Lord Flight is Chairman of Flight & Partners Recovery Fund, and is a former Shadow Chief Secretary to the Treasury.
The outlook for the City of London post-Brexit should be extremely positive. The City will become, even more, the largest global, financial centre in the world; not part of Europe and, for that matter, virtually a city state within the UK. As a financial centre, London has long had global, wholesale characteristics; post-Brexit these are likely to strengthen with implications for the UK’s regulation regime, taxes and infrastructure. London’s focus is, already, predominantly on sophisticated, wholesale markets, with a transatlantic orientation outside the Single Market – which is largely retail. I expect London’s business to be driven by regulatory developments, a fully global outlook and increased entrepreneurialism.
Initially it will take time for the UK to go beyond EU regulatory equivalence, but there is an overwhelming argument for disciplining and reducing excess regulation, which adds little and often causes confusion – MiFID II and Solvency II are prime examples. The huge increase in regulation has also become a significant contributor to poor productivity growth. The best outcome would be for the UK to lead a drive for a simplified, international regulatory equivalence regime. While some financial service companies may relocate to EU jurisdictions, the indications are that most will keep their main operations in London. The tech revolution is also now unfolding in London. Much of the entrepreneurialism is also likely to be of an international nature.
If the Government and City make the right decisions, the City faces the prospect of a renaissance rather than decline. The UK could position itself as the largest champion of genuine free trade with zero tariffs and non-tariff barriers on imports. If you give greater real economic freedom to a growing high value added sector, economic history shows it will prosper: moreover, the EU, less the UK, is likely to pursue damaging protectionist and regulatory policies, driving business to London. The breadth and depth of the City is not matched anywhere else in Europe. If the UK is wise, it will improve its relative tax advantages versus the EU by lowering personal and corporate tax rates. Being outside the Single Market will also permit a degree of labour market deregulation – an incentive to locate in London. The truth is that the EU depends to a large extent on the City for its capital financing and, typically, Eurozone bank balance sheets are shot to pieces. The EU would be unwise, in its own interests, to be hostile to London.
Alarmist estimates of potential London job losses arising from Brexit look most unlikely on close examination. The Bank of England has damaged its reputation by again indulging in irresponsible Remain forecasts of doom. Its estimate of 75,000 job losses in the financial services sector following departure from the EU has no basis. Rather, it is in conflict with the Financial Services Employment trends and surveys – including a poll of 100 financial services firms by Reuters – who put possible job losses at less than 10,000. If City employers believed 75,000 job losses were in the offing, they would not be hiring now – which they are.
It is worth remembering that in 2016 George Osborne, the then-Chancellor, sent a letter to every household warning of recession if there was a vote for Brexit; that 500,000 jobs would be lost, and that the GDP would fall by 3.6 per cent. The result over the 500 days following the Referendum was that the economy grew by 0.4 per cent every quarter, with overall GDP up 2.5 per cent – 6.1 per cent better than the fear-mongering forecast. Rather than 500,000 jobs lost, there were 317,000 new jobs created, with an increase in employment across the board and not based on zero-hour contract jobs. It is bad enough when senior figures in politics indulge in scaremongering propaganda, but foolish for senior figures in the City to damage their own backyard.
I remember back in the late 1960s and early ’70s, when the City grabbed the potential to create the Euro Dollar and Euro Bond markets, interestingly, opened up by Harold Wilson and the then-Governor of the Bank of England, permitting interest to be paid gross on deposits without deduction of UK tax. London went on, with Big Bang, to rebuild its historic position as the leading global financial centre. The Brexit climate has similar characteristics where, in particular, London should prosper on the back of unwise EU policies, such as the Financial Transaction Tax. I believe the long term prospects for the City are positive, irrespective of whether there is a soft or hard Brexit.