Urgent progress is needed on a Brexit transition period to prevent City firms implementing contingency plans that could put up to 75,000 UK financial services sector jobs at risk, a leading industry lobby group has warned.
In a plea to negotiators ahead of the n meeting later this week, TheCityUK also said that the stakes are high for the remaining 27 EU nations, where jobs and inward investment will be at risk if a two-year transition period cannot be agreed quickly.
The intervention comes as City firms start to lease office space in Frankfurt, Paris, Dublin and other EU financial centres to conduct business that they will not be able to do from London after Brexit.
Earlier this month, it emerged Goldman Sachs had booked eight floors in Marienturm, a 37-storey tower under construction in Frankfurt, and was reserving school places in anticipation of moving staff to the German city.
As it issued its warning about the need for a transition deal, TheCityUK cited a report last year from management consultants Oliver Wyman showing 75,000 jobs and up to £10bn in tax revenue could be lost if the UK was left to rely on World Trade Organisation rules and no transition period after March 2019 when the country leaves the EU.
Miles Celic, chief executive of TheCityUK, said firms are getting ready to move operations to avoid the impact of a hard Brexit, where the UK is left without a deal for the services sector. Clarity about a transition will be needed in the first quarter of 2018 at the latest – and significant progress needed before the end of this year.
“Firms are beyond the planning stage now. If they haven’t done so already, most will be ready to press go on their contingency plans in the new year. They can still take their foot off the accelerator if a transitional deal is agreed, but without progress soon, it may be too late,” said Celic.
“Once businesses start moving, there is no reverse gear. It is simply not efficient or economically viable to move operations twice.”
Celic said there was a risk that the business that left London would not move to a single alternative location but fragment across a number of cities, pushing up costs and even leaving Europe entirely. New York has previously been regarded as a potential beneficiary of Brexit.
“This isn’t just about business leaving the UK. It is about the very high risk of jobs, capital and inward investment leaving Europe entirely. The resulting fragmented markets will be of benefit to no one, with costs likely to increase for customers right across the continent,” said Celic.
The research by Oliver Wyman estimated that reliance on WTO rules and no transition deal could affect between 40% and 50% of EU-related financial services activity – the equivalent of up to £20bn in revenue, 35,000 jobs and £5bn of annual taxes. That figure rises to 75,000 jobs when the knock-on effect is taken into account.
Celic’s message echoes that of Bank of England deputy governor Sam Woods, who told financiers in the Mansion House earlier this month that the longer a transition deal took to agree the less useful it would be in preventing an exodus from the City. “If we get to Christmas and the negotiations have not reached any agreement on this topic, diminishing marginal returns will kick in. Firms would start discounting the likelihood of a transition in the central case of their planning,” Woods had said.
In April, Woods wrote to 400 City firms to demand they inform the Bank of England of their plans for Brexit, including if there is a hard exit without any trade deals or access to the single market.
TheCityUK said that even if there was an agreement that gave the UK similar trading opportunities in financial services as before Brexit, transitional agreements needed to be urgently clarified.
“Once contigency plans have been implemented, they are unlikely to be unwound: the additional costs of moving business and jobs back to the UK would simply be too high,” the lobby group said.
TheCityUK is calling for a transition period to cover the period the UK exits the EU and a new bespoke deal agreed, and then an implementation period to allow firms more time to adapt to their trading arrangements.
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