The City’s warnings may help the left’s exit cause
Jonathan Lindsell, 16 June 2015
Sunday saw another City announcement on Brexit’s danger for the financial services industry, the starkest warning so far. The Sunday Times reported that London’s biggest fund managers, which control trillions in assets and thousands of highly paid jobs, would be ‘forced to quit’ the capital if Britain left the EU.
This followed interventions from Deutsche Bank, which established a working group to assess Brexit’s impact, and HSBC and JPMorgan Chase, which considered moving operations to Luxembourg. The Bank of England is also looking into potential risks. Meanwhile ratings agency Standard & Poor’s said that Britain could lose its AAA credit rating because of referendum uncertainty.
On one hand, all this City activity could convince wavering voters that exit would hurt the economy. On the other, it presents a gift to populist and left wing EU critics who spurn Brussels as a tool for multinational corporations. Presenting financiers as undemocratic EU apologists may be the ideal tactic to broaden the Out side’s appeal beyond the immigration focus and right-wing label.
Banking is among Britain’s most disliked professions. It is not hard to see the likes of Owen Jones or Russell Brand delighting in the prospect of the Square Mile being cut down to size. Likewise, this could work for the Eurosceptic Labour campaign proposed by Kate Hoey. They might argue exit presents a timely instance of creative destruction for rebalancing the economy away from financial services dependence.
The sudden exodus of a few thousand bankers should help to halt the spiralling cost of London property. A blip in the market’s high confidence in British housing could also dissuade international investors from buying British properties as assets, with a positive effect for genuine live-in buyers. Economists have identified a link between bonus culture and the gentrification of central districts, which contributes to unaffordable rents while inflating general prices.
Those who want to leave the EU for reasons of sovereignty in the Bennite tradition would not be worried by the credit rating risk. Moody’s downgraded Britain’s credit rating back in 2013, swiftly followed by Fitch (and S&P pronounced a ‘negative outlook’) after George Osborne’s most severe cuts. Government borrowing did not get more costly and the downgrade had no harmful effect on the economy.
It is not actually clear that Brexit would force many fund management to Dublin or Luxembourg. There are different EU rules that banks need to follow for single market access, but it is likely that the British government would prioritise mirror arrangements or a ‘passporting’ treaty to allow financial services business to continue after exit. For some operations, simply opening a subsidiary in an EU member state would be sufficient for continued operations. Businesses would just need to follow EU regulations as they do now.
Pro-EU campaigners will be wary of the double-edged nature of big business support during the referendum. Too many banking threats could look like scaremongering, and such threats have no force if those threatened quite like the presumed outcome.