Even before the June vote to leave the EU, there were fears over the exit of banks and financial services companies from the UK.
British Bankers’ Association chief Anthony Browne recently warned that leading banks could relocate their HQs as early as next year amid growing concerns over Brexit negotiations. And some smaller banks, he added, were planning to exit the UK before the end of 2016. “Their hands,” he said, “are quivering over the relocate button.”
Now comes a warning from RBS chairman Sir Howard Davies that banks could pull out of Britain unless Theresa May secures a post-Brexit transition plan. Given such admonitions, it would be irresponsible not to pay close attention. Capital is formidably mobile. And both London and Scotland would have much to lose if a flight of confidence were to trigger an exodus. Financial firms fear they could lose membership of the single market and their passporting rights, which allow companies in the UK to operate across the European Economic Area.
Now Sir Howard’s concerns are more nuanced than most. He said the government does not need to detail its full negotiating position, but rather to reassure the City so Britain does not encounter a “jerky and sudden” departure from the EU. Given the obstacles and complexities that have already surfaced, that seems unlikely.
He would like the Prime Minister to mitigate uncertainty by negotiating a transitional deal allowing firms based in Britain to continue to operate in the rest of the EU. And he said he was optimistic that transitional arrangements can be drawn up as these would be in the interests of the remaining EU states as well as Britain.
It helps to strengthen the hand of UK negotiators that they are well armed with arguments and statistics. That, after all, is the function of lobbying. But it would not be to the sector’s advantage were these warnings to create the impression of a banking industry overly vulnerable and unstable, with little capacity to withstand uncertainty. For more than three centuries the UK has succeeded in attracting global capital and banking institutions by virtue of its reputation for resilience and capacity for adaptation. And it has withstood challenges greater than Brexit.
The foundations of this resilience, in addition to English as a universal language of commerce, are to be found in a strong legal system, generations of experience in global venture capital, a culture of financial innovation, orderly government and a stable and respected taxation regime. These are among the reasons why many continental financial institutions have found it to their advantage to have physical representation here and encounter no difficulty in attracting staff to the UK. At the same time, not all of the EU’s excursions into the financial services theatre have been as well considered as they ought to have been – some positively harmful.
The bankers’ concerns deserve to be heeded. At the same time they should not forget that Brexit negotiations are a two-way street.