From the French derivatives bankers to the Italian deal advisers to the eastern European coders — the ability to move professional EU nationals seamlessly in and out of the UK’s financial services industry has helped make London the highly-skilled cosmopolitan financial centre it is today. Now this is under threat.
“The ability to bring diverse sets of skills into the UK is to us more important than having access to the single market,” said David Sproul, UK chairman and senior partner of “Big Four” professional services group Deloitte.
As Theresa May, the prime minister, and her team thrash out the terms of Brexit — the vote for which was in part because of concerns over immigration — the UK’s financial services industry is fighting to safeguard the future of its international workforce. It spans beyond the core industries of banking, asset management and insurance into related professional services, such as law and accounting, and newer areas such as fintech. London’s financial ecosystem relies on businesses being able to access the people and skills that they need, when they need them.
Despite ministerial promises of a “generous” settlement for EU citizens living and working in Britain, their fate remains uncertain. Mrs May did not alleviate the City’s concerns when on Sunday she told the Conservative party conference that she would not compromise on freedom of movement.
EU citizens who have been in the UK for at least five years qualify for permanent residence, but the government has not clarified what will happen to those who arrived more recently. It is also unclear when the cut-off date for freedom of movement might be set: the Home Office has suggested that it could be the day of the referendum, the point at which Article 50 is triggered or the date of Brexit itself.
City employers say the immediate focus needs to be on securing the future of the EU nationals already here. “The government needs to give assurance that existing EU nationals are free to work in the UK,” said Rhydian Lewis, founder and chief executive officer of RateSetter, a peer-to-peer lender whose workforce is 20 per cent EU nationals.
Nearly 11 per cent of the City’s 360,000 workers come from elsewhere in the EU, according to the latest census. This is higher in the international banks, and in the tech industry one in five is from the EU, according to industry body Tech London Advocates.
While Philip Hammond, the chancellor, has attempted to reassure the City that any immigration controls would still “facilitate movement of highly skilled people between financial institutions and businesses”, Mrs May is yet to set out details of these controls. This has created uncertainty for both EU nationals who are working in the UK’s financial sector, and those who are considering moving here to do so. The longer this uncertainty remains, the greater the potential for the UK to miss out on recruits, warn employers.
Already there are signs that uncertainty is stifling hiring plans. In London there was a 13.6 per cent downturn in jobs advertised in the financial sector in July and August compared with May and June, according to the Institute For Public Policy Research, a think-tank.
While Mrs May has turned against the Australian-style points system that Brexiters had promoted, the most likely alternative is a system of work permits allocated by sector. She is also weighing up other options that could include “emergency brake” quotas on EU migrants and free movement of employees.
“The most important thing is having an open philosophy that welcomes skilled workers into the UK,” said Mr Sproul. “It goes beyond just Europe. We should have a level playing field for diverse skills from overseas and have the same system for those outside the EU as inside the EU. These people bring diversity in its truest sense and this is what drives innovation.”
Senior financiers say they want to see an approach to immigration that is based on skills rather than overall numbers, a distinction between skilled and unskilled labour, and a sense that freedom of movement should mean a freedom to work, not a freedom to claim benefits. This chimes with suggestions after the G20 summit that Mrs May is considering restricting freedom of movement to EU citizens who have a firm job offer.
Reza Moghadam, vice-chairman of sovereigns and official institutions at Morgan Stanley, has suggested that joining the EU’s banking union could safeguard talent in the City because the UK could allow free movement of labour in financial services, even if there was a political imperative in Britain to control labour movement more broadly.
This comes as changes to the tax treatment of foreigners under the “non-dom” regime are set to take effect in April. These will capture many senior European financiers based in the UK. The non-dom regime allows foreigners who are resident in Britain to keep their offshore earnings out of the tax net, although they still pay tax on their UK earnings.
Under the changes, those who have been resident in the UK for 15 out of the past 20 years will be subject to UK tax on their worldwide income. “Removing or altering [non-dom status] now, especially in the wake of uncertainty generated by Brexit, will cause many to look seriously at relocating,” said Fiona Fernie, a partner at law firm Pinsent Masons.
FT City Network transcript: Brexit and the future of immigration
The FT’s network of 50 business leaders consider what reforms they would like to see
Meanwhile, City employers say that for the time being they intend to maintain existing plans for their graduate-hiring schemes, with recruitment still centred in London. “If you cut the graduate talent pool now, you tend to pay the price in years to come,” said the head of HR for Europe at a large US bank. “We’ll hire graduates in London then look to move them elsewhere in Europe depending on where the opportunities are.”
The City’s battle to continue to attract and retain skilled workers comes as the UK is facing a worsening skills gap, which is most pronounced in technical engineering, specialist technology and professional finance roles, according to FTSE 250 recruiter Hays.
Banks and professional services firms are trying to keep up with developments in newer areas such as data analytics, artificial intelligence and blockchain, and rely on international workers to do so. Employers who were already hampered by stricter immigration controls on migrants from outside Europe —- imposed during Mrs May’s tenure as home secretary — are concerned about further limits on specialist talent if recruitment from within Europe is restricted.
“The talent doesn’t exist in the UK for the higher-skilled jobs,” said John McFarlane, chairman of Barclays and TheCityUK lobby group. “We need to find a way of bringing skilled immigrants into the UK from the EU and elsewhere and for that to be politically acceptable.”
This is the third in a series on the City and Brexit
Additional reporting by Helen Warrell