The UK and EU have finally started talking again. But the City of London is still shivering in the cold.
Despite being Britain’s most globally important industry, accounting for 12% of GDP and providing 2.5 million jobs, the financial sector has sat on the sidelines even as relations with the EU thaw.
The two sides are rekindling their friendship as Britain’s new Labor government seeks to improve strained relations through a Brexit ‘reset’. This push culminated in the first meeting between Prime Minister Kir Starmer and European Commission President Ursula von der Leyen in Brussels on October 2, with talks set to continue.
This will be the perfect opportunity for the City of London to gain better access to the EU financial industry. After Brexit, the “square mile” has been almost completely cut off from the continent.
But the giant industry wasn’t mentioned much in Starmer and von der Leyen’s October joint statement, and UK and EU finance chiefs didn’t even dare to raise the subject at recent meetings.
This is not the first time the city has been left out of Brexit negotiations.
Former Prime Minister Boris Johnson, who formalized Britain’s 2020 Brexit deal, excluded financial services from his agreement with Brussels.
Now it looks like Keir Starmer is doing the same.
Are you talking about everything?
This is despite the high likelihood of negotiation.
The EU is keen on a youth mobility agreement that would allow young citizens to live and work on both sides of the English Channel for limited periods of time.
Starmer has so far rejected Brussels’ proposals, but this is seen as a potential concession in the negotiations that would allow the new Labor prime minister to advance his priorities.
In fact, the EU’s youth mobility proposals could have been an opportunity to push for better access to the financial industry. The financial industry generated £278 billion in economic output, 12% of UK GDP and £100 billion in tax revenue in 2022. Instead, Starmer is expected to prioritize easing Brexit bottlenecks in other areas, including veterinary deals, defense agreements and professional qualification recognition.
Starmer has ruled out rejoining the bloc, the EU single market or the customs union, so any attempt to discuss access to financial services would be a waste of breath, said Jonathan Hill, a Conservative colleague who served as Britain’s financial services commissioner in Brussels. In 2014 and 2016, before resigning after the Brexit vote.
“The government’s red lines on the single market preclude any possibility of progress in financial services,” Hill said in emailed comments.
“And even if there is an improvement in relations, which the government is sensibly trying to achieve, financial services will be the last issue on which the EU side moves. Therefore, asking anything about it will inevitably lead to rejection.”
As relations improved, the two sides began discussing financial services more at technology forums, hoping to steadily improve the tone and find areas of cooperation.
To continue the positive dialogue, Prime Minister Rachel Reeves will travel to Brussels in December to attend a meeting of euro zone finance ministers.
But amidst all the noise, silence reigns over how best to improve accessibility in the world’s second-largest exporter of financial services (after the United States).
In a sign of how small the square mile currently is among Britain’s demands for Brexit, Reeves did not raise the issue of market access at a September meeting with the EU’s financial services chief, Mairead McGuinness.
Officials said the meeting was cordial and amicable, but discussions focused on common issues such as deepening capital markets and sanctions cooperation, with the UK not raising the topic of Brexit barriers to the city.
A Treasury spokesman said: “The financial services sector is vital to driving growth in the UK and Europe.” “We are meeting with our European partners to reset our relationship, including how we can work together to strengthen cooperation in this important sector.”
McGuinness said at a POLITICO event last week that it would be “insolent” for both sides to say nothing. But she made clear that financial services were not part of a wider trade deal and insisted there could be no return to the way the financial system worked before the UK left the bloc.
“One of the areas where Europe is not or is not sufficiently resilient is the financial services sector,” she said. “When the UK was a member state we didn’t have to worry about that and worked to address that lack of resilience.”
already seen
This is not the first time the city has not been investigated, despite the importance of the financial industry to the UK economy, jobs and exports.
While Johnson’s government negotiated a deal with Brussels, the city had hoped for much better market access, either through some kind of mutual recognition of financial rules or through the EU deeming London “equal” to its own rules.
But that didn’t happen. This has made it more difficult for London businesses to continue serving EU customers.
Only Britain’s powerful clearinghouse will have the same unrestricted access, called “equivalence”, to the bloc’s markets after Brexit.
“We wanted parity, but we didn’t get it,” said Chris Hayward, policy chair at the City of London Corporation. “We’ll never be able to turn back the clock to that point. It should have happened then, but it won’t happen now.”
The city has adapted and is now resigned to life outside the block.
Although we lost some EU business, Brexit did not reduce our exports to Europe or cause a mass exodus of jobs from London.
So when it comes to the Brexit reset, the square mile will be watching from the sidelines.
