Two new reports commissioned by TheCityUK show that leaving the EU poses very significant risks to the UK’s future, undermining economic well-being and the ability of business to grow and compete in world markets. The research also reveals that the EU has a positive impact on driving UK trade, high productivity and growth.
The findings of the reports “A Legal Assessment of the UK’s relationship with the EU – a financial services perspective” and “Analysing the case for EU membership – How does the economic evidence stack up?” are being debated at a forum on 28 April hosted by Clifford Chance for business, policymakers and the media. The debate will focus on the core question of what is the impact of EU membership on the UK and how do alternative membership scenarios compare?
The reports determine that all alternatives to EU membership considered in the reports would be costly for business and finance, with significant challenges in the negotiation process - risking damage to the UK through uncertainty, reduced market access and loss of influence. The reports conclude that continued membership of the EU – and a membership that embraces modernisation and reform - is in the UK’s best long term interests.
The reports show that exiting the EU risks leaving the UK subject to Single Market regulation but with no ability to influence regulatory developments. This lack of influence would make the UK less attractive to investment at a time when new regulatory architecture in financial services such as Banking Union, is coming into effect.
The legal research commissioned from global law firm Clifford Chance has reviewed in depth the legal implications of eight different EU relationship scenarios – three where the UK remains a member and five alternatives to membership - and their impact on financial services. It also examines the development of the Internal Market in financial services alongside practical and legal barriers, and how the regulatory and supervisory relationship functions between the UK and the EU.
Key findings of the report make it clear the UK is better in than out:
- Exit scenarios from Europe risk damage to UK financial services through uncertainty, reduced market access and loss of influence. Attempts to carve out exemptions for the UK could lead to carve outs in other areas by other member states, fragmenting the Internal Market.
- Access to the EU’s Internal Market in financial services for non EU-member states would not be guaranteed if the UK became a member of the European Economic Area and the European Free Trade Association (EAA- EFTA). In order to obtain Internal Market access, the UK would have to implement all of the relevant EU legislation, having given up its say in formulating it.
- Key aspects of EU financial services law are already modelled on the UK regime, including MiFID and the Market Abuse Directive. This benefits the City which functions as the global marketplace for EU and international firms. The UK is successful more often than not in getting what it wants in EU financial services regulation.
- The UK can sustain its influence on the development of Internal Market legislation better as an EU member, allowing it to preserve market access, promote liberal economic policies and have maximum influence in setting market rules.
- The UK should make a strong case for reform, promoting both harmonisation and mutual recognition - making the Internal Market effective for both Euro area and non-Euro area members.
- With the advent of Banking Union, the UK needs to play an active role working from within the EU to ensure the integrity and coherence of the EU-wide Internal Market.
- Through EU membership and in its own right, the UK benefits from double representation on international forums such as the WTO and the Basel Committee on Banking Supervision.
- Overall, the European and global interests of UK financial services are best served by the UK remaining a member of the EU. Current membership gives access to the most powerful tools to promote our interests, including voting, veto rights, opt-outs, free movement, justice and home affairs.
The new economic report lays out how economies foster growth and create jobs – considering productivity, trade, supply chains, multinationals, FDI and immigration – looking beyond the usual attempts at cost benefit analysis to answer the questions “what really drives growth and does EU membership matter ?”
Key findings include:
- EU membership is vital for UK growth. In particular, EU membership benefits the UK’s most productive firms – those that export.
- The Single Market, due to its size and geographical proximity, plays a fundamental role in driving UK innovation and productivity; size of market and levels of competition matter.
- As trade is costly, exporters prioritise large, geographically close markets with strong institutions and sophisticated financial markets, making the EU their ideal partner.
- They benefit from the EU as the world’s largest market, accounting for 25% of global GDP, 45% of UK exports and 50% of imports. Over 80% of UK firms that trade do business with Europe. Further, EU trade deals with third countries mean that around 60% of UK trade is with countries that come under the umbrella of trade agreements. This will rise to 85% if current EU trade negotiations are successful.
- All EU exit options would increase trade costs for high productivity firms - leading to falling output, increased costs, as well as reduced investment. The knock on impact of Brexit would be higher prices and higher unemployment, with lower real wages and growth.
Today’s legal and economic reports follow recent research by TheCityUK into business leaders’ attitudes towards the EU which showed significant support for the UK’s continued membership, as well as into the views of the general public on Europe. This made it clear that economic issues predominate in driving the public’s decision on in or out and that business leaders’ views will be critical in helping them decide.
TheCityUK’s latest reports complete its comprehensive suite of evidence and analysis to inform an in-depth understanding of the EU and examine the status quo. It signposts a way forward through a modernising and reforming agenda for the UK, as an integral part of a globally competitive Europe.
Chris Cummings, Chief Executive of TheCityUK, commented:
Current EU membership not only gives the UK access to the most powerful tools to promote its interests including voting and veto rights, but it is also significantly tailored to meet UK- specific objectives. By contrast, this research clearly shows that leaving the EU would pose a number of risks. Uncertainty about what a “no” vote in any referendum would entail is one of the most significant.
Malcolm Sweeting, Senior Partner of Clifford Chance, continued:
The success of the UK financial services industry is to a large extent built on EU Internal Market legislation. To abandon this for some untried, unknown and unpredictable alternative would carry very significant risks. The UK is a powerful player in the EU and should retain the capacity to push for reform as a member.
Gerry Grimstone, Chairman of TheCityUK, said:
Our research clearly shows that leaving the EU would seriously damage economic growth and jobs in the UK. But the EU can and must be improved. It mustn't interfere in things which it does not need to do and it must make a better job of doing the things it has to do. We need to continue saying this loudly and clearly. London is Europe’s financial centre so there is a strong national interest in getting this right.