James Arnell is a partner at Charterhouse. He writes in a personal capacity.
Buried in the middle pages of the newspapers this week, there was analysis of the proposed move of the European Medicines Agency out of London after Brexit. The papers focused mainly on the relocation bill (which, of course, the EU wants us to pay) but more interesting is the news that 667 of its 890 members of staff want to stay in the UK.
That came the day after the publication of a report for theCityUK, written by consultants Oliver Wyman, warning of the dire impact on the City of a “hard” Brexit.
The Oliver Wyman report was opaque, to say the least. Not a single number was justified, no explanations were given for the predicted impacts, but the report was given the front page of the Financial Times.
The report stated that, in the the hard Brexit scenario, around 70,000 jobs would leave the City. They did not include the knock-on job losses estimated at another 125,000 (which seems conservative to me given what bankers spend on their cleaners, nannies, schools, wine, theatre, opera and the like!).
This would be a less serious hit than the City took in the aftermath of the financial crisis, when around 130,000 jobs were lost, but it would be a big dent nonetheless.
Oliver Wyman (of course) do not include any assessment of opportunities which might flow from Brexit to offset the hit. They also appear to have some dodgy logic behind their job loss estimates, as they justify a proportion of them by pointing out that returns in banking are too low and that Brexit would therefore be the last straw. In my experience, banks are pretty determined to reduce costs to get returns up anyway, Brexit or no Brexit, so perhaps a lot of these jobs would be lost in any case.
But the biggest single omission from their report is that they do not give any consideration to the question of whether financial services staff will want to move. Simply put, cut away all the numbers and opaque spreadsheet analysis: the City will only move if its staff want to move. These are specialised, highly skilled people. They cannot simply be duplicated in a chosen city within the EU. They may not be much liked, but they really like being here. They like London, their kids are in schools here, English is the international language and London is a big and buzzy international city. They would really rather not uproot their families to live in boring Frankfurt (population: 700,000), rainy Dublin (population: 1.3 million), tiny Luxembourg (population: 600,000) or even the more acceptable but still minuscule Amsterdam (population 1.35 million). And Paris is nice for a weekend, but as someone who has worked there for more than 20 years and seen waves of Anglo-Saxons try and fail to adapt to the place, I can confirm that it is an acquired taste. And with eye-watering tax rates, and rumbling class warfare, I cannot really see it being the new financial hub of Europe.
So, put away the spreadsheets and the economic models. Get back to the real world. The Government’s best defence against the loss of economic activity in financial services is to ensure that financial services employees are even more keen to remain in the UK than the staff of the European Medicines Agency.
To ensure that the bankers stay, the government should do just three very simple things:
- Put the changes to non-dom status on ice for five years. Reverse the changes to date and park the issue until after Brexit. The EU will be extremely unsettled by this, which is no bad thing.
- Make it clear that the UK government recognises the important contribution of financial services to the national economy and will seek the mutual recognition of “regulatory equivalence” between the EU and UK. If the EU does not accept regulatory equivalence, explain that the UK will do all that is required to make it attractive for financial services companies and employees to remain in the UK.
- Reassure on immigration. It’s within our control. The Government should be clear that it will keep the flow open to the City.
All those unloved bankers will feel a warm glow and will be a lot more inclined to stay here. That alone is what will determine how much business slips away to the EU. When bankers need to get creative to maintain their gilded way of life in one of the world’s greatest cities, we all know that they will find hidden reserves of ingenuity to deal with the irritations of Brexit. They will find ways to avoid moving.
At my firm, we can easily do without the famous “passporting rights”. It’s really no big deal. But we do have a lot of non-doms. We should not be driving them away just now. We should be trying hard to get them to stay.