Business & Tech

UK's Brexit plan called 'real blow' to City

The British government's new blueprint for Brexit on Thursday drew a firm thumbs-down from the City, which warned it would damage both the all-important finance sector and the wider economy, but industry appeared happier.

The British government's new blueprint for Brexit on Thursday drew a firm thumbs-down from the City, which warned it would damage both the all-important finance sector and the wider economy, but industry appeared happier.

The government, partly to avoid the return of a "hard border" between the Republic of Ireland and British-ruled Northern Ireland, has been at pains to map out a future customs plan to govern post-Brexit trade in goods with the European Union.

But its new "white paper" gave little detail about the future of services, which account for 80 percent of the UK economy, including 2.2 million people employed in Britain's world-class financial sector.

"Today's Brexit white paper is a real blow for the UK's financial and related professional services sector," said Catherine McGuinness, policy chairman of the City of London Corporation, which administers the capital's finance-heavy Square Mile district.

"With looser trade ties to Europe, the financial and related professional services sector will be less able to create jobs, generate tax and support growth across the wider economy," she said.

"It's that simple."

Around £1.4 trillion ($1.85 trillion, 1.58 trillion euros) of assets are managed in Britain for European clients, the white paper noted, and the City hosts most of the EU's trading for banks and insurance companies.

The paper conceded that City firms will lose their "passporting" rights to operate freely across the EU, once Britain exits the bloc's single market after Brexit in March 2019.

But it also said that because of the significance of cross-Channel links, "equivalence" was also insufficient.

That refers to special bilateral arrangements already used by financial firms from Wall Street, Japan and China, whereby they agree to meet EU rules to keep access to the common market.

Therefore, the blueprint called for a hybrid arrangement that would adopt equivalence but also recognise "extensive supervisory cooperation and regulatory dialogue" between Britain's financial watchdogs and their EU counterparts.

Taking back control?

TheCityUK, which represents Britain's financial and related professional services, said "mutual recognition" had offered the simplest path forward. Under that model, each side would stay in lock-step on rules and regulation, changing little from the current order.

"It's therefore regrettable and frustrating that this approach has been dropped before even making it to the negotiating table," the lobby group's chief executive Miles Celic said.

"Brexit was always going to result in access to the EU market being more difficult. Therefore, an effective and secure future regulatory relationship is vital," he said.

McGuinness agreed in calling for an "ambitious future trading relationship, covering services as well as goods".

"Time is running out so it is essential that the pace of negotiations accelerates to ensure an orderly Brexit," she said.

While the City frets about its future after Brexit, rival European centres such as Paris, Frankfurt and Dublin have been wooing big banks to open up offices and so guarantee their "passporting" rights inside the EU once Britain leaves.

According to the latest forecasts by the Bank of England, the finance sector could lose 5,000-10,000 jobs because of Brexit.

But owing to the Irish border question, and to attention-grabbing warnings from major industrial exporters, the white paper dwells at greater length on the future of trade in goods.

"This white paper on the government’s detailed proposals for our future relationship with the EU makes good progress in addressing concerns expressed by our industries and others," said Paul Everitt, chief executive of ADS, the trade association for Britain's aerospace sector.

He urged the EU to respond positively and for both sides to flesh out the document "to reach solutions that protect jobs and investment".

Professor Anand Menon, director of The UK in a Changing Europe, a think tank analysing Brexit based at King's College London, said the focus on goods rather than services made some sense given the Irish problem.

"On another level, it's curious as it focuses attention on 20 percent of our economy while ignoring the other 80 percent, which is services. And that is reflected in the City reaction," he told AFP.

"The price you pay is that trade in services will decline," Menon said. His think tank noted that the government expects an associated hit to Britain's gross domestic product of three percent over 15 years.

"But this is the area where the government have decided it can't compromise. The government has to show it's taking back control somehow."