London battles Brexit blues
Business journalist Angus McCrone considers the long morning after the night before in London’s finance hub.
Friday 24 June 2016 was a day of shock and apprehension in the Square Mile, unmatched since the worst period of the financial crisis in October 2008.
Financial sector workers scurried about wearing dazed expressions, the words “referendum” and “Brexit” floated out from conversations outside pubs after work and on the walk to Bank station. Continental Europeans in the City huddled to express their hurt. There were wild rumours flying around - such as the one about the US investment bank that had already started transferring 2000 jobs to Dublin.
Many weeks later, and those June blues are still in the air. The UK’s 52% 'leave' vote in the EU referendum was as much a repudiation of the City as it was of the Whitehall and Brussels establishments and “the great and the good”.
After all, it was the City’s array of bigwigs who warned most vociferously of the damage that quitting Europe could cause: Bank of England Governor Mark Carney, Goldman Sachs President Gary Cohn, London Stock Exchange Chief Executive Xavier Rolet, the Institute for Fiscal Studies, the Financial Times, WPP Chief Executive Martin Sorrell, Vodafone Chief Executive Vittorio Colao. Almost all the prominent voices in finance and business opposed Brexit.
What became clear in the days that followed the vote was that alienation from the UK’s capital city and its stratospheric property prices, telephone-number salaries and internationally mobile elite was part of the mindset of many Leave voters. In parts of provincial England and Wales, in particular, London was seen as the glittering tower of another world - and not in a good way.
A storm on the horizon?
The City is still going through its morning after the night before, but what are the prospects?
There will be few new posts created while deep uncertainty continues over what Brexit actually means. Some trading activities may indeed be relocated to Ireland or mainland Europe, as international lenders hedge their bets on the likely extent of UK access to the single market.
Meanwhile, other jobs are likely to be lost as the downsizing trends that were happening anyway continue or accelerate. Lloyds Banking Group, for instance, said in late July that it would close an extra 200 branches, and trim 3000 posts on top of what it had already announced.
Worryingly, much of the rhetoric from Westminster has centred on ensuring access to the European market for UK goods, rather than services. But the latter are far more important in employment terms - and I mean far more than just finance or the traditional professions.
Douglas McWilliams, in his 2016 book 'The Flat White Economy', estimates that digital commerce, technology, creative and business services generated 7.8% of UK GDP in 2012, rising to 8.7% in 2013.
These businesses, concentrated in London but also in other cities and drawing heavily on the skills of immigrants, could lose twice over from a hard Brexit - first from the loss of talented incoming workers, and second from barriers on services trade between the UK and the European Union.
Potential in change
The City itself may see other changes, coming about indirectly from Brexit, as a result of the change in government that ensued.
Theresa May signalled that her government would take a more sceptical view of foreign takeovers of important UK companies, Cadbury’s acquisition by Kraft in 2010 mentioned specifically.
She added that employees should be “represented on company boards”, that there should be a “proper industrial strategy” and that ministers should “get tough on irresponsible behaviour in big business”, particularly excessive pay and tax avoidance.
Much meat needs to be added to these bones by ministers in the months ahead. Taken at face value, 'Mayism' looks likely to mean less subordination to the interests of 'transient shareholders' alone, fewer fat fees for City advisers, greater regulation of companies, and a shift in monetary policy away from quantitative easing that enriches investors and helps borrowers, but hits small savers and non-property owners.
The change of regime is also an opportunity to drop some of George Osborne’s worst tax wheezes, including the byzantine new rules on pension contributions and inheritance tax, and a stamp duty system that discourages transactions and obstructs labour force mobility.
The full version of this article appears in the September 2016 edition of CA magazine.
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