[...] By March, according to accountants EY, an estimated 7,000 jobs will have moved from the City, to staff those EU27 subsidiaries and ensure most of the business currently administered out of London will be provided seamlessly from new locations. The impact so far falls well short of more extreme predictions, such as Oliver Wyman’s forecast that 75,000 jobs and £10bn of tax revenue could be lost. But financial centres are built — and eroded — over decades, not months. The City cannot afford to be sanguine.
In the short term, some disruption looks likely despite the preparatory work. Fears that EU companies’ derivatives contracts would be ineligible for clearing in London were addressed late last year when the European Commission granted a year’s reprieve. Other wrinkles remain, including concerns over topics as core as EU governments’ ability to issue bonds through London.
Once Paris and Frankfurt have built up the capacity and expertise to conduct such business themselves, EU policymakers are likely to force it to move. At the extreme, up to a fifth of the City’s turnover is at stake. London’s reputation as a centre of strong regulation, founded on English law, will of course provide some protection. As long as investors — and the market liquidity they provide — remain in London, so will the ecosystem that makes the City Europe’s biggest financial hub.
To offset lost business and ensure London can compete globally, lobbyists are urging the UK to cut taxes. The City is also pinning hopes on growth areas such as financial technology. But Brexit will inevitably lead to business being gradually lost to European centres and other global hubs, principally New York. The question is how much.
It is tempting to compare the Brexit jolt with the temporary disruption felt in New York in the 1960s, when John F Kennedy’s “interest equalisation tax” on foreign companies raising money from US investors fuelled the creation of the London-centred eurobond market. [...]
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