2 March 2017

The City has a powerful part to play in Brexit

By David Blake

The Prime Minister’s Lancaster House speech at the start of this year made it clear that Brexit means we shall be leaving the single market, the Customs Union and the European Economic Area.

This presents a golden opportunity for Britain as a whole. Not least, it can enable the City of London to escape the clutches of the EU as a World Financial Centre and take the lead in the new digital revolution of blockchain and fintech. This opportunity is the focus of a new report I am issuing entitled “Brexit and the City” which sets out a series of recommended actions which the City must address in order to thrive in this new world.

There are some uncomfortable truths the city must face up to. First, the City must recognise that its place is to service the real financial needs of businesses and individuals in the UK, Europe and the rest of the world. This is best done outside the EU which, because of its protectionism, its excessive regulation and the folly of the euro, is destroying growth and innovation in member states.

Second, it must end its constant whining. Instead, it should agree a “consistent and forward-looking Brexit strategy” in order to secure a “bold, bright, buccaneering post-Brexit future”, as suggested by the Lord Mayor of London, Jeffrey Mountevans, at the City Banquet at Mansion House in October last year.

Third, it must end its spinelessness and ignorance regarding the legal situation surrounding Brexit. Much of the City has reacted as a supplicant might following the referendum. But it is ridiculous in this day and age for anyone to insist that you have to be physically located in a market to do business. It is just as ridiculous to expect that the City of London will move to Paris or Frankfurt after Brexit as it is to expect the French wine industry or the German car industry to move to the UK after Brexit.

Leaving the EU has powerful implications for the City. It is unlikely that business with the EU27 will be conducted via passports in future. Instead, and depending on the degree of co-operation for the EU27, the City should plan its future operations using either a dual regulatory regime, based on a third-party expanded equivalence model with guarantees about how equivalence will be granted and removed, or the World Financial Centre model where the City “goes it alone” (as proposed recently by Barney Reynolds).

Transitional arrangements must be carefully considered, as it is not clear they will be necessary and they will certainly be used by Remoaners in an attempt to stop the UK leaving the EU.  It is in everybody’s interests that transitional arrangements are kept as short-term as possible, no longer than is needed to bridge the gap between the UK’s exit from the EU and whatever final arrangements have been made with the EU. If, as seems possible, the EU is not interested in an attractive arrangement, then the UK should exit from the EU immediately this becomes apparent.

The City should encourage the Government to support the development of regulatory standards at a global level, free from political interference. The aim would be to promote global consistency and cooperation between regulatory authorities. The City should also encourage the Government to support the overseas expansion of UK financial services in the fastest growing regions of the global economy. Finally, the City should encourage the Government to introduce a flexible system of work permits for skilled workers that covers workers who are offered a job in the UK and who are located in any country in the world outside the UK.

The most important task for the Government when it triggers Article 50 and opens negotiations is to determine whether the EU is willing to co-operate on achieving the best possible outcome for both UK and EU27 citizens. The most important collective task for the City in helping to achieve this outcome is to refuse to move business to the continent.

Professor David Blake is a member of Economists for Free Trade