As June approaches, we should find Brexit’s air time on UK news increasing (if that is even possible). As we stand today, there are two well defined camps: those for Brexit, and those against it. Several political figures have joined the different camps, with Prime Minister David Cameron and London mayor Boris Johnson being the most senior representatives of each side. I won’t dwell into the politics of this, but focus on the economics. Today we will analyze the effects of Brexit on London’s stance as a major financial hub.
Along with New York and Hong Kong, London is one of the top 3 financial centers in the world. Between the City of London, Canary Wharf and Mayfair, London houses 443 banks, 1942 wealth managers, 295 broker/dealers, 213 hedge funds, among thousands of similar and supporting institutions that employ over 700,000 people.
London is the only English speaking financial center in Europe, and its geographical position helps a lot. It shares working hours with America and Asia, making it a perfect go-to place for conducting financial related business.
There is a thought though, that leaving the EU would somehow threaten London as a major financial hub. I would like to take a closer look at that claim, and focus on two main areas that are directly impacted by EU membership.
Free Movement of Labor
In the EU, there is free movement of labor, meaning that the institutions in London can attract talent from all over Europe; by the same token, many very talented UK workers are currently working all over Europe. Should the UK leave the EU, it is expected that some people would leave