TheEconomistFebruary 6th 2021 451I
n the finalweeks before Britain struck
its Christmas Eve trade agreement with
the European Union, Boris Johnson em-
ployed a euphemism for a no-deal out-
come: he called it an “Australian-style” re-
lationship. The agreement was sealed, to
the relief of Britain’s manufacturing sector,
but for financial services—the country’s
core competence and dominant industry,
which makes up 7% of its gdp—the out-
come was sub-Australian. The eurecog-
nises Australian rules as broadly equiva-
lent to its own in 17 different areas,
compared with only two for Britain. It is
now easier to sell many financial products
to clients in the eufrom 10,000 miles away
in Sydney than from across the Channel.
“You just can’t imagine the Germans
throwing the car industry under the bus
like that,” laments a British asset manager.
The causes of the government’s neglect
of the financial-services sector—which
probably include a general hostility to
bankers, fury at the generous application
of taxpayers’ money to the industry afterthe financial crisis and a belief among poli-
ticians that the City can look after itself—
are obscure, but the consequences are
clear. Between the Brexit referendum in
June 2016 and the end of the transition per-
iod at the 2020, around 7,500 jobs—5% of
financial-services employment—and over
£1.2trn ($1.6trn) of assets moved from Brit-
ain to European financial centres accord-
ing to ey, a professional-services firm. That
may be an underestimate, as eytracked
only larger firms; and more may go. Under
“target operating models” agreed with
European regulators, many firms have
promised to shift more jobs to the conti-
nent by the end of 2021.
Recruitment data suggest that Brexit
may not just be sending work abroad but
also discouraging growth in Britain. Even
before the pandemic, the number of vacan-
cies posted for jobs in British-based finan-
cial-services firms was falling swiftly, ac-
cording to Morgan McKinley, a head-
hunting firm (see chart on next page). The
figures are gross—net figures are unavail-able—but the trend is unmistakable.
There are some small upsides to Brexit.
New immigration rules that make it harder
for firms to recruit low-paid Europeans
also make it easier for them to hire highly-
paid people from anywhere in the world.
Brexit has prompted fresh thoughts about
regulation. A review of the British listing
regime, for instance, which Lord Hill, a for-
mer European Commissioner, is doing,
may make London a more attractive desti-
nation for Asian firms seeking to raise cap-
ital. “We could have done 80% of the sug-
gested changes while in the eu, but it didn’t
feel so pressing,” says a banker.
The main question now is whether the
eu will grant Britain further “equiva-
lences”. The designation is a poor substi-
tute for the “passporting” rights which en-
titled British firms to trade freely all over
the eu. Equivalence covers fewer market
functions and can be withdrawn with 30
days’ notice. As the euhas demonstrated in
its dealings with Switzerland—the right for
Swiss-listed shares to be traded on Euro-
pean exchanges was suddenly withdrawn
in 2014—equivalence can be used for polit-
ical leverage. But it is the only form of mar-
ket access on offer to Britain.
In November, Britain granted the eua
wide range of equivalences. Hoping to get
the same in return, the Treasury filled out
some 2,500 pages of questions on the Brit-
ish regulatory regime, an exercise which an
official derides as “especially pointless giv-BrexitThe view from the City
The price of access to the eufor financial services is likely to be high,
and the industry is divided over whether Britain should pay itBritain
46 CaptainSirTomMoore
47 Bagehot: Boris rides highAlso in this section