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.
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.”
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