London’s lead in financial services technology risks being blunted by bureaucratic new migration rules, according to business leaders cited by the latest House of Lords report on leaving the European Union.
Peers conclude that the fast-growing sector is one of a number of world-beating industries at risk if London loses its status as an international melting pot for talent, partly because Europeans may not be able to come to work in the UK so freely.
Some 60,000 EU nationals work in financial services jobs in the UK, and although the government has insisted that it does not wish to shut the door to highly skilled workers from abroad, City employers report that many are increasingly nervous since the referendum to leave the EU.
“[We are] already finding less desire among bright eastern Europeans, Germans and French people to come and work in the UK,” warned Giles Andrews, chairman of startup Zopa, which says half its workforce is from outside the UK.
Another witness to the Lords EU committee estimated that nearly a third of the entrepreneurs behind UK startup companies in the sector were born overseas, a sign of an “inherently international” industry where access to talent was paramount.
“Obviously there is an entrepreneurial visa, but you have to have a huge amount of capital already in place behind you or prove that you are about to set up a business,” said Daniel Morgan of Innovate Finance. “Many of our founders came here just with an idea, and with a smaller labour pool, that talent will no longer gravitate here.”
The warning about London’s role as a magnet for talent is supported by a separate report released on Thursday by the British Council, which interviewed 40,000 young people in the G20 on their perceptions of Britain. It found 36% of those in EU countries said that Brexit had had a negative impact on the UK’s attractiveness.
Though higher proportions of those interviewed in non-EU countries remained favourably disposed, the council said the UK urgently needed “to address the more negative opinions [of] young people in Europe”. “Leaving the EU in a way that maintains relationships with the societies of Europe – and that strengthens these partnerships around the world – will be essential,” said chief executive Sir Ciarán Devane.
Other new research suggests that non-Europeans are also being put off by London’s growing isolation after the vote for Brexit. A survey of American executives by law firm Gowling WLG indicates almost 40% of them are considering moving their British office to the EU, and two-thirds of the 533 US companies surveyed say the Brexit referendum was already having an effect on investment choices.
But it is the latest in a series of reports from the House of Lords EU committee published on Thursday that provides the starkest warnings yet about the risks of Brexit to the City of London. As revealed in the Guardian on Wednesday, it warns that many banks and other City firms are fast approaching a point of no return in moving jobs out of the UK, and urgently calls for government reassurance about a transition phase to avoid going over a “cliff edge”.
“We are concerned that, in the absence of clarity over the future relationship, firms may pre-empt uncertainty by relocating or restructuring, for instance by establishing subsidiaries or transferring staff, even though such changes may ultimately prove to be unnecessary,” warns the report by the financial services sub-committee. “This would not be in the interests of the industry or the UK.”
As expected, the report explores the consequence of City firms losing “passporting” rights to sell their services to European customers, but also highlights the wider impact on employees and the City’s delicate web of interconnected specialisms.
“It is not a Lego set in which little pieces can be built up and put somewhere else,” said Alex Wilmot-Sitwell of Merrill Lynch. “The interconnectedness is very significant, and … we need to be assured that whatever happens from this point forward, the consequences and implications of any steps are understood.”
Several of the witnesses call for a transition phase of two to three years, on top of the two-year negotiation phase, which is expected to begin in April, and compared the risks of getting it wrong to moving “nuclear waste”.
“Migrating huge businesses from one jurisdiction to another requires an enormous amount of work,” said Wilmot-Sitwell. “That process is very dangerous; it is fraught with risks. The materials that are being moved are risky. You do not move nuclear waste in a race; you do it in a carefully coordinated and managed process.”
The report calls on the Treasury to act as a champion for the City during the Brexit negotiations, warning that political pressure from rival European centres could be used to disrupt a move from passporting to so-called “equivalence” rules.
Philip Hammond, the chancellor, has also insisted that he sees “no likelihood of our using powers to control migration into the UK to prevent companies from bringing highly skilled, highly paid workers here”.
But witnesses to the Lords inquiry warned that this may not be enough for financial services firms, who want “to get the specialised labour that they need in a relatively efficient and smooth way”. Sir Charles Bean, of the London School of Economics, told the committee that the chief worry among employers is that “some heavy bureaucratic process is put in place that takes a very long time to operate and becomes very cumbersome”.
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