Printer Friendly

Just six letters but it's the biggest issue.

Byline: Peter Sharkey Special Correspondent

IT'S less an abbreviation and more an ugly, ill-matched aggregation of sounds, although at just six letters, it's suitably succinct and, in a comparatively short period, has become a word with which we've grown remarkably familiar.

Though a hybrid agglomeration of vowels and consonants which bring new meaning to the phrase 'in the balance', we can say with absolute certainty that it is one we'll hear much more frequently during the run-up to the referendum on 23rd June.

Brexit. The word widely used to describe Great Britain's possible departure from the EU.

Depending upon what side of the fence you're on, adjectives such as 'cloying' or 'corrupt' might act as prefixes to those EU initials. Pro-Europeans, by contrast, would ask voters to dispense with pejorative labels and concentrate instead upon the longer-term implications a vote to leave the EU would mean.

For the City of London (and the UK's financial services sector), June's referendum has enormous implications. Let us not forget that financial services account for at least eight per cent of gross value-added in the UK. Moreover, the sector remains one of the most vibrant and fastest growing in the British economy.

According to a survey undertaken twelve months ago by the Centre for the Study of Financial Innovation (CSFI), a respected think-tank established in 1993, the likely outcome appeared clear: "City folk," the study concluded, "are most unlikely to vote to quit the EU. Nearly three-quarters (73 per cent) say they will either 'definitely' (49 per cent) or 'probably' (24 per cent) vote to stay in, while only 12 per cent will 'definitely' vote to get out."

Were a similar survey to be completed today, one wonders whether the same conclusions could be drawn because the mood in the City regarding EU membership has fluctuated in line with the rest of the nation.

Two or three years ago, the notion of 'going it alone' drew widespread support. It was argued that leaving the EU would liberate Britain from Brussels' tyrannical, bureaucratic rule; the nation could once again pick and choose its trading partners from areas of the world with better economic prospects than a collection of moribund European economies.

Visions of the UK morphing into a grander version of Singapore and becoming a high-growth, offshore financial centre capable of serving the global economy sparked the imagination. Britain could return to being the fearless, swashbuckling, outward-looking trading nation it was for more than three centuries.

Recently, however, the City has appeared more concerned about short-term matters such as the retention of jobs and the nation's 'passporting rights' and less enthused about the longer-term prospect of it becoming a global financial and economic powerhouse, a status which, some would argue, it already enjoys.

It follows that the importance of the referendum's outcome to the UK's financial services sector cannot be underestimated.

According to a report published last month by Woodford Investment Management (WIM), in 2013, the latest year for which data are available, the value of exports of British financial services to the EU amounted to PS19.4 billion; imports were valued at PS3.3 billion. The surplus of more than PS16 billion is the equivalent of 0.9 per cent of British GDP.

The report suggested that a vote to leave the EU could result in Britain losing its 'passporting rights' which enable British-based financial institutions to sell their services into the rest of the EU without having a physical presence sur le continent.

However, no-one is quite sure what would happen in the event that Britain voted to leave. The loss of passporting rights could prompt banks and insurers to create simple 'brass plate' subsidiaries based in the EU to act as a conduit for business that would continue to be processed in London. Conversely, an 'Out' vote on 23rd June might result in the UK losing considerable volumes of business to competitors based in the EU.

Yet in many respects, Britain's geography and a series of other intrinsic advantages are as important to its role as one of the world's greatest financial centres as its EU membership, which suggests that the City would continue to prosper if the UK electorate voted to leave the EU. After all, London's pre-eminent position as a global financial centre predates the single market by about three hundred years.

Britain's legal system, the English language, a convenient time zone ideally situated between the working hours of Asia and the USA's eastern seaboard, skilled labour and world-class expertise across a range of support services such as accounting and law are advantages it is difficult to replicate elsewhere.

The WIM report maintains that even if financial services business with Europe did suffer in the short term, the impact could be offset by the greater opportunities to boost trade with non-European Union countries. "Brexit would free the United Kingdom from the rules of the European Union's Common Commercial Policy," it says, "which prevents it from negotiating bilateral trade deals with other countries.

"The City would probably be hurt in the short term, but it would not spell disaster," concludes the report. "The City's competitive advantage is founded on more than just unfettered access to the single market. A European Union exit would enable the United Kingdom to broker trade deals with emerging markets that could pay dividends for the financial services sector in the long run."

Students of economic theory will, of course, remind themselves of Keynes' famous dismissal of future prospects: "In the long run," he said, "we're all dead." It's a sobering thought to take into the polling booth on the 23rd.

>Recently the City has appeared more concerned about short-term matters such as the retention of jobs and the nation's 'passporting rights' and less enthused about the longer-term prospect of it becoming a global financial and economic powerhouse, a status which, some would argue, it already enjoys

CAPTION(S):

Recently the City has appeared more concerned about short-term matters such as the retention of jobs and the nation's 'passporting rights' and less enthused about the longer-term prospect of it becoming a global financial and economic powerhouse, a status which, some would argue, it already enjoys
COPYRIGHT 2016 Birmingham Post & Mail Ltd
No portion of this article can be reproduced without the express written permission from the copyright holder.
Copyright 2016 Gale, Cengage Learning. All rights reserved.

Article Details
Printer friendly Cite/link Email Feedback
Title Annotation:Business
Publication:The Birmingham Post (England)
Geographic Code:4EUUK
Date:Mar 24, 2016
Words:1028
Previous Article:Was Osborne's tax bank raid justified?
Next Article:Accountants' vital role in the fight against terrorism; CORPORATE FINANCE QUARTERLY.

Terms of use | Privacy policy | Copyright © 2021 Farlex, Inc. | Feedback | For webmasters