The government’s White Paper on trade with the EU could well deliver a better outcome for the City and Britain’s valuable financial services industry than the headlines might have you believe, writes Alec Marsh
Despite almost universal condemnation of the government’s Trade Bill White Paper, laying out future terms of trade between the UK and EU, there is optimism that it could still deliver perhaps 50-70 per cent of what the City currently enjoys in terms of trade with the EU.
On the basis of $97 billion trade surplus that Britain enjoyed in financial services in 2015, of which 41 per cent was with Europe, such future terms would see the country retaining nigh on $30 billion of the current $40 billion of exports.
Speaking to Spear’s, Steve Peers, professor of Law at Essex University and a respected expert on EU law and trade agreements, welcomed the government’s White Paper as a step forward, saying he felt that Brussels would be ‘happy to engage with’ it. ‘It looks like it’s something they can continue to negotiate on the basis of,’ Peers added.
For the City of London and the UK’s financial services industry – which had been pinning its hopes on following a path of ‘mutual recognition’ with the EU in financial services rather than ‘equivalence’ – the details of the white paper prompted dismay, however.
Catherine McGuinness, policy chairman at the Corporation of London, described it as a ‘real blow for the UK’s financial and related professional services sector’ saying that they ‘will be less able to create jobs, generate tax and support growth across the wider economy’ as a result. Miles Celic, chief executive of TheCityUK, the lobby group, described the abandonment of mutual recognition as ‘regrettable and frustrating’. Mutual recognition, which the City and the chancellor had championed, would have seen London and Brussels recognising each other’s regulations over banks, asset management and insurance.
That aiming for a new ‘reciprocal recognition of equivalence’ for trade relations after 2020 is categorically not an ideal start cannot be denied, but the game’s not over. Crucially for the future of the City, this form of future relationship, based on services divergence, maintains the UK’s autonomy in regulatory control in financial services – something that would have been effectively yielded under EU demands for pure equivalence. ‘That was the trade-off that they were not prepared to make,’ noted Peers.
The professor points to financial services market-access enjoyed currently by the USA, which does not have an EU free trade agreement (FTA) and trades in financial services on the basis of equivalence, as a threshold of what to expect from future trade terms negotiated by Britain. ‘From an FTA we [Britain] would hope for something more than the US has but less than full membership,’ he said of a future arrangement. Quite what the outcome would look like will be a matter of negotiation, and likely depend on what else the UK is prepared to trade in return. As a ‘wild guess’ Peers said he would anticipate Britain retaining between 50 and 70 per cent of market access to the EU in financial services. And at around $30 billion a year, that's a prize worth fighting for.
Whatever else it’s in the EU’s interests to find a path to agreement, and with various voices from the continent – such as Luxembourg’s finance minister Pierre Gramegna just this week – speaking in favour of a form of enhanced equivalence, pressure is mounting. As the former German finance minister Wolfgang Schauble remarked: ‘The London financial centre serves the European economy as a whole. London offers financial services in a quality that is not found on the continent.’
Alec Marsh is editor of Spear’s