While Mrs May is on her way to Northern Ireland for another attempt to reassure everybody she will eventually find a way out of the backstop conundrum, closer to home other problems are still bubbling just below the surface. The UK Trade Policy Observatory is a partnership between the University
of Sussex and Chatham House, created just after the 2016 referendum to analyse trade policy after Brexit. They have produced a report (HERE) highlighting the slow burning fuse under the UK Financial sector.
Brexiteers seem to believe we can negotiate a free trade agreement that includes exceptional provisions for Britain's very large finance industry. As usual they want total independence in regulatory powers and also retain access to the rich EU market. The equivalence regime that the EU usually offers third countries doesn't provide anything like what we enjoy at present.
We can see already how many financial institutions have already relocated operations to maintain a foothold in the EU but at the moment the number of jobs moving is still relatively small. It appears that the trickle may turn into a flood when the EU refuse to play ball with our plans for a unique deal.
Dr Tarrant, an independent public policy adviser, said:
“From an EU Member State perspective, the problem with the UK’s proposed special deal is that the UK could lift regulation previously agreed with the EU that is intended to prevent market failures or refuse to adopt new regulation which the EU thinks is necessary, while deregulated UK providers could still trade across borders into that Member State. In other words, the UK is proposing a deal which prioritises its regulatory sovereignty over the sovereignty of a partner. And in this case not just one Member State but 27 others. In addition, the UK is proposing this in the financial services sector, a sector whose decisions about credit create risks for entire national economies.”
The report makes clear that what the UK is seeking is unprecedented and even if a post-Brexit EU-UK Free Trade Agreement (FTA) were to include provisions on financial services equivalent to those found in recent “comprehensive” EU FTAs with trading partners such as Canada, this would entail a serious reduction in trade in UK financial services compared to the current position.
The EU will either demand legally binding rules to prevent us diverging, totally unacceptable to Brexiteers of course, or we will lose access with all that means for the exchequer.
While Conservative MPs thrash around for a fantasy deal that will enable us to have our financial services cake and eat it too, the UKTPO report deals with the reality and it will not make easy reading for the Chancellor.
Yesterday I heard Steve Baker of the ERG say we want to leave the EU and get a 'mutually beneficial' deal. This is the kind of fantasy still being pushed by Brexiteers. Brexit is a lose-lose situation it can only every be mutually disadvantageous but in the finance sector, and others, we have most to lose.
Brexiteers seem to believe we can negotiate a free trade agreement that includes exceptional provisions for Britain's very large finance industry. As usual they want total independence in regulatory powers and also retain access to the rich EU market. The equivalence regime that the EU usually offers third countries doesn't provide anything like what we enjoy at present.
We can see already how many financial institutions have already relocated operations to maintain a foothold in the EU but at the moment the number of jobs moving is still relatively small. It appears that the trickle may turn into a flood when the EU refuse to play ball with our plans for a unique deal.
Dr Tarrant, an independent public policy adviser, said:
“From an EU Member State perspective, the problem with the UK’s proposed special deal is that the UK could lift regulation previously agreed with the EU that is intended to prevent market failures or refuse to adopt new regulation which the EU thinks is necessary, while deregulated UK providers could still trade across borders into that Member State. In other words, the UK is proposing a deal which prioritises its regulatory sovereignty over the sovereignty of a partner. And in this case not just one Member State but 27 others. In addition, the UK is proposing this in the financial services sector, a sector whose decisions about credit create risks for entire national economies.”
While extending the range of products covered by equivalence in any FTA might be more feasible, even then the EU might have to offer it to other countries like Canada and South Korea under most favoured nation clauses in their agreements which could potentially raise the “price” the EU would demand of the UK.
Report co-author Peter Holmes, a Reader in Economics at the University of Sussex and a UKTPO member, said:
“In the absence of the UK staying in the Single Market, it is highly unlikely that the status quo for UK-based banks’ access to EU markets will be maintained post-Brexit and in anticipation of this risk, banks will be forced to move significant operations. This will be a heavy blow for both the Treasury and its tax receipts but also for the employees who can’t simply up sticks and move their lives to the Continent.”
The authors conclude:
“London is the financial powerhouse of Europe at the moment, but as the Government’s own internal documents reveal, that position is now at risk of erosion because of Brexit. Whatever decisions UK authorities take they should be aware that Brexit likely implies less EU market access for UK based financial services providers with knock on consequences for tax revenue and jobs. It is extremely unwise to assume the likelihood, as the Government currently does, of a deal which retains cross-border access to EU financial services markets while giving the UK the ability to have a different regulatory regime. ”
The EU will either demand legally binding rules to prevent us diverging, totally unacceptable to Brexiteers of course, or we will lose access with all that means for the exchequer.
While Conservative MPs thrash around for a fantasy deal that will enable us to have our financial services cake and eat it too, the UKTPO report deals with the reality and it will not make easy reading for the Chancellor.
Yesterday I heard Steve Baker of the ERG say we want to leave the EU and get a 'mutually beneficial' deal. This is the kind of fantasy still being pushed by Brexiteers. Brexit is a lose-lose situation it can only every be mutually disadvantageous but in the finance sector, and others, we have most to lose.
