The UK financial services export drive: a European asset

Last week, leaders from the business and political worlds gathered in Davos at a critical moment in the economic cycle. The response to the Eurozone crisis has been much discussed and the comments at Davos closely echo the results of research we commissioned to shed light on the situation. Business leaders from the top 60 companies across the EU (in manufacturing, pharmaceuticals, engineering etc.) were asked what their hopes were for the year ahead – and what was keeping them awake at night. While all responded that they were interested in growth, more were keen to know how they could de-risk their balance sheets. A healthy financial services sector was seen to be pivotal to the success of their business plans. But their over-riding concern was the political uncertainty created by the Eurozone crisis. It is hampering investment and so is the biggest drag on growth.

These issues were aired when our International Regulatory Strategy Group hosted Commissioner Barnier in his visit to London last week. There were three messages that all were keen he took away: we must maintain the single market (and constantly strive to make it work better), it must be an open single market (if we are to trade globally and secure long term growth in the EU), and that the City is a European asset (not just a UK one) as it is the host for Europe's wholesale market. To deliver these objectives requires a swift end to the Eurozone’s current travails – not only for the benefit of the Europe's citizens (inside the Eurozone and out) but also for global growth given the importance of Europe as a trading block.

Commissioner Barnier also addressed a City of London conference, and those attending will have been pleased to hear that there is no plan to impose the Financial Transaction Tax (FTT) on member states that oppose it. The UK must be both resolute on rejecting the FTT, and build alliances with other member states who wish to see economic growth.

EU Commission analysts themselves have concluded that up to 90% of financial transactions carried out in the EU could move abroad if the tax was imposed. This happened in Sweden in the 1980s when it introduced a similar tax. Estimates also suggest that EU output could fall between €65bn and €216bn, causing significant job losses across Europe. Additional research by Oliver Wyman also shows that the effect would be particularly severe in the foreign exchange markets, which employ thousands of people in London and provide vital hedging services. The FTT would be paid for by consumers, investors and pensioners, which is why the Government is right to oppose it.

Of course Davos is about far more than the EU and its global nature is part of its uniqueness. It gives those who attend, and those who observe, the opportunity to reflect on the worldwide trends and issues. Comparisons between Europe's anaemic growth and that of the rapidly growing markets are easy and obvious – but the lessons to draw are still important. The governmental and industry challenge we face is to ensure the UK is better positioned within those markets, enjoying faster growth. As the body set up to champion the sector's export drive into those countries, it is a boon that we have a political class that understands the need for that drive, perhaps more than at any time since the Second World War.