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Brexit

British Prime Minister to meet financial heads over ongoing Brexit fears

Financial companies and banks are discussing moving their employees to the European mainland amid warnings from Germany that Britain will have to pay to access the EU’s financial services

PUBLISHED : Thursday, 11 January, 2018, 6:39am
UPDATED : Thursday, 11 January, 2018, 6:39am

Britain’s Prime Minister, Theresa May, will meet executives from major finance companies on Thursday to give them a clearer idea of what Britain’s European Union exit will mean for them, as worries about headquarters being moved to other countries persist.

The meeting is one of a regular series with business leaders and will also be attended by finance minister Philip Hammond and junior Brexit minister Robin Walker, a spokesman for May said.

There are concerns that Brexit threatens London’s status as the financial capital of Europe, and that banks are preparing to move thousands of jobs to the continent to preserve their access to the EU’s single market.

A stand-off between Britain and the EU over the future access to single market for London’s vast financial services industry is shaping up to be one of the key Brexit battlegrounds before Britain is due to leave the bloc in March 2019.

Among those due to attend Thursday’s meeting with May are Jes Staley, chief executive of Barclays, Mark Wilson, chief executive of insurer Aviva, and Richard Gnodde, chief executive of Goldman Sachs International, sources familiar with the matter said.

The firms involved declined to comment.

Britain’s financial sector employs 2.2 million people and its executives say it deserves to be a priority in the Brexit negotiations because it is the country’s largest exporter and accounts for about 12 per cent of its tax revenues.

But banks and insurers are already enacting contingency plans to shift parts of their European operations from Britain if Brexit means the country does not maintain access to the EU single market.

The Bank of England has said it is plausible that 10,000 jobs may leave by the time Britain leaves the EU in March 2019.

That leaves Britain in a tricky position, as German insiders say that the country will demand the UK pay for the privilege of having its financial firms access European Union markets after Brexit.

Chancellor Angela Merkel’s government, which maintains a hardline stance against a bespoke trade deal, will demand that Britain make substantial contributions to the EU budget and adhere to European law if it wants financial services, insiders said.

The two sources – German officials from two key government departments in Berlin – asked not to be named because they were discussing internal government strategy.

They said that if financial services were included without payment the UK would simply be “cherry-picking” its favourite aspects of EU membership without having to share any responsibility – something Germany has explicitly rejected from the outset.

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Non-EU countries Norway and Switzerland do have limited access to Europe’s single market, but they pay for the privilege.

Canada, whose free-trade pact will most closely resemble Britain’s, according to the EU, does not pay into the EU budget – and financial services barely feature.

According to the German officials, the UK must therefore choose between the Swiss or Norwegian models if financial services are to be included.

EU Budget Commissioner Guenther Oettinger told reporters in Brussels on Wednesday that UK payments after Britain’s planned post-Brexit transition phase ends in 2021 were a matter for the negotiations but that “the UK could reflect upon” how Switzerland pays to participate in some European projects.

Also on Wednesday, two senior British officials urged Germany to support a post-Brexit deal that protects the important financial services sector and does not hamper trade with unnecessary red tape.

Brexit minister David Davis and Treasury chief Philip Hammond wrote hat “the economic partnership should cover the length and breadth of our economies including the service industries – and financial services” in an op-ed for Wednesday’s edition of German daily Frankfurter Allgemeine Zeitung.

“As two of Europe’s biggest economies, it makes no sense to either Germany or Britain to put in place unnecessary barriers to trade-in goods and services that would only damage businesses and economic growth on both sides of the Channel,” they wrote.

Chief EU Brexit negotiator Michel Barnier has ruled that out, however, saying that there will be no special deal for the financial services, which is one of Britain’s most important industries accounting for more than 10 per cent of its GDP.

But British officials are confident the EU will be flexible, partly because they say European countries risk damaging their own economies if they are cut off from London’s markets.