Yahoo Finance Article 50: What the City wants as Brexit countdown starts
Composed a million times in the midnight fantasies of ardent Eurosceptics, the letter that lands today on the desk of European Council president Donald Tusk marks the end of the phoney war since June’s referendum.
Theresa May’s “Dear Donald” letter — formally triggering Article 50 leaving talks — has had some billing. It’s been described by the PM as “one of the most important documents in our country’s recent history”.
We’ve been told to expect a “substantial statement of the UK’s intentions” in a missive that “sets the tone for our new relationship with Europe and the world”.
But as 18 months of hard negotiations loom — and uncertainty over a trade deal — the mood of UK businesses is far from vainglorious. The battle is just beginning.
Banking
The potential loss of passporting rights that allow banks to sell financial products across the EU from London has been a key Brexit debate, as has whether staff will be moved.
John McFarlane, chairman of Barclays and TheCityUK, says: “I believe London is Europe’s international financial centre. As an industry that employs over 2.2 million right across the country, it is vital that we get an outcome that supports growth and investment here, in the EU27, and around the world. Our industry is looking for mutual market access, with suitable bridging and adaptation periods as we leave the EU, and continued access to high-quality talent from Europe and beyond.”
Industry
Terry Scouler, chief executive of the EEF manufacturers’ association, fears the prospect of reverting to World Trade Organisation tariffs — averaging 5.3% — without a trade deal.
He wants “some form of transition period” after 2019. “What are we looking for? As little as possible dismantling of the free trade agreement that is the single market, in terms of frictionless trade and minimum tariffs. If we don’t have a deal or a route map towards a deal, British industry faces substantial costs and competitive disadvantage.”
Access to the 34 European-standards bodies — a non-tariff barrier — is just as crucial because without “equivalence”, markets may not accept UK goods.
Insurance
The insurance industry is bullish despite fears over selling its products across Europe. Aviva chief executive Mark Wilson says: “Brexit presents a clear opportunity to shake off some of the regulatory shackles that are holding back investment in the UK economy. In a post-Brexit world, the UK regulatory regime must remain competitive or we risk descending into bureaucratic molasses. I would like to see changes to the Solvency II capital regime so that the pension funds we manage can back more critical infrastructure projects, supporting sustainable growth across the country.”
Technology
Hanging on to talent tops the wish-list for London’s army of start-ups, with 1.6 million digital jobs in the UK and tech creating roles twice as fast as any other sector.
Lastminute.com founder Brent Hoberman, who runs start-up incubator Founders Factory, says: “The Government must continue prioritising this booming industry. We are calling on it to implement a Stem (science, technology, engineering and maths) passport and ensure the visas of skilled tech workers from the US, India and Eastern Europe are preserved. We need to ensure that British universities remain an attractive place to study. Stem graduates should receive instant qualification to live and work in the UK.”
Retail
The tumbling pound has raised inflation and added to a vicious cocktail of rising rates, rents, wages and the Apprenticeship Levy. Clarity on cross-border online selling, customs checks and tariffs for agriculture in the supply chain will be in focus.
Helen Dickinson, chief executive of the British Retail Consortium, says: “Ensuring that consumers continue to enjoy great quality, choice and value on goods with a continuation of tariff-free trade on all products traded between the UK and the EU, and providing certainty for businesses, must be at the heart of the Government’s plans for a smart Brexit.”
Pharma
Given that the Brexit Bus pledge for an extra £350 million a week for the NHS quickly disappeared after the Leave vote, pharma sees the divorce as a bitter pill to swallow.
Pharma stocks held steady immediately after the vote, benefiting from their defensive status — and with drug giants like GlaxoSmithKline and Shire earning huge revenues in dollars, the weak pound is good for business.
But fears remain over NHS funding, investment uncertainty, scientist recruitment and the future of regulation without the European Medicines Agency, which is based in London.
Virginia Acha, executive director of trade body the ABPI, is calling for “continued co-operation with the EU on the regulation of medicines”. She adds: “This will help to make sure the UK continues to be a global hub for the research and development of cutting-edge medical innovation.”
Property
Estate agents aren’t directly affected by EU regulations but experts say London property fortunes are likely to hinge on the progress of the negotiations, particularly the deal cut by the capital’s financial sector.
Wealthy foreign buyers still have the comfort of the cheap pound but Lucian Cook, UK head of residential research at Savills, says: “I suspect what we will have is a market which is very susceptible to shifts in sentiment, with lower transactions. Fundamentally, a lot of the overseas buyers see it as a local issue to the UK, but the key to it is what happens to the City of London.”
Hedge funds
One in five hedge-fund staff in the UK is an EU national, and the industry is keen to access European talent in future, trade body Aima says. It believes Brexit may allow more hedge funds to be domiciled onshore in the UK amid an overhaul of regulations.
Jiri Krol, Aima’s deputy chief, says: “The UK should think about aligning the rules and regulations that it applies to alternative investment managers to international standards such as those adopted in the US. But it will also need to ensure that its rules are flexible enough to allow UK-based investment firms to continue to do business with the rest of the EU.”
Private equity
Tim Hames of the British Venture Capital Association, which speaks for the private-equity and venture-capital sector, wants May and her EU counterparts to be pragmatic in their negotiations.
“If ever there was a case for Keep Calm and Carry On, it is now. Politics must not be allowed to paralyse prosperity,” he says. “The reality is that the journey will be a lot more bumpy than the ultimate destination. There is a compelling logic in a mutually acceptable deal. All those involved in this process should take a vow to turn down the volume.”
