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Banks could start making decisions to move assets out of the UK as early as the end of 2017 if there is no deal in place to maintain their rights to sell services freely across the European Union, a leading thinktank has warned.
Open Europe, which took a neutral stance on the referendum, said Britain could risk losing its status as a hub for financial services unless passporting rights are made the top priority in negotiations with the EU. The warning came as the Financial Times reported that the government is considering proposals [paywall] that would see billions of pounds paid into the EU budget in exchange for giving the financial sector continued access to the single market.
The report’s authors also warned that failure to help UK-based banks could have repercussions on the continent, because banks would not necessarily move their business from Britain to mainland Europe, and could opt for New York or Singapore.
The thinktank, whose co-director Raoul Ruparel recently joined David Davis’s Brexit advisory team, said the government should aim to offer the industry maximum certainty as early on as possible.
“Based on our background conversations, if banks, for instance, were still unclear about what the future holds one year before the UK formally exits the EU, they would be forced to start making decisions – including over whether to shift part of their business elsewhere,” the report said. “Some firms may well start implementing their contingency plans even earlier than that.”
Vincenzo Scarpetta, Open Europe’s senior policy analyst, said firms were preparing for the worst. “There are plans in case the UK were to leave the single market without any kind of regulatory equivalence,” he said. “These plans may be set into motion early on if the uncertainty drags on for too long.”
Around a fifth of the banking sector’s annual revenue is estimated to be tied to the passport, though other sectors such as insurance and asset management would be less affected because different EU rules apply.
Scarpetta said UK negotiators had to make it clear that EU countries would not necessarily benefit from a London exodus. “Non-EU financial centres are just as well placed to reap the benefits, and if this happens we are in a lose-lose situation,” he said.
“The UK’s financial services sector employs 1.9m people. Frankfurt is often cited as an alternative destination, but the whole city of Frankfurt has 725,000 inhabitants. We are hearing a lot of talk about Paris preparing the red carpet, or Dublin, but it is not a zero-sum game.”
In a speech on Monday, Nick Clegg will echo calls from the City for a transitional deal to be put in place after the end of the Article 50 process if the UK does not retain single market membership, warning food prices will see a steep hike if the UK reverts to World Trade Organisation tariffs, including on imported beef, cheese and wine.
Clegg will warn that the under WTO rules, tariffs will also have to be applied to all imports into the UK until a trade deal with the EU is struck. In his third Brexit Challenge report, the former deputy prime minister will say UK farming will be particularly badly hit by tariffs, including 47% on milk, 40% on cheese, 59% on beef, and 40% on lamb.
An attempt has been made by a powerful cross-party group of MPs to force a parliamentary vote on whether the government should reveal its plans for the UK’s future outside the EU before negotiations begin, a campaign which was likened to showing your hand in poker by one cabinet minister. “If I were to sit down and play poker with you this morning, I’m not going to show you my cards before we even start playing the game,” the international development secretary, Priti Patel, told BBC1’s Andrew Marr Show.