As the historic decision has been made now for the UK to leave the European Union does anyone really believe that Brexit will mean the City of London loses its position as the world’s finest, most dominant financial centre? Or Will London remain a major financial center following the Brexit vote?
Three Cities Competing for Pole Position?
Dublin: English speaking, attractive tax rules, but seen as provincial (a bit like Frankfurt).
Frankfurt: home of the European Central Bank and financial capital of Europe’s biggest economy, but unpopular as a place to live and work.
Paris: most banks (bar HSBC) laugh at the idea of Paris replacing the City of London as the financial capital.
Fragmentation is Not the Answer
A fragmented financial centre, with disparate pockets in Frankfurt, Dublin, Paris, Warsaw, and Lisbon, is the least desirable outcome: diluting the European financial services industry could weaken Europe’s as well as the UK’s ability to compete internationally. George Osborne on his recent tour to market the City – with Europe, but outside it – wanted to reassure the market that London was still a very safe place to invest.
In my view, trying to lure big corporations by making a hasty announcement that the government is considering reducing Corporation Tax to 15% was an error, a kneejerk reaction; it is not a stable foundation on which to build the City post-Brexit. The reputation of the City can only be secured by attracting corporations wanting to do business, not just those looking for tax breaks. I hope Mr Osborne’s calculation of how to protect the world’s greatest City will not deliver the world’s most attractive tax-tourist hot spot.
Financial Capital of World
The City’s internationalisation became more visible in the last three decades, though operationally the “corridors” for international operations existed since colonial times. In the nineties into the new millennium, upon the foundations put down by Margaret Thatcher, the now-defunct London Docklands Development Corporation alongside Mayor Ken Livingstone set out to make Docklands and the City a world financial hub. The current Mayor Sadiq Khan continues to market London as The World City and The City of London as the world’s most happening financial centre.
Why Risk it all for Brexit?
The EU principle of pass porting is critical to the city, allowing businesses to access the European single market without restrictions. Pre-Brexit, UK staff working for international firms were warned about the possibility of relocation to overseas operations: JPMorgan said it would axe c. 4,000 UK jobs; HSBC suggested c. 1,000 posts could move to Paris.
The City of London has dominated foreign exchange trading for decades, long before joining the European single market. It is a principal location for euro trading, something like $2tn a day, but for how long? That will be down to how well the UK negotiates and how far the Brexit team is willing to compromise. Only last year the EU European Central Bank attempted to bar clearing-houses outside the euro zone from handling the euro. It failed, but some pundits still believe this was only due to the UK’s membership of the EU.
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