Ahead of a potential referendum on the UK’s membership of the European Union, politicians and business leaders gathered in Guildhall this month to debate whether a UK exit would be beneficial or damaging for the City. Despite some claims that the UK’s EU membership is of little interest to the majority of voters, almost a thousand Londoners listened and contributed to the discussion, which considered an issue crucial to the UK’s economic and political future. A link to the full debate is available at the bottom of this post.
UK access to the Single Market was identified by the Lord Mayor as an important advantage for UK financial and professional services, and remained a key theme of the debate, with Vince Cable and Sir Martin Sorrell highlighting EU membership as a key determinant of the UK’s position as the third largest inward investment recipient, and 60% of senior decision-makers locating here to access this important market. The Japanese government’s submission to the UK’s Balance of Competences review made it clear that leaving the EU would put the 130,000 UK jobs created through Japanese FDI at risk.
Our EU membership also facilitates UK trade internationally; free trade agreements with over 37 countries, including important emerging markets like Mexico and South Korea, have reduced global barriers to trade, and the current negotiation of a US-EU trade deal could boost the UK economy by £10bn.
Of course there are two sides to every debate, and supporters of EU exit Jesse Norman MP and entrepreneur Luke Johnson argued London’s development as an international financial centre, attributed to factors like its time zone, talented labour pool and stable legal framework, has not been dependent on EU membership. Norway and Switzerland were cited as examples of countries which have prospered outside of the EU, although as our research into Switzerland’s engagement with the EU showed, the country achieves access to the Single Market through a complex set of bi-lateral trade agreements and significant financial contribution.
EU-level regulation does present challenges for the UK’s financial services industry and the wider economy, particularly bonus cap regulation and the financial transaction tax, with our latest research estimating the tax would increase the cost of finance for UK businesses, and create an additional cost on UK government borrowing of almost £4bn. Despite not signing up to the tax, non-participating Member States are likely to suffer higher costs than those 11 Member States who have signed up, and the legality of the tax’s extra-territorial impacts is currently being challenged by EU lawyers. We’re also looking at how the tax will affect households and consumers across the EU in upcoming research.
However as Vicky Pryce argued, in order to maintain the competitiveness of the financial services industry and its key contribution to the UK economy (valued at over £132bn or 9.8% of total GDP by our latest figures), it’s important the City and the UK continues to engage in EU policy-making, rather than seeking to withdraw altogether. Closing the debate, the Chairman of Policy and Resources Mark Boleat, reflected on the government’s continued success in seeking UK-appropriate implementation of EU directives, and this week the Treasury announced that it would challenge EU bonus caps in view of stringent pay rules already imposed by the Prudential Regulation Authority and the Financial Conduct Authority.
As a key voice in the debate around the UK’s engagement with the EU, the City of London plays an important role through working in partnership with organisations like the Evening Standard and Centre for London, and acting as a host for informed discussion on issues affecting the City and the UK’s financial and professional services.
We also commission independent research to inform and support our work on the EU and financial services regulation, as part of our wider research programme. If you’re interested in finding out more please visit the City of London's economic research page.
To watch the debate in full visit the ‘The City in Europe’ page.