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Britain Faces Uncertainty With The Financial Industry and the City

By Patrick Higgins  |  06/07/2017 15:02
 
Britain's status as Europe's most sophisticated financial centre faces substantial risk, as unanticipated Brexit reactions continue to surface.
 
According to an 83-page report released by TheCityUK today (an extensive review of the state of Britain's financial industry), the elephant in the room has finally been addressed.  Financial hubs outside of London may become more viable options for financial service providers in the future.  Cities like Paris, Amsterdam and Frankfurt are all vying for various multinational banks, asset management and insurer firms to relocate from Britain to the Continent.  This is a shared point of interest across a wide range of businesses and organisations, in order to retain access to the EU common market.
 
Though firms have already started relocating some jobs from London to the Continent (including HSBC's move to transfer 1,000 of its City specialists to Paris earlier the year), this trend could gain traction should immigration restrictions continue to increase and Brexit negotiations take a turn for the worse.  Other factors with the potential to accelerate these relocation speculations include the expiration of expensive property leasing agreements in the City, capital costs becoming untenable in an increasingly tense Brexit atmosphere, or when firms carry out business reviews, cross-evaluating the economic environment of the City vs. those available in financial hubs on the Continent.  Such rapid shifts in job relocation will break down the complex network of financial co-dependency that has developed in the City, especially in the event of a ‘hard Brexit’ with no access to the common market whatsoever.  Unless Britain goes the extra mile to keep its financial industry open and attractive, we could be looking at potential revenue losses of up to £38 billion.
 
In addition to addressing Brexit-influenced threats, the report examines the overall structural and competitive challenges facing the City and the entry point to EU finance primarily through its clearing houses as a financial hub.  Investments in more accessible transportation networks, the optimisation of physical infrastructure systems such as motorways and airports, the development of advantageous international trade policies in the post-Brexit period and a more effective use of available technologies are just some of the recommendations suggested in the report.  Furthermore, the report recommends that the government make special provisions for businesses to be able to recruit internationally with ease throughout Brexit negotiations and make visa sponsorship a more efficient process.
 
Brexit, which is seen as an unofficial restriction on EU immigration by Britain’s voters, has placed the UK in a position of hostility towards immigrants. It has also made it tougher for businesses to recruit foreign employees.  In addition, the Conservative government is now pushing policies aimed at reducing the overall number of immigrants per year and is seeking to make the immigration process overall more expensive and challenging.  For example, the cost of hiring and sponsoring a foreign employee for a five-year visa have increased by 250%, to over 7,000 pounds since last year. Minimum salary requirements for employees working on a visa has surged by almost half from the costs in 2015. 
 
It is critical that the British government secure a favorable agreement regarding the status and accessibility of its financial hubs during the Brexit negotiations, as the finance industry is the largest producer of both corporate tax and service exports in Britain.  However, with counterproductive immigration policies being pursued alongside uncertain Brexit decisions, the outlook and direction of Britain's colossal financial sector, particularly that of the City, remains unclear.
 

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