About £10bn in tax revenues and 71,000 jobs hinge on the outcome of the UK’s exit negotiations with the EU, according to a new report on the potential impact of Brexit on the financial sector.
If the UK secures similar access to what it has now under the single market, Britain would lose £0.5bn a year in tax revenues and 4,000 jobs — both about 1 per cent of the current respective totals, according to the report by consultancy Oliver Wyman for TheCityUK, the lobby group that argued for remaining in the EU.
However, in its worst-case scenario of a “hard Brexit” with severe restrictions on the UK’s ability to trade with the rest of the EU, 35,000 financial services jobs would be at risk, along with as much as £5bn in tax revenue.
The authors describe this scenario as “conservative” because it does not take into account the effects of job losses and lower spending on the wider economy.
Oliver Wyman estimates that a further 40,000 jobs and £5bn in tax revenues would be affected in the business ecosystem around financial services.
The findings have been presented to the Treasury and other government departments. The £205bn financial sector pays as much as £67bn in tax each year and employs more than 1m people, the report says.
Financial service companies in the UK are already making contingency plans in case they lose the ability to “passport” their services across EU borders without local regulatory approval. The report says securing transitional arrangements on passporting will be crucial for minimising detrimental effects on the City of London.
Sir Hector Sants, the former City regulator who is one of the authors of the report, told the Financial Times that its purpose was not to forecast a particular scenario but to present independent and “robust” data to inform debate.
“What the data does not model is the impact of uncertainty before the end-game is determined,” said Sir Hector. “It would be fair to say in the event of a long period of uncertainty, you would expect adverse impact to accrue, which would be over and above whatever the impact is of the final conclusion of the process.”
The report also assumes the UK can negotiate equally favourable deals with trading partners such as the US as the one it has as an EU member state.
The prime minister, Theresa May, has promised to trigger the process by which the UK will leave the EU by the end of March. The huge difference in outcomes forecast by the report underscore the importance and delicacy of the negotiations on the UK’s new trading arrangements with Europe.
Mrs May warned this week that the UK would not accept the jurisdiction of the European Court of Justice and would have absolute control over immigration — key promises of Brexiters but issues that will put the UK at odds with the EU: freedom of movement and the ECJ are pillars of the union.
The Treasury has so far been sympathetic to dire predictions about the City’s future if it were restricted on dealing with the EU, but other key Brexiters shaping Britain’s future, such as Liam Fox and David Davis, are said to be more phlegmatic.
While there are opportunities for the City post-Brexit — with fintech, green finance and sharia-compliant central bank facilities all up-and-coming — these will all be boosted by continued access to the single market, the report finds.