Monday 21 August 2023

London's Golden Goose has bird flu

If I had a pound for every time I had read or been told that Brexit would benefit The City I would be far better off than I am.  Since we left the EU of course, Brexiteers have been forced onto the defensive and have stopped claiming London would benefit but that it wouldn't be damaged - well not by very much. It was too important globally. And it would thrive - eventually - by getting out from underneath all the over-regulation coming from Brussels. The UK financial sector was being strangled by red tape and Brexit would set it free. The claim that 100,000 jobs would be lost hasn’t materialised yet (the actual figure is around 7,000 as far as I know) but this doesn’t mean there has been no damage.

Now an article in The Sunday Times spells it out: London falling: why the City’s collapse could leave us all poorer

The City, it is reported thrived on globalisation ever since Margaret Thatcher launched the deregulatory 'big-bang' with Britain playing host to the world’s financial institutions and creaming off the profits, but:

“Brexit has rather changed the game. The referendum result in 2016 did not trigger the massive jobs exodus to Europe that some had predicted. But the Christmas Eve deal signed by Boris Johnson in 2020 left financial services out in the cold, with companies losing their ability to serve EU markets under so-called equivalence rules.”

Now, apparently, nobody is making money in London out of fund management, mergers and acquisitions (M&A) are at a low ebb, companies are abandoning the UK stock exchange and flocking to New York for flotations, UK pension funds have cut the amount they have invested in Britain by 92% and the whole thing is in decline.

Even retail investors are dropping out. The proportion of shares held by individuals has declined since 1963, when they owned 54% to just 12% now.  Last month The Times were reporting that law firms in The City were downsizing: City law firms brace for pay and job cuts

While not that many jobs have shifted out of The City, a lot of new ones have been created in Paris, Frankfurt, Milan, Amsterdam, and Dublin. Jobs that could have been created here.

Craig Coben, former head of equity capital markets at Bank of America Merrill Lynch sums it up:

“London has lost its status as the entryway to Europe, you’ve just shot yourself in the foot very quickly — not just from a regulatory standpoint, but also reputationally. Once you start losing momentum and critical mass, a virtuous circle turns into a vicious cycle. I’m not saying we’re there yet for London, but it needs to arrest the decline.”

In short, London had an ecosystem that had developed over the last 30-40 years, and once you upset it by erecting barriers to one of Britain's largest and most lucrative financial services markets, the whole thing is at risk - like a coral reef.

Daniel Hannan, before the referendum (50 secs into the clip) said Britain's financial services sector in 2025 "outside the EU's downright malicious rules on pensions, equities and insurance" is "booming" and not just in London, but in Leeds, Edinburgh, and Birmingham as well.

Now it looks like London may not even survive at all. And this is crucial because it generates a lot of tax. The financial services industry as a whole in the UK produces about £75.5 billion of taxes a year, more than 10 percent of the government’s total take.

It’s a sobering account and a warning that the golden goose is sick and desperately in need of treatment

You may also remember that Crispin Odey, the now disgraced former head of Odey Asset Management, is said to have made £200 million the morning after the referendum by shorting the pound (selling it forward and hoping to buy it for less before the due date arrives), knowing it would plummet.

If this isn't as clear a case as you could get about this country's love of short-termism, I don't know what is. 

The mad belief that Brexit would cause the EU to collapse is being disproved by the day. Brexit has, if anything done the opposite of what its proponents claimed. Popular support for the project has jumped and is still rising while the EU is actually doing more, doing it quicker and becoming far more cohesive, as this recent article in the FT makes clear.

David Smith, the Sunday Times’ economics editor has always opposed Brexit and while he says it was daft to leave, the idea that we can just rock up in Brussels and say it was all a misunderstanding and can we come back is for the birds.

It is going to be a long hard road, and we need to keep the pressure up on politicians to first of all accept and acknowledge it has been a huge strategic error - articles like the one in the ST will help with this - and take the first tentative steps along that road. Next month's March to Rejoin is also an important event.

A couple of other stories make for painful reading. A YouGov poll shows most voters think young people would be better off leaving the UK than staying here - and by a factor of more than 3:1. This is terribly worrying - and tweeted by Matthew Goodwin, one of the men most responsible for the state of things post-Brexit:

And finally, to another Matthew, this time Mr Lynn writing in The Telegraph. It's hard now to read his earlier prediction that after Brexit we were in danger of suffering a runaway boom in an article in The Spectator from August 2016, taken down for obvious reasons (but archived HERE). Now he is forecasting bankruptcy:


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