The World Cup has now come to an end, but there is still a long way to go before the final whistle is blown on the Brexit negotiations. A new round of discussions between officials is set to start in Brussels today.
This follows the publication of the governments Brexit white paper last week, which set out its vision for the UKs future relationship with the European Union.
Coming the morning after Englands defeat to Croatia, I think it is fair to say that the proposals did little to improve the mood across the City. The proposals – like the Chequers agreement – disappointingly indicate that services will have reduced market access after Brexit.
Our services sector helps fill the substantial trade deficit with the EU, and makes up around 80 per cent of the UKs economic output.
Professional and business services employ 4.6m people, while the financial services sector contributed £72bn in tax last year.
Mutual recognition and mutual market access would have been a pragmatic solution for the UKs financial and professional services sector – allowing firms to continue serving customers, while safeguarding financial stability.
Up until a few weeks ago, this government had publicly stated its support for an ambitious mutual recognition model, so the abrupt shift towards a form of enhanced equivalence caused concern.
The chancellor has previously described existing third country regimes as “wholly inadequate”, which underscores the fact that any enhancements to this regime would have to be substantial.
It is welcome, therefore, that the white paper acknowledges the limitations of the current “equivalence” frameworks.
First, equivalence is patchy. There is no equivalence regime across a swathe of vital activities, including deposit-taking, mortgage lending, and payments.
Second, equivalence is one-sided with the European Commission taking the key decisions unilaterally.
The EU authorities alone decide whether a non-EU country is equivalent, and can withdraw such a decision, as well as the associated market access – often with no more than 30 days notice.
Finally, to remain equivalent, a third country must essentially be a “rule-taker” – adopting the EUs rules in the relevant areas to maintain market access. This would not be appropriate for a financial services industry the size of ours.
The sector now needs much greater detail on how these problems will be resolved if they are to plan with any certainty for the long-term. We stand ready to work with the City to find a way forward.
Time is running out, so it is essential that the pace of negotiations accelerates. Looser trade ties to Europe will mean that the sector is less able to create jobs, generate tax, and support growth across the wider economy.
Failing to secure such a positive deal would put up unnecessary trade barriers and runs the risk of fragmentation of financial markets, increasing costs and reducing choice for consumers in both the UK and Europe. That would be a real own goal.