LONDON — The U.K. financial services sector could suffer as few as 5,000 job losses as a result of Brexit, according to a new estimate by the City of London Corporation — far lower than the industry had initially feared.
The figures come from an internal City report, to be released in September. In an interview with POLITICO, Lord Mayor of the City of London Charles Bowman said the analysis estimates that between 5,000 and 13,000 jobs will have gone by the U.K.s leaving date of March 30 next year.
That is far lower than most previous estimates. In a widely cited report published in 2016, Oliver Wyman estimated that industry job losses could eventually be as high as 75,000 with banks and other institutions forced to move large numbers of staff to locations in the EU27. Xavier Rolet, the former chief executive of the London Stock Exchange, predicted job losses of over 200,000. But the Bank of England has estimated Day One job losses of around 10,000 in the case of a hard Brexit.
In the two years following the U.K.s EU referendum though, the much-feared exodus of bankers and financiers from London has not materialized. Firms are moving some operations, including trading and back-office functions, to cities in the EU27 like Frankfurt, Dublin and Paris, but there hasnt been an uprooting of banks entire presence from the U.K. to the Continent. Bowman said that so far, 1,600 jobs have been earmarked to move.
One factor that explains the sunnier picture painted for the City in the second report is that while the 75,000 estimate in the first was effectively considering a no-deal scenario, the most recent analysis takes into account the stand-still transition period agreed provisionally in March. Under that deal, the U.K. would remain bound by EU rules, but without representation in Brussels. The transition will not happen though if agreement cannot be reached between Brussels and London on other major sticking points — notably a solution to the Irish border problem post Brexit.
“Probably the City, as the financier of European business, is the central point to make here” — Jeremy Hunt
But according to Bowman — who as lord mayor acts as an international ambassador for the U.K.s financial and professional services sector — the City today feels increasingly confident that “barring dotting of is and crossing of ts,” the transition period is a done deal. Whats more, although City players were disappointed when the U.K. government retreated from a post-Brexit deal based on “mutual recognition” to a slightly improved version of the EUs so-called equivalence framework, they are ready to work with the government for the best outcome.
Under the standard equivalence arrangements, the Commission can grant that status to a non-member country if it decides their rules regulating financial institutions are similar enough. But it can also withdraw equivalence at short notice. That worries U.K.-based firms and is something that the U.K. government wants to negotiate.
“We will be working with all our stakeholders in the weeks ahead to determine what that looks like,” Bowman said.
Foreign Secretary Jeremy Hunt met with his French counterpart Jean-Yves Le Drian in Paris Tuesday with the aim of selling the U.K.s Brexit plan, agreed three weeks ago by ministers at the prime ministers Chequers country retreat. Ahead of the Paris meeting, he warned of the danger of a no-deal scenario “by accident” and argued that the EU would heavily be impacted if that happened because of its reliance on financial services provided by U.K. firms.
Hunt (left) meets with Le Drian (right) in Paris | Alain Jocard/AFP via Getty Images
“Probably the City, as the financier of European business, is the central point to make here,” he told the Evening Standard, “If it became harder for European businesses to access finance, that is far from trivial. The City itself would find a way to thrive, whatever the outcome of the Brexit negotiations.”
“If it became a low-tax, low-regulation, offshoot fully outside the EU, it would find a way to thrive in those circumstances. But for European businesses the impact would be profound.”
The financial services sector provided around 11 percent of U.K. tax receipts in 2017 (£72 billion), so securing its future is a key part of the governments strategy in the talks.
Bowman told POLITICO that the Citys future will be defined less by Brexit than new developments like the rise of financial technology, or fintech.
Already fintech firms account for around 50,000 jobs in the City out of a total of around 483,000 workers, according to figures from the City of London Corporation.
“Hitherto, free trade has not encompassed services nor financial services and actually, fintech bridges are a nice little segue-way towards it” — Charles Bowman
“If we are to lose some of [the existing] jobs, they are going to be the jobs that probably in five-to-10 years time are not going to be around, or are not going to be in the same shape or form as today — because the sort of joining of technology with finance at this moment in time is creating a very different dynamic,” he said.
Fintech will also serve as the springboard for closer relations with other major financial hubs around the world, Bowman said. So far, the U.K. has put in place five “fintech bridges” — or deals to facilitate access of firms into partner markets and to cooperate on future regulation.
Those deals are part of “taking free trade as it relates to services and financial services to another level,” he added. “Hitherto, free trade has not encompassed services nor financial services and actually, fintech bridges are a nice little segue-way towards it.”
CORRECTION: An earlier version misstated the Day One job losses estimated by the Bank of England. It estimates losses of around 10,000 in the case of a hard Brexit.