Britain crashing out of the European single market could cost banks and associated businesses in the UK almost £40 billion in lost revenue, undermining a key sector of the economy, an industry report warned on Tuesday.
Finance firms are making a fresh bid for special status in upcoming Brexit negotiations with the EU after UK government officials this week indicated banks will get no favours.
The report, prepared by Oliver Wyman on behalf of TheCityUK lobby group, warns that almost 70,000 jobs and £10 billion of tax revenue are at risk from a so-called hard Brexit.
Theresa May has ruled out prioritising protection of the banks in Brexit talks and has dismissed their key business demand for an interim deal to help ease the transition out of the bloc, Bloomberg News reported Monday, citing three government officials. Finance executives have threatened to move jobs if Britain doesn’t secure a deal allowing them to serve European clients from London.
“A strong UK-based financial and related professional services industry is fundamental to a thriving economy,” TheCityUK Chief Executive Officer Miles Celic said in an e-mailed statement in response to the Bloomberg report on May’s stance. A positive outcome to negotiations “would be mutually beneficial to the UK and the EU, would cause minimum disruption to the industry and the customers it serves, and help to ensure financial stability.”
The UK financial services industry generates between £190 billion and £205 billion of revenue annually and employs 1.1 million people, according to the report. The industry pays between £60 billion and £67 billion in taxes each year.
“We want the best deal for Britain and that includes allowing UK companies to trade with the single market in goods and services,” a government spokesperson said in an e-mail. “The government has been speaking to the financial-services industry to make sure that we understand fully the issues affecting it as we prepare for negotiations to leave the EU. We want Britain to remain a great place for financial services.”
The report details the impact of two different Brexit scenarios. If the UK is outside the European Economic Area but maintains ongoing access to the single market on broadly similar terms to now, then 4,000 jobs could be at risk. Such a move could cost the industry £2 billion in lost revenue every year, resulting in a drop of £500 million in tax paid to the Treasury.
At the other end of spectrum, if the UK loses all passporting rights, then 35,000 industry jobs could be on the line, along with £20 billion of annual revenue and £5 billion in lost tax receipts.
The impact on the wider financial ecosystem of such an outcome could “almost double the effect of Brexit,” the report says.
What experts have said about Brexit
What experts have said about Brexit
1/11 Chancellor of the Exchequer Philip Hammond
The Chancellor claims London can still be a world financial hub despite Brexit “One of Britain’s great strengths is the ability to offer and aggregate all of the services the global financial services industry needs” “This has not changed as a result of the EU referendum and I will do everything I can to ensure the City of London retains its position as the world’s leading international financial centre.”
2/11 Yanis Varoufakis
Greece's former finance minister compared the UK relations with the EU bloc with a well-known song by the Eagles: “You can check out any time you like, as the Hotel California song says, but you can't really leave. The proof is Theresa May has not even dared to trigger Article 50. It's like Harrison Ford going into Indiana Jones' castle and the path behind him fragmenting. You can get in, but getting out is not at all clear”
3/11 Michael O’Leary
Ryanair boss says UK will be ‘screwed’ by EU in Brexit trade deals: “I have no faith in the politicians in London going on about how ‘the world will want to trade with us’. The world will want to screw you – that's what happens in trade talks,” he said. “They have no interest in giving the UK a deal on trade”
4/11 Tim Martin
JD Wetherspoon's chairman has said claims that the UK would see serious economic consequences from a Brexit vote were "lurid" and wrong: “We were told it would be Armageddon from the OECD, from the IMF, David Cameron, the chancellor and President Obama who were predicting locusts in the fields and tidal waves in the North Sea"
5/11 Mark Carney
Governor of Bank of England is 'serene' about Bank of England's Brexit stance: “I am absolutely serene about the … judgments made both by the MPC and the FPC”
6/11 Christine Lagarde
IMF chief urges quick Brexit to reduce economic uncertainty: “We want to see clarity sooner rather than later because we think that a lack of clarity feeds uncertainty, which itself undermines investment appetites and decision making”
7/11 Inga Beale
Lloyd’s chief executive says Brexit is a major issue: "Clearly the UK's referendum on its EU membership is a major issue for us to deal with and we are now focusing our attention on having in place the plans that will ensure Lloyd's continues trading across Europe”
8/11 Colm Kelleher
President of US bank Morgan Stanley says City of London ‘will suffer’ as result of the EU referendum: “I do believe, and I said prior to the referendum, that the City of London will suffer as result of Brexit. The issue is how much”
9/11 Richard Branson
Virgin founder believes we've lost a THIRD of our value because of Brexit and cancelled a deal worth 3,000 jobs: We're not any worse than anybody else, but I suspect we've lost a third of our value which is dreadful for people in the workplace.' He continued: "We were about to do a very big deal, we cancelled that deal, that would have involved 3,000 jobs, and that’s happening all over the country"
10/11 Barack Obama
US President believes Britain was wrong to vote to leave the EU: "It is absolutely true that I believed pre-Brexit vote and continue to believe post-Brexit vote that the world benefited enormously from the United Kingdom's participation in the EU. We are fully supportive of a process that is as little disruptive as possible so that people around the world can continue to benefit from economic growth"
11/11 Kristin Forbes
American economist and an external member of the Monetary Policy Committee of the Bank of England argues that the economy had been “less stormy than many expected” following the shock referendum result: “For now…the economy is experiencing some chop, but no tsunami. The adverse winds could quickly pick up – and merit a stronger policy response. But recently they have shifted to a more favourable direction”
Bank representatives are lobbying May and EU leaders to strike an interim agreement to allow banks in London to continue to provide services across the EU beyond the end of the two-year negotiation period for a Brexit.
“What we want is to have as full access to the single market as we have at the moment so that banks in the UK can carry on serving customers in the EU-27,” said British Bankers’ Association chief executive Anthony Browne.
“The top priority for the industry is getting agreement on a transition arrangement to make sure there is an orderly process and no risk to financial stability.”