I am delighted to be here today to debate the topic “The City and the EU: better in or out” because I know it is one of the most important issues facing financial and professional services, our economy in general and our nation as a whole. I am not a politician, and it’s not for business to lecture the public on how to vote in any future referendum, so I’m going to focus my comments today on the practical, common sense, business issues as I see them.
A brief word first about my organisation and why I see this debate as being so important.
Sector and its value
TheCityUK represents the financial and related professional services industry across the UK. This is an industry that employs 2m people around the country, spreading high value jobs across the nation, as two-thirds of those who work in the sector are based outside the M25. Our members cover the breadth of the nation: from London to Leith and from Llandudno to my home town of Leeds.
These are highly skilled jobs on every high street across the country. People helping families save and protect themselves and businesses access the finance they need to start-up and grow not only via banks but increasingly from a range of other institutions – and of course through raising equity.
The sector is also a major contributor to the nation’s coffers. Last year the Treasury benefited by £65bn in tax revenue from the sector and, according to our forecasts, in 2013 broke all records in the export earnings from financial services with a massive £61bn contribution being recorded. Indeed, take all the sectors where the UK earns from its exports and add them together – and compare that figure with the earnings from our sector and what you’ll find is that financial services is bigger than everything else combined.
Our export earnings of £61bn are enough to pay for 100 large new hospitals to be built across the country.
That is why this debate is of such great importance to our nation today.
So, it would seem this sector has little to fear whichever way the UK votes in any future referendum. Well, is that the case?
Is our position as the world’s leading financial centre guaranteed in the long term – or like the Venetian Bankers of old - could we lose our place in the centre of the business world?
According to our own and other independent studies London remains the world’s leading financial centre.
Our historic rivalry with New York remains but our new rivals are those who are closer to the new South-to-South trade roots and who are based in faster growing parts of the world. We recognise the fast paced growth of Hong Kong, Singapore, Shanghai and the aspiring centres in Dubai and Abu Dhabi amongst many others.
Being a businessman first and foremost, I live in a world where one has to anticipate and respond to competition. To look for new alliances as well as protecting old. To search out new markets - and safeguard one’s home market.
I think care needs to be taken before giving up a competitive advantage in search of something better. In brief, show me how I will be better placed to do business, then we can talk.
London’s pre-eminence has been built on a rich mixture of historic competitive advantage and modern enterprise.
It is always said that we are in the “right” time zone. Well that is true for trade with some parts of the world but of course wrong for others. If, like me, you believe that the UK needs to be in the middle of trade between LATAM and Russia, well we’re in the wrong time zone for that – and indeed for many other parts of the world. So we can’t rest on our laurels.
Fortunately English has become the respected business language. But that’s a position not only reinforced by our global trading perspective. It is also founded on educating the children of the world’s elite in our schools and universities. Making it harder for the next generation of the best and brightest to come here risks tomorrow’s competitive advantage and our ability to attract global HQ’s because those who staff them know and like the UK.
We have built our leadership position on many other attributes including: an enviable openness to foreign investment and ownership, a world class legal system that has become a national export earner, and by being a great place to live as well as work.
All of that means that we have earned the right to compete on the global stage - but it is a tough game.
I have three teenage children, all of whom I want to see do well. Get a good job. Buy a house. Build a happy life and perhaps start a family. So it’s important to me that the UK continues to attract major firms and corporates to invest here so we can provide good jobs and sustainable economic growth across the country.
I mentioned a moment ago that our sector pays £65bn in tax. Well around 40% of that, getting on for £23bn comes from internationally mobile firms who have chosen to base their European operations here in the UK. The firms tend to arrive in London but then spread out across the rest of the country. Examples are legion: JP Morgan is the largest private sector employer in Dorset, Citibank is a major employer in Belfast and of course BNY Mellon has made a major contribution to jobs in Manchester and, I’m delighted to say, Leeds.
But this isn’t just a story of firms outside the EU investing in the UK. Deutsche Bank is a major employer in Birmingham and the list of other major firms goes on: BNP, Credit Agricole, Societe Generale. It’s worth remembering that London is France’s fifth largest city!
Indeed, 70 of the 250 banks that are based in London come from other EU member states.
So, it seems to me that European institutions want to come to the UK. This creates jobs here in London and across the country. But does the tide flow the other way? Does access to the EU matter for financial services? It seems the answer on today’s figures is yes.
Other EU member states are our largest export market with £15.2bn, or over one-third, of financial services exports heading across the Channel. This trade-barrier free access to a market of 500m people is hugely valuable to firms and is the basis of many, many jobs here in the City.
Indeed, in a recent study we conducted with global firms considering why they come to the UK, we looked at 147 location investment decisions. The single factor that was cited time and again was that the UK would provide easy access to the Single Market.
At the end of last year we asked CEOs, Chairmen, Senior Partners and others in the Boardroom how they regarded the City’s relationship of the EU. The results from this were very clear.
All those surveyed believed that the UK’s decision on membership of the EU is of national importance. 90% said it was important for their business, and a whopping 84% said that staying in the EU was the best option to secure the position of the UK as a global financial centre.
Indeed, only 5% wanted us to quit the EU.
But, this is not an uncritical relationship.
There is a need to reform the EU. My sector worries about the extent of EU regulation which is ill-considered, misapplied or which has unintended consequences.
We want to see a more globally competitive Europe. One which is open to foreign investment and wants to compete for the opportunities in this century. Europe must be made more open, focus on being dynamic, commit to deepening the Single Market, be less bureaucratic and re-engage with its citizens if it is to meet the challenges ahead.
To be successful Europe must be more democratic, more relevant to its citizens, and be better at focusing on how jobs are created and economic growth can be galvanized. The best thing the EU can do is to set out why it can provide the answer to youth unemployment.
I’m struck that policymakers in Germany, the Netherlands, Sweden and Hungary, as well as the UK, have expressed a desire for reform. Perhaps we should remember the old adage that Europe works best when it works together? But let’s ensure we prioritise “National when possible, Europe when necessary”.
But let me conclude by looking to the future.
I’d like London to become the established RMB trading centre for the western world – and indeed for other currencies that may establish a similar global role. If we are to do that we need easy access to Euro liquidity - and to be able to guarantee the openness of the Single Market for the UK if we are to continue to attract similar levels of FDI to those we see today.
That will continue to under-pin London’s global role and support jobs across the country.
Let me close by reminding you that financial services attracts more FDI than any other sector and the UK attracts more FDI than any other EU member state. These facts are not unconnected.
These are my views, based on how the evidence looks to me at this stage. As I said, I am not a politician nor is my organisation one that adopts a party political stance. My sole interest in these matters is to review the evidence as I am still a great believer in evidence based policy, especially in economic matters.