Harriett Baldwin is Economic Secretary to the Treasury, with responsibility for the City, and is MP for West Worcestershire.
In the EU Referendum debate, there’s been a lot of discussion about trade deals and the Single Market for goods like cars and food, which are certainly important.
There’s been less discussion about the impact of leaving the EU on the UK’s biggest export: financial services. Our exports of financial services last year were £69 billion, of which £22.6 billion – £434 million per week – went to the EU.
Financial services firms in the UK employ a million people directly and a further million are employed in related professional services. This is not about City bankers. It’s about thousands of good, well-paid jobs in every region of the UK. In the last year as the UK’s City Minister, I’ve visited Belfast, Glasgow, Edinburgh, Chester, Newcastle, Wrexham, Cardiff, Manchester, Norwich, Bristol and Swindon, to name only a few places.
We’ve attracted a lot of foreign direct investment into financial services – £280 billion. Half of the world’s largest financial firms have chosen to base their European headquarters in the UK. Yes, we have an obvious foundation that helped us become the world’s leading global financial centre – the time zone, legal system, skills and language. But on that foundation, we have the added attraction of providing “passporting rights” into the EU. This has enhanced our strengths, and led to more financial services establishing subsidiaries here than if we weren’t in the EU.
EU “passporting” covers banking, insurance, investment services, asset management and payment services.
Canada, Albania, Turkey have trade arrangements that do not include financial services. Switzerland has some bilateral arrangements, but no general access to the EU market in financial services, and is not part of the “passporting” system. In fact, £70 billion of the foreign direct investment in the UK is from Switzerland, in order to access the Single Market.
The EEA (i.e: Norway) does offer “passporting rights” for financial services, but only in return for maintaining “equivalence” in financial regulations. Equivalence means we’d have to keep our financial services regulation equivalent to the EU’s without any say in its development. Don’t think for a moment that financial services regulation across the EU will stop should the UK vote to leave. It may well develop in ways we don’t like, and we’d have no ability to influence it. We’d also lose our Financial Services Commissioner, Jonathan Hill, and his ambitious plans for Capital Market Union.
Some have suggested we could rely on the Regulation in Markets in Financial Instruments Directive, as it has a “quasi-passport” which is not yet in force and is as yet untested. Putting aside the irony of Brexiteers relying on an EU Directive as a desperate lifeline for the UK’s biggest export industry, decisions on who qualifies for it would be made by the European Securities and Markets Authority (ESMA) (a slow and highly complex process). And these decisions are at the discretion of the European Commission – and ESMA and can be withdrawn.
It’s time for Vote Leave to stop playing fast and loose with financial service jobs and the UK economy. They are not just asking us to accept a collapse in manufacturing and agricultural exports. They would plunge our biggest export sector into chaos and uncertainty, and we would end up with less democracy, because we’d have no say in the rules, less sovereignty, because we would have ceded decision-making to ESMA and certainly fewer financial services jobs across the UK.