taking back control of our legislation the UK will be able to negotiate its own Free Trade Agreements which will allow the UK financial sector access to new markets such as China on more favourable terms.

Likewise the UK is at the forefront of global negotiations regarding regulation of the financial services industry rather than limiting itself to the EU.

The furore over ‘passporting’ rights and whether these will be extended to the UK after it leaves the EU is over blown as passporting rights are not crucial to the City’s operations. Likewise the City may look to MIFID II in order to gain access to the EU market. It should be recalled that the amount of passports EU to UK greatly outweigh the UK to EU passports therefore it would not be in the EU’s best interests to put up barriers or try and restrict the UK’s access to the EU market.

It is true that the EU has a history of trying to ‘grab’ business from the City and relocate it to mainland EU financial centres such as Paris or Frankfurt. Witness the furore over ‘euro-clearing’ whereby the EU tried, unsuccessfully, to regulate that ‘euro-clearing’ could only take place within the Eurozone. It is possible that once the UK leaves the EU, further attempts will be made to restrict ‘euro-clearing’ to Eurozone financial centres however in doing so the damage to the Euro as a world currency could outweigh the ‘benefits’ of drawing this work to Paris or Frankfurt. You can’t have a world currency that can only be traded in a limited zone – with limitations the Euro would lose its world currency status.

The ECB is keen to bring in different regulatory structures for banking within and outside the EU however, this is a most unpopular proposal and is opposed by many member states not least the UK. Again whether the consensus will remain anti this proposal once the UK has left the EU remains to be seen.

Given the low percentage of work emanating from the EU in the City it was better for the City to look to align itself with global regulatory systems such as Dodd-Frank rather than concern itself with MIFID II in order to maintain its competitive advantage at a global rather than European level. With this in mind the UK banking regulators need to be in negotiation with regulators outside of the EU including for example US rather than worry about the City’s access to the EU market.

IS DEREGULATION OF THE CITY POST-BREXIT A POSSIBILITY?

It is highly unlikely that the City will become totally deregulated post-Brexit as it is long been established that some form of regulation is needed to ensure security for investors and to maintain the City as the No. 1 global financial investment city. It is important however that the regulation should be fair, effective and properly implemented.

Overregulation or indeed incorrect regulation of this sector is as damaging as no regulation, it drives business away from the City which in the long run only harms the consumer.

Some of the regulations we have seen emanate from the EU have been extremely unhelpful if not harmful to the City which then lead to the City losing business to its main rivals New York, Singapore and Hong Kong.

IMPACT OF BREXIT ON UK REGIONS:

Looking outside of the City what will be the impact of leaving the EU on the UKs regions. With average earning capacity in London hitting £42,000 compared to £18,000 in the North East it is obvious that something has to be done about the disparity between London and the South East and the rest of the UK.

Outside of London there is a great deal of discontent with the current situation where we have seen many of the industrial heartlands decimated by a failure in local industries resulting in local job losses.

Following the Referendum vote and the ensuing devaluation of the Great British Pound British manufacturing has received a great boost to its competitiveness.

More importantly following Brexit, the UK will once again be able to regulate itself rather than being obligated to follow EU regulations. An important consequence of Brexit will be that the UK will be able to write its own procurement rules which can and should favour British made goods over purchasing from abroad. Currently, for example, the UK purchases 100 tanks from Spain, under new procurement regulations the UK will be able to purchase UK built tanks; likewise currently the UK purchases steel from France for its submarines, given the crisis in the UK steel industry should we not be purchasing British made steel for our submarines. In changing the procurement rules it is envisaged that we will be able to move to buy more UK made produce and services, thus increasing demand for British goods and services, thereby creating UK jobs.

Once the UK leaves the EU it will have control over its spending and without the necessity to make costly contributions to the EU budget, the UK will be able to look to spend more money in its regions. This will include an increase in industrial investment and more civil construction projects thereby creating more jobs for those in all UK regions and tackling the disparity between London and the rest of the UK.

AGRICULTURE AND FISHERIES POLICIES POST BREXIT:

The UK fishing industry is one of the worst victims of the UK’s membership of the EU. Prior to joining the EU the UK was a net exporter of fish, given repeated poor EU fishing policies, the UK fishing industry has been in steady decline.

It has to be recognised that the Common Fisheries Policy has been a disaster both economically and ecologically.

Post Brexit we need a fishing policy that will rebuild and protect the UK fishing industry while helping to restock the dwindling fish numbers in UK territorial waters following serious over-fishing allowed by poor EU legislation and regulation.

EU CITIZENS ALREADY RESIDING IN THE UK:

It is a fact that the number of EU citizens living in the UK vastly outweighs the number of UK citizens living in the EU. Despite this fact and contrary to much of the post Referendum reporting the UK has not tried to use EU citizens already residing in the UK as a bargaining chip for its Article 50 negotiations.

