It is time to reassure business on Brexit
4 min read
Former Shadow Chancellor Chris Leslie MP writes ahead of the Commons debate today which he has tabled with Liz Kendall MP on the 'effect of the UK leaving the EU on financial and other professional services'.
The clock is ticking – and time is running short. If Britain and Europe are to come to an amicable post-Brexit settlement on financial services, we need a process underway within a matter of months, to guarantee these trade will not be deemed ‘illegal’ after April 2019.
With only 25 weeks to go before the Prime Minister pulls the ‘Article 50’ lever, my colleague Liz Kendall and I have called this backbench Commons debate on Brexit and financial services, not only because of the two million jobs and 12% of our economic output derived from this sector – but because much of this takes place outside London, for example, with 500 Nottingham firms operating in financial services.
Leaving the EU could literally make or break this part of our economy, where we currently have a world-beating comparative advantage. If we get this right and preserve our rights to do business across the 27 other European countries, we have a chance of enjoying the £66 billion flowing annually into Treasury revenues we use to pay for the NHS and other vital public services.
But if we get this wrong, it won’t just be a question of tariffs at 10% or 20%, it could see a ban on the right to trade financial services products into the EU at all. Of course, there are two sides to such a disastrous scenario; British based firms would lose customers and sales – but the EU27 countries couldn’t access specialist products at the right price. So it ought to be in both the best interests of the UK and the EU to strike a friendly deal. After all, with a financial services trade surplus of around £26billion annually with the EU – and £1 trillion of UK loans to continental firms - in this area it could be argued that European businesses need British products more than we need theirs.
That’s why Theresa May and Philip Hammond must secure talks on transitional arrangements before the end of January, so we don’t get beyond the triggering of Article 50 without some prospect of a seamless transfer to a new permanent settlement. We need the British Government to propose the continuity of all existing practices while we reach a longer term agreement. We cannot allow this notion to continue that the two years until April 2019 are only focusing on our divorce proceedings with the EU, with no discussions on new arrangements starting until that time. Such a ‘cliff edge’ approach could terminate great swathes of financial services trade with the EU – perhaps more to their detriment than to our own. So a transitional arrangement has to be buttoned down, and ‘in principle’ agreement on this secured before we get beyond March next year.
If we don’t reassure the sector that a smooth transition is possible, many firms could face a binary gamble. Do they ‘stick’ in the UK in the hope that they’ll be able to do business beyond April 2019? Or do they ‘twist’ and set up Eurozone subsidiaries now, given these can take a year or two to establish and regulate in a new jurisdiction?
So the PM and Chancellor need to get their skates on – and wake up to the risks of getting beyond March with no safety net. Before the end of January, their proposals must suggest a transitional process, provide assurances that our ‘Great Repeal Bill’ will transpose existing regulations, and that ‘equivalence status’ for the UK should be taken as read from day one following Brexit. Other financial centres, especially New York, know that they’ve already got the EU Commission’s ‘equivalence’ blessing in many areas, so will be delighted to take on British firms worried about whether the UK will match this. There needs to be a far greater sense of urgency and Parliament has a duty to press for action here. There really is no time to lose.
Chris Leslie MP is a member of the International Trade Select Committee and was Shadow Chancellor in 2015.
PoliticsHome Newsletters
Get the inside track on what MPs and Peers are talking about. Sign up to The House's morning email for the latest insight and reaction from Parliamentarians, policy-makers and organisations.
