Blog: Capital Access Group "Brexit Debate" - We will stay in, but it will be close
by Kevin Lapwood & Oliver Harris-st John | 9 May 2016
On Monday 9th May, we hosted 65 fund managers at our “Brexit” debate in the Sky Light City Tower. In a discussion that was mercifully light on the tabloid obsessions with immigration, border control and how many hospitals could be built with the money saved by leaving, our four speakers focussed on the implications for the City and the financial services sector of leaving the European Union (EU) following the referendum on 23rd June 2016. According to the recent CityUK report. almost 2.2m people work in financial and related services such as accounting and the law, two-thirds of them outside London. They produce nearly 12% of UK GDP, 11% of the country’s tax take and a net trade surplus of £72 billion. Financial services have taken a third of foreign direct investment in Britain since 2007, most of it coming from the EU. Some 250 foreign banks operate in London, and over 200 foreign law firms have offices across Britain.
Those in favour of remaining argued that there was a risk that leaving would unnecessarily endanger the UK’s status as the region’s leading financial services provider and could diminish our global standing. They pointed out that we had been successful in implementing reforms from within and that the UK’s influence within the EU had been beneficial for ourselves and other member states. Those who argued for leaving pointed out that we had always managed to grow and innovate in global financial markets and that an EU that was likely to suffer more financial and political turmoil would not be an essential partner in our next steps forward. A show-of-hands vote was in favour of remaining in the EU but only by a small minority, which we estimated to be around 55:45.
The views of the speakers can be briefly summarised:
Speaking in a personal capacity, Mark Hoban (Former MP for Fareham, Minister for Employment and Financial Secretary to the Treasury)
Mr. Hoban was in favour of remaining in the EU. He stressed how beneficial the ability to access European markets had been for all UK businesses during the past 43 years, particularly financial services. We were the key location for currency trading, hedge fund management and interest rate OTC derivatives. He pointed out how successful the UK had been in shaping financial services regulation to our own benefit, particularly since the financial crisis in 2008. He also pointed out the importance of passporting arrangements for UK-headquartered, non-European businesses that wanted to do business in Europe. Mr Hoban presented statistics on the high level of Euro-denominated insurance and Forex business that was dealt and settled in London.
David Buik (Financial Markets Commentator, Panmure Gordon)
Mr. Buik, who presented a case for leaving the EU, made the point that the City had always evolved and during his long career he had seen increasing globalisation of financial markets through innovation that had been initiated in London. As a result, London has established itself as one of the world’s major financial centres. There was in his view no reason to believe that this would cease if we left the EU. Indeed he felt that membership had held us back and restricted our growth in other financial markets. He also made the point that the global establishment and large multinational businesses were in favour of the status quo but that the economic powerhouse of the wider UK economy was small and medium enterprises (SMEs) which he believed were in favour of leaving. He said that the dangers of becoming isolated and excluded from the single market if we left the EU were exaggerated due to the importance of the UK as a market for other European member states.
Savvas Savouri (Chief Economist, Toscafund)
Dr. Savouri is in favour of leaving the EU. He argued vehemently that the EU was economically and politically doomed to failure and that we should disassociate ourselves from it as soon as possible. He was extremely scathing about the ability of the European Union shake off its image as dystopian and a dysfunctional institution. He argued that continued attempts to invigorate the Eurozone economy by devaluation of the Euro and long spells of European Central bank quantitative easing had failed. Against this backdrop, non-Euro members of the EU were suffering from the quickly arranged trade access deals that had been granted to neighbouring states like Turkey and the Ukraine, allowing them access to EU markets. Both factors, he believed would result in non-Euro member countries like Poland and Finland allowing their own currencies to devalue in order to become more competitive outside of Europe. This would choke off any nascent recovery in the Eurozone, and along with the growing dissatisfaction of voters in Germany, would precipitate the inevitable collapse of the Eurozone in a very short period of time. He believed that we should not wait for this to happen and should make our own way in the wider world. He argued that the UK’s position as a global financial services centre was protected by its relationships with the powerhouse economies of Asia. For China et al, there is no plausible alternative in the Western Hemisphere, and neither Frankfurt nor indeed New York will win against London for this hugely important and lucrative role.
Diego Zuluaga (Institute of Economic Affairs)
Mr. Zuluaga, who is in favour of the UK staying in the EU, admitted that the experiment to forge a single state under Jacques Delors had been over-ambitious. However, he believed that the free movement of goods and services as well as the lifting of labour controls which had been promoted by the EU was to the benefit of member states. He accepted that the Euro states would need further integration to achieve a stable Eurozone. However, he presented the case for maintaining UK involvement in the evolution of Europe. He pointed out that as far as financial services were concerned most regulation, for example the Basel banking regulations, was decided at a supra-national level and subsequently adopted with few changes by the EU. He claimed that the influence of the EU on reducing economic restrictions that had been put in place by national governments had been a positive factor in the economic recovery of Spain, Ireland and, to a lesser extent, Portugal and Italy. He made the point that the UK has been at the forefront of the recent regulatory drive on financial institutions, such as the ring-fencing of banks and new requirements on insurers. Similarly, Britain is, if anything, ahead of the pack in the level of state intervention in energy markets for environmental and other reasons. Thus a sizeable chunk of onerous regulation is likely to remain in place even if we vote to leave the EU.