Should the UK vote to leave the EU in a future referendum, the decision will have far-reaching and damaging consequences for London’s financial sector, writes Sajjad Karim.
Sajjad Karim is a Conservative MEP for the North West region and legal affairs spokesman for the European Conservatives and Reformists group.
London’s financial sector is the world’s largest. It’s what the city of London has come to be known for, making it the fifth largest city economy in the world according to the Brookings Institute. But London as we know it, one that commands significant power and gravitas on the world stage, might soon be a thing of the past.
The prospect of Brexit, should Britain be removed from the EU following an in-out referendum, would make the swift downgrading of London’s financial sector near inevitable, something that would send ripple effects throughout the UK.
After all, London’s financial sector is home to over 250 foreign banks, all of whom enjoy access to the single market via Britain’s EU membership. It also accounts for 10% of the nation’s GDP, 12% of the treasury’s tax receipts, and is the largest exporter of wholesale financial services in the world. The sector employs over a million workers across the country, and contributes significantly to secondary jobs in the economy. Moreover, major economic power houses around the world view London as a conduit between Asia, America and Europe.
Ignoring all this in the rush to exit Europe would have harsh consequences for the City of London. For example, it would mean much of the British banking industry losing access to the single market, prompting major banks to consider relocating to maintain access to the Euro market. And recent revelations that major US banks are making contingency plans in the event of Brexit to move their banking activities to Dublin is an indicator of a likely banking exodus from the City should Brexit take effect.
The city is currently also the largest financial centre in the eurozone financial system, a status that Brexit would remove, leading to significant loss of revenue. And of course, it would take away important privileges like the export of tariff-free capital and goods.
There are other major challenges that would arise from a British exit; some 2.2 million EU citizens who work in Britain, many in the City, and could be forced to leave. Given the significant contribution EU migrants make to the British economy, such an exodus would only exasperate the skills and labour shortage Britain already faces.
But perhaps most importantly and contrary to most Eurosceptic claims, a British exit does not necessarily mean regulatory sovereignty for the UK government.
In fact, as a Centre for European Reform study recently highlighted, the opposite might be the case as Brexit would lead to Britain being classified as a “third country” by the EU (i.e. one outside the EU). EU regulation stipulates all third countries must maintain financial sector regulation and supervision “equivalent” to that of the EU in order to be granted access to EU markets. As such, Brexit would mean Britain continuing to be burdened by EU regulations (for it to trade with its largest trading partner), while having little or no say in what those standards should be.
The true cost of EU withdrawal then, will be grave one. And while the electorate’s right to decide on continued EU membership is one that is indisputable, to do the EU referendum justice, the public must be sufficiently well-informed to ensure that the UK, as a nation, does not unwittingly make decisions that negatively affect the country long into the future.