The UK expected that the remaining EU member states would be as eager to reach a reciprocal agreement guaranteeing the position of both UK nationals living in EU states and EU nationals currently living in the UK. Unfortunately there remain one or two EU states who do not agree to such an agreement and it has been reported that Germany is one of these states though it is unconfirmed. Spain, it has been reported, which hosts a high percentage of the UK nationals living in the EU, is in favour of such an agreement.

It is envisaged however that a deal will be struck guaranteeing the rights of both sets of citizens as it is in the interest of all parties so to do.

IMMIGRATION:

The UK, unlike much of the other EU member states, enjoys a growing population. The growth rate of the UK population, however, swelled by both birth rate and net immigration, needs to be measured and kept under control. There will therefore need to be controls on immigration into the UK.

It is unlikely that the UK will adopt a points based system such as used in other countries but will opt for a work permit system. People will be able to visit the UK but will not be able to take employment without the requisite permit.

Unskilled labour will find it more difficult to enter the UK however the UK will remain open to talent and will certainly continue to welcome well qualified skilled persons. The difference will be that the UK will welcome those equally from across the globe, levelling the playing field, as a skilled person from China, India or Japan will have the same rights of access as a skilled person from the EU.

ASSURANCES FOR UK BUSINESS POST BREXIT RE SINGLE MARKET:

The latest results point to Brexit having no damaging effect on the UK economy indeed it is predicted the UK economy will be the fastest growing economy in the G7.

Indeed Post Brexit the UK will look to cement links with the global economy most especially with countries outside of the EU, our relationship with whom has been neglected due to EU regulations including for example Singapore and China. These include most especially Commonwealth countries including Australia, New Zealand, Canada and the US, given that many Commonwealth countries will have faster growing economies than that of the EU.

We will be looking to secure free trade agreements with these countries thereby opening up new markets to UK businesses.

REFUGEES:

After Brexit the UK will continue to play a world leading role in dealing with refugee crisis including that in mainland Europe. It must however be borne in mind with regard to the UK taking in more persons that the UK unlike many member states already has a growing population.

The UK has been unfairly chastised regarding the current refugee crisis caused mainly as a result of the turmoil in Syria. The UK is the leading nation in finding and funding safe havens for refugees near to the country they are fleeing so that as soon as matters improve the refugees will be able to return to their homeland.

POST BREXIT EU FUNDING OF UK UNIVERSITIES AND STUDENTS:

The UK has agreed to underwrite many of the current EU funding projects including those for agriculture and universities.

With regard to UK students accessing global schemes and exchanges of knowledge between universities across borders, there is no reason to see why the UK leaving the EU should change any of these matters. The Erasmus programme contains students from Israel and Norway neither of which are EU member states.

It is folly to think that universities in EU member states will not wish to continue and indeed to start new joint research projects with UK universities. It would be self-defeating to get in the way of such projects.

Indeed leaving the EU offers the opportunity to universities to enter into cross border projects with universities outside of the EU member states which under EU membership was far more difficult to achieve.

Brexit will have little effect on student fees as this has always been decided at a national level. It has to be argued however that one of the benefits of Brexit has been to highlight to politicians across the political spectrum of the importance of universities as pools of our talent which we need to maintain in order to secure our future.

EU CLIMATE CHANGE LEGISLATION POST-BREXIT

On leaving the EU the Great Repeal Act will ensure that EU legislation at first becomes UK statute. The UK government and parliament will then have the task to review this legislation to either repeal or amend it to ensure it benefits the UK.

FINANCIAL COST OF LEAVING THE EU:

The panel was divided as to the cost of leaving the EU with the threat of a final bill totalling around £60million.

The reason for this charge was two fold. The first part of the charge would relate to the annual overspending in the EU’s accounts. Each year the EU overspends and this overspend is simply carried forward to the following year. On leaving the UK would be expected to contribute to paying off the overspend.

The second part of the ‘final bill’ relates to the manner in which the EU sets its budgets which is on a seven year cycle. The current cycle does not end until the end of 2020 and therefore the UK would be committed to the spending in the budget up and until 2020.

The panel disagreed over this matter with one viewpoint being that Article 50 does not give the EU the authority to impose any punitive payment on the UK as a result of it leaving the EU. Indeed it was thought that as the EU was ‘such a splendid’ club and that EU thinking could not comprehend why one would want to leave there is no need for a punitive fine as simply leaving the EU is sufficient punishment. Likewise the UK in triggering Article 50 begins its negotiations for leaving the EU, while these negotiations are in progress the UK would be committed to its payments to the EU however as soon as these negotiations terminate the UK would no longer owe the EU any financial sum.

The second viewpoint disagreed and believed that the UK may be forced to make some sort of payment to cover part of the annual overspend.

CONCLUSION:

The panel approved the UK’s decision to vote to leave the EU and agreed that the UK would now be able to take advantage of opportunities that it had previously been denied and consequently would grow its economy far more effectively and rapidly. On balance the panel agreed the UK was better off out than in and that the City of London would thrive outside the EU.

Olivia Cooper is a Senior Associate at DMH Stallard LLP

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