What Article 50 means for the City
Now that the prime minister has officially set in motion the UK’s divorce from the EU, leading City representative Sir Michael Snyder looks at the impact on the Square Mile.
Apart from the initial media flurry, I don’t believe that the City will feel any imminent shockwaves from the triggering of Article 50, as the financial markets have been expecting it. What is of greater interest is the longer-term ‘direction of travel’ that Article 50 is signposting.
The impact felt in London will depend on whether we negotiate a ‘soft’ or ‘hard’ Brexit. A ‘soft’ Brexit means we would still be ‘in’ the single market, but no longer able to significantly influence how it operates. And access would come at a price – the free movement of people, abiding by all of the same EU rules, and probably a large financial contribution.
Theresa May seems to have pinned her ‘locus to be prime minister’ on the referendum result, making it highly unlikely that the government will agree to all of these criteria, particularly free movement of people.
A ‘hard’ Brexit therefore appears more likely. If so, the UK will have to make its independent way in the world and the government will need to create an environment that will allow financial, business and professional services to flourish, and even consider an international ‘City Free Trade Zone’. Hard or soft Brexit, the government could bring in all sorts of initiatives to make it attractive for other countries to trade through the UK.
If the UK is out of the single market, some global financial institutions may opt to move to New York and probably part of their activities to within the EU. If so, we will see a hiatus that will take a little time to settle down.
But the City is innovative and has a critical mass of financial and professional expertise. It has been an international business city for centuries and will find a way to continue to thrive.
In my view, most international companies will not move abroad, even if some parts of their business have to be carried out within the single market with adequately capitalised subsidiaries. Clearly, where there is a tariff on low margin goods going into the EU single market there is likely to be some movement of business.
But, providing London keeps its secure, vibrant, cosmopolitan and open environment that welcomes people from all over the world, it will continue to be a very appealing environment for global businesses.
This article first appeared in London Accountant.