Amongst these concerns was an Ernst and Young estimate that 200,000 jobs in banking and financial services could be lost if the UK is unable to negotiate a trading arrangement with the EU. The Ernst and Young report was commissioned by the Stock Exchange.
The current debate revolves around the issue of ‘passporting’. Basically, the EU requires financial services firms to set up a local subsidiary if they want to sell services in EU countries; however, we have a deal known as a ‘passport’ that allows us to sidestep this rule and sell services even though we do not have a subsidiary in the client country.
The concern is that under the new arrangements when Britain leaves the EU, passporting will no longer be available. This will mean that banks and financial services firms will have to set up subsidiaries in EU countries. This will be expensive and will mean that staff will have to work out of those countries rather than in the UK, thus the job losses.
One aspect of the report that was under-reported is that passporting also allows EU firms to work in Britain. London is a particularly profitable centre of operations for EU companies due to its concentration of financial services companies; therefore, there is the possibility of a reciprocal deal. The House of Lords does not think that the EU will find it easy to replicate the kind of services it currently obtains in the UK.
It appears that the EU’s own self-interest may lead it to allow UK firms access to its market; however, what really worries the House of Lords is that if financial firms do not get clarity until a long way down the negotiation path, they will be facing a cliff edge when it comes to the sudden adjustment to a new business environment. They therefore need agreed transitional arrangements to be put in place as soon as possible to bridge the gap between current practice and the new scenario once Britain leaves the EU.
One of the key points the report makes is that it is quite possible for the UK and the EU to find themselves in a ‘lose-lose’ situation. London is a leading global financial centre, with New York close behind. EU financial centres are – to be frank – nowhere.
This means that work that can no longer be done in London is most likely to move to New York. EU firms that currently rely on London to provide financial services and capital are unlikely to find a cheaper service in New York, especially once there is no competition from London. The financial services sector currently employs 1.1 million people in the UK, including approximately 60,000 EU nationals and 100,000 from outside the EU.
While recruiters are bracing themselves for a flood of candidates onto the job market, it will be some time before the employment implications of the Brexit negotiations become clear.
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