The disruption of London’s financial services sector since the UK’s post-Brexit trade deal with the European Union came into effect is “only just beginning,” according to Richard Burge, chief executive of the London Chamber of Commerce and Industry.
Appearing on the BBC’s Politics London programme this morning, Burge, invoking comments by Bank of England governor Andrew Bailey, said, “basically, we’ve had a very sophisticated clockwork mechanism have a handful of grit thrown into it. That grit is not going to remove itself. We have now got months and years ahead of us gradually removing that grit.”
Ten days after the start of the new Trade and Co-operation Agreement with the EU £1.2 trillion-worth of assets has already left the City of London along with seven and a half thousand jobs, Burge told the programme. “It is bad. But this is just the beginning.”
The deal contained very little about financial services, meaning there is no automatic access to a market estimated to be worth in the region of £100 billion to UK firms as a whole. The House of Commons library says the sector contributed £132 billion to the UK economy in 2018, with half of that coming from London.
Burge said the “bad start” for the sector in the capital was expected, but, “We really do have to address this. It will only get worse unless we have real attention focussed on the detail of improving our trade relationships with the EU. As Ernest Hemingway said, you go bankrupt gradually then suddenly.”
He stressed the urgency of the government persuading the EU to grant “equivalence for our financial services to theirs”, which means securing the EU’s recognition that the UK’s regulatory system in the sector is complaint with its own. The UK has already recognised EU equivalence with its rules. Burge said the EU has “promised a decision before March”, but that “we have to work on that.”
Asked if equivalence would amount to impeding the UK’s divergence from the EU, Burge said it would not, but “we have to remember if we diverge too much, or if they diverge from us, then equivalence starts to break down. That’s why you’ve got to have a very high calibre team permanently on the case.”
He said negotiations with the EU should be led by a cabinet minister, rather than the current junior Treasury minister, stressing that “nearly half our trade with the world” is at stake. “This is not a negotiation where the sign the deal, walk away and everything’s fine.”
“The other thing is we now have to start working on things which will actually get London back on its feet after the pandemic,” Burge continued. He described as “a bad move” the government’s decision to take away the ability of visitors from overseas to reclaim VAT paid on purchases in the UK – one partly informed by the view, expressed in a government document, that the discount scheme is “is a costly relief which does not benefit the whole of GB equally, with the current use of the scheme largely centred on London.”
Unless the proposed change is dropped, “We’ll be the only city in Europe that doesn’t allow that to happen, so we will be immediately putting ourselves at a disadvantage,” Burge said. “All these things stack up to needing the government to have a very high quality, very strong team, focussed on negotiating constantly with the EU. This can’t be a backdrop any more, it’s got to be real front and centre.”
Burge’s characterisation of the immediate effects of the trade deal – negotiations for which were led by his predecessor as London Chamber chief executive, Sir David Frost – follows experienced City finance boss Rich Ricci telling to the Financial Times (£) last week that companies he runs or part owns lost business as soon as the deal came into effect. “While that isn’t encouraging, it’s just an immediate reaction,” Ricci said, while adding “there is no question there is a lot for the UK to do” to retain its primacy in financial services trading.
The FT described the changes brought about by the country’s departure from the EU as “the most sweeping for the City of London since the Big Bang deregulation turned it into one of the world’s financial capitals more than 30 years ago,” yet one brokerage chief executive told the paper that “for financial services this is a no-deal Brexit.”
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