Issue of the week: Brex and the City
Britain’s main cash cow
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the financial services sector
Brexit trade talks might have restarted, “but one vital sector has no representative at the negotiations”, said Alex Brummer in the Daily Mail. Despite their status as the leading “powerhouses” of the UK economy, the City and financial services have been “left on the sidelines” – sacrificed in the Government’s anxiety to reach more “politically sensitive agreements”. What a waste of a golden opportunity. Brexit held out the chance “to cement Britain’s status as an offshore financial centre outside the EU, challenging New York for hegemony while continuing to provide services for EU states”. Yet, as things stand, the City “is being asked to enter the Brexit era with one arm tied behind its back”.
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has been sidelined in Brexit negotiations. Will we live to regret it?
In her “much-disparaged deal with Brussels”, the former PM, Theresa May, ensured that “equivalence” – the mutual recognition of UK and EU financial regulations – was included in the political protocol, added Brummer. But to date, only one City institution, the London Clearing House, which handles “tens of trillions of euro-denominated derivative contracts”, has passed this test. As a result, many City banks have been forced into “contingency arrangements” to “keep their licences alive in the EU”. According to Catherine McGuinness of the City of London Corporation, Britain is now “on course to secure a worse deal on financial services with the EU than the bloc has agreed with Japan”, said the FT. As she observed: the sector is in danger of becoming the “neglected child of an acrimonious divorce, carrying its pyjamas between its parents”. It’s pretty clear already that the future relationship will be “fractious at best”, said Mark Gilbert on Bloomberg. London’s £8.5trn fund management business (to which European accounts contribute around £2.1trn) is currently centre-stage in the fight around cross-border arrangements – and the post-Brexit landscape remains “vulnerable” to many more “attempts at land grabs and terraforming”.
There’s a lot at stake here for Britain, said The Economist. We’re a big net exporter of financial services (chalking up a £44bn surplus in 2017) and financial services firms pay around £75bn in tax a year. But, in the long term, will this “Brex and the City” saga make much difference? “Despite Brexit, London retains several advantages over EU financial centres: from its language and legal system... to the rich corporate ecosystem of lawyers, accountants, consultants and PR experts.” Moreover, the EU is also hamstrung by the “lack of coordination” and conflicting interests of its many financial centres. UK ministers appear to have taken the view that the City is “big and smart enough to look after itself”. There may be some truth in that.