5th October 2016
A hard Brexit without access to some form of passport to the single market could cost UK financial services nearly £40bn in revenue, 75,000 jobs and £10bn annually in tax revenue a report from industry trade body the CityUK and consultancy Oliver Wyman has warned.
The report was commissioned by TheCityUK and developed with input from its Senior Brexit Steering Committee, senior industry practitioners, and major financial trade associations.
The report authors’ say they have used a comprehensive analytical toolkit to quantify the impact of potential regulatory options arising from Brexit in terms of jobs, tax and industry revenues.
It estimates that a Brexit where the UK is outside the European Economic Area but delivers passporting and equivalence – allowing access to the Single Market on terms similar to those that UK-based firms currently have – will cause only a modest reduction in UK-based activity.
We estimate that revenues from EU-related activity would decline by £2BN (-2% of total international and wholesale business), that 3-4,000 jobs could be at risk, and that tax revenues would fall by less than £0.5BN per annum.
At the other end of the spectrum, in a scenario that sees the UK move to a third country status with the EU without any regulatory equivalence, the impact could be more significant. Severe restrictions could be placed on the EU-related business that can be transacted by UK-based firms. In this lowest access scenario, where the UK’s relationship with the EU rests largely on World Trade Organisation (WTO) obligations, 40-50% of EU-related activity (approximately £18-20BN in revenue) and up to
an estimated 31-35,000 jobs could be at risk, along with approximately £3-5BN of tax revenues per annum.
But the report adds that at worst it could be double this amount.
“In this scenario, the impact on the sector would be greater than the loss of direct EU-related business. For example, the knock-on impact on the ecosystem could result in the loss from the UK of activities that operate alongside those parts of the business that leave, the shifting of entire business units, or the closure of lines of business due to increased costs. An estimated further £14-18BN of revenue, 34-40,000 jobs and £5BN in tax revenue per annum might be at risk.
“This is not a “zero sum game” within the EU. Organisations will not shift activities and employment on a one-for-one basis out of the UK to the EU. For some institutions, the cost of relocation and the ongoing inefficiencies associated with a more fragmented environment could cause them to close or scale back parts of their business. Others, particularly those with parents located outside of the EU, could move businesses back to their home country, reducing their overall footprint in Europe.”
Sir Hector Sants, vice chairman, Oliver Wyman, said: “Our work provides a robust and definitive fact base to facilitate the dialogue between the sector and policy makers. It highlights that the impact of the UK’s exit from the EU on the UK-based financial services – and the jobs, income and taxes it generates – will vary dramatically with how much access to the EU is retained.
“It is in everyone’s best interests for there to be a positive outcome to the negotiations that is mutually beneficial to the UK and the EU, causes minimum disruption to the industry and benefits customers who have come to rely on the UK as a uniquely skilled and connected ecosystem for financial services.”