Project Fear scaremongered more about financial services than anything else during the EU referendum campaign and this scaremongering has unfortunately continued after the Brexit vote. Remoaners and soft Brexiteers (those who want us to remain members of the European single market after Brexit) now tell us that the reason why there was not an immediate hit to financial services in the aftermath of the Brexit vote was because Article 50 hadn’t yet been invoked and because the Government hadn’t yet stated that we would be leaving both the single market and the customs union. However, this is nonsense and it certainly wouldn’t be the first time that Project Fear got it wrong!
We are now a year and three months on from the Brexit vote, eight months on from the Lancaster House speech when the Prime Minister announced that we will be leaving both the single market and the customs union and five months on from the invoking of Article 50. On 11th September this year it was announced that London has retained its global financial services crown, extending its lead over other top centres such as New York, Hong Kong and Singapore in the Z/Yen index. On the very same day, it was announced that professional job volumes in the City of London have increased by 31% since this time last year, according to the latest Robert Walters City Jobs Index. As of 30th June 2017, the UK attracted more foreign direct investment (FDI) in financial services than any other country in the whole of Europe. Developers have continued to press ahead with the construction of more office spaces in London, showing fears of a post-Brexit business exodus (a so-called “Brexodus”) to be yet more scaremongering. Since the Brexit vote, we’ve also seen a record increase in financial services trading figures and a record increase in service industries growth. City AM reported on 11th September this year that, according to a national audit from the tax and advisory firm Crowe Clark Whitehill, “92 per cent of City law firms experienced growth this year, up 27 per cent on 2016. The number of companies reporting a fall in revenue had also dropped from 23 per cent last year to eight per cent”.
Ever since we became members of the EU, and through that members of the single market, in 1993 (due to the ratification of the Maastricht Treaty) we have constantly tried to complete the single market in services but it still hasn’t been completed. Technically, therefore, there is no such thing as the European single market in services. The reason why the single market in services still hasn’t been completed is because its completion would, it is thought, disproportionately favour the UK economy. This, along with the common external tariff and the common commercial policy, serves as yet another reminder of the EU’s protectionist nature.
The European single market prioritises trading goods over trade in services and thus prevents our economy from reaching its true potential because, as of 2013, 79% of the UK economy was based on trade in services (this is services trade in general, not just trade in financial services). There are no tariffs on services worldwide and only regulatory equivalence is required to secure access to the incomplete European single market in services. We already have regulatory equivalence today because we’ve been members of the European single market, through our membership of the EU, ever since it was created in 1993. We will still have this regulatory equivalence on 1st April 2019 (day one after Brexit) due to the so-called “Great Repeal Bill” (the European Union (withdrawal) Bill).
Two thirds of all of our financial services exports already go to non-EU countries and we export almost exactly the same amount of financial services every year to the United States of America as we do to the EU. Our trade surplus in services with the USA is about 50% higher than it is with each of the EU’s 27 other member states. We’ve recently seen significant and very encouraging increases in the amount of financial services we export to some non-EU countries such as Taiwan, Japan and India.
What would really benefit the United Kingdom’s economy would be a global liberalisation in services trade which we can now fight for as full and independent members of the World Trade Organisation (WTO) in our own right and with our own vote and seat at the WTO. Currently we share one WTO seat with 27 other EU member states over whom we have a significant comparative advantage in services trade, particularly with regard to financial services trade, as we are the world’s financial services centre and hub. The other 27 EU member states each have their own national interests which often end up overriding or outweighing our own economic national interest. This is why, for example, the European Union has spent 18 years trying to secure its own bilateral free trade agreement (FTA) with the Gulf States but has still failed to reach agreement. This is also the reason why the European Union still does not have its own bilateral FTA with emerging and fast-growing non-EU economies such as China, India and the United States of America.
This new wave of scaremongering about financial services seems very similar to previous waves. We were told in the late 1980s and into 1990 that we needed to join the European Exchange Rate Mechanism (ERM) and that the City would suffer if we didn’t but the ERM was a complete disaster for us and we had to withdraw from it on 16th September 1992. Key figures in New Labour told us that business in the City would come to a standstill if we didn’t join the Euro but it has since thrived and gone from strength to strength.
We shouldn’t therefore believe the perpetual and unrelenting scaremongering from Project Fear and we should instead have confidence in the strength of the British economy. The excellent performance of our economy has dumbfounded Brussels and has strengthened our negotiating hand in the Brexit talks.