It was only in September that I said that the government needed to act quickly and decisively to reassure businesses about Brexit and transitional plans. Disappointingly, since then, very little detail has emerged. Nothing seems clear and we remain confused despite being told that ‘we are no longer at phase 1’ of negotiations but have moved with lightning speed to ‘phase 1.5’ – whatever that means. No wonder, then, that a single tweet from Frankfurt, home of the DAX index, sent the naysayers into a tailspin. More about that in a moment.
Given where we find ourselves today, it is unsurprisingly that Britain’s finance industry has warned that the value of any post-Brexit transition deal is ‘disappearing by the day’. The mood music in EC1 is that time is running out for Britain and the EU to agree a transitional deal. Pressure is mounting on the government to seal a deal so that businesses aren’t faced with a ‘cliff-edge’ scenario come March 2019.
Calls for a transition period have been made repeatedly by the financial sector, the concern being that institutions will be compelled to move jobs and capital out of the UK if no deal is tabled soon. Wall Street banks Goldman Sachs and JP Morgan both said recently that they must now assume a hard Brexit, noting that little evidence existed to suggest otherwise. Industry lobby group TheCityUK has published a summary paper outlining its concerns surrounding a transitional deal. “This isn’t just about business leaving the UK. It is about the very high risk of jobs, capital and inward investment leaving Europe entirely,” intoned Miles Celic, CEO of TheCityUK. “EU and UK negotiators cannot delay discussing a transitional deal any longer if they want it to hold any real value. Firms are beyond the planning stage now. If they haven’t done so already, most will be ready to press go on their contingency plans in the New Year.”
Mr Celic said last month that some of the damage was now irreversible, with people already leaving the City due to the lack of certainty. The general view seems to be that unless David Davies, Britain’s chief negotiator, can get Michael Barnier, his EU counterpart, to agree a transitional deal by year-end, relocations plans will be activated early next year. Not good. Not good at all.
And there was further dismay this week when Lloyd Blankfein, chief executive of Goldman Sachs, issued a thinly-veiled warning that the bank would not wait much longer for the government to act: “Just left Frankfurt,” he tweeted. “Great meetings, great weather, really enjoyed it. Good, because I’ll be spending a lot more time there. #Brexit.” Goldman Sachs has warned that up to 1,000 of its 6,000 UK based staff could decamp to rival European cities if it believes Brexit could disrupt business.
Furthermore, consultancy Oliver Wyman has said Britain could lose 40,000 sales, trading and investment banking jobs as a result of Brexit. And a number of banks have already announced plans to move staff to European cities so they can continue to serve customers across the EU. HSBC, for example, is planning to move 1,000 workers to Paris if Britain fails to secure a trade deal.
How much of this is rhetoric? It’s hard to tell at this stage but one thing for sure is that we mustn’t be complacent.
So, reassurance from government is urgently needed. But the one thing London has and can boast about with much justification is our regulatory system. Without doubt, British regulators are in the premier league as far as European oversight of the banking industry goes. They are by far the most sophisticated, well-funded and authoritative regulators in the EU. This certainly plays into our hands.
Also, a report from EY suggests that while the City could be facing some difficult years ahead, its status as a financial centre might not be too seriously dented. Hedge funds are unlikely to move; international businesses and wealthy individuals, who have made the UK their home, are not about to leave.
It would be a grave mistake on our part to underestimate just how highly London is regarded by the international finance community. A recent survey from Savills Investment Management put London well ahead of other European cities on most metrics.
Let’s hope this attractiveness is maintained as experience shows we cannot rely on government intervention. One thing is for sure: the City’s self-confidence and resolve will be severely tested over the coming months.