As a fundamentally cross-border industry, and one that has known its fair share of controversy in the past, financial services shows perhaps more starkly than any other sector the stark choices that Brexit will forces us to make: will we have a win-win trading situation, built on mutual cooperation and respect, or be firing the starting gun for a deregulatory race to the bottom?
Financial services account for 12% of our economic output, generating £66bn in tax revenues every year - and employ over 2 million people, right across the country. They underpin much of the rest of the economy as well - providing the loans and financial support that allow our manufacturing, retail and other sectors to grow and provide more jobs. A UK-EU deal that doesn’t work for our financial services sector is bad news for everyone.
At the same time, we cannot and must not forget that it was the worst excesses of this sector that caused the financial crisis and the near-decade of pain which has followed: bankers racking up multi-million pound bonuses and expecting the taxpayer to pick up the tab when it all went wrong.
It should be possible for the UK and the EU to negotiate a mutually beneficial deal on financial services - one that allows UK firms to continue trading with their EU counterparts, while financial stability is preserved and both British and European consumers are protected.
But while this is possible, to get there will require humility on the part of both British and European negotiators. The British side will need to accept that this multi-billion pound industry has grown up in London precisely because of our membership of the single market, and the ability of financial services firms based in the UK to ‘passport’ into other EU countries. Without the certainties of continued membership, the evidence suggests that we are already losing jobs to Dublin, Frankfurt, Paris and further afield. Representatives of the other 27 EU countries, though, will also need to be convinced of the value of having access to the business that London provides: with EU businesses importing £20bn in banking services from the UK in 2014, and UK-based banks providing more than £1.1tn in cross-border lending to the EU this year. By acknowledging shared benefits we can begin to see the path towards a positive new deal.
But there is a much darker alternative: an arrangement cooked up behind closed doors, with fanatically free market Tories finding common cause with the worst kind of hedge fund managers and speculative traders, who decide that the best thing possible for the UK’s financial services sector is to deregulate back to the heady days of the 1980s, with unlimited bonuses for those bankers who take the biggest risks with other people’s money.
From my conversations so far, I genuinely believe that most people in the financial services sector want the former outcome and not the latter. But the longer we have an atmosphere of uncertainty created by our government’s refusal to set out any aspect of its negotiating strategy, the more the opportunity for the least scrupulous, deregulatory voices to start making themselves heard. Unless we change course, it won’t be long before similar voices start popping up within the rest of the EU suggesting pre-emptive action. We’re already seeing this kind of exercise taking place following Donald Trump’s election victory, with some responding to rumours of a deregulatory agenda in the US before Trump has even taken office.
Those of us who want to see a flourishing financial services sector which serves the needs of wider society need to do all we can to make sure we ensure a win-win situation at the end of the Brexit talks. Theresa May’s government needs to pull its finger out if we’re going to keep financial services jobs in Britain, and prevent a return to the bad old days of casino banking - which British taxpayers are still paying for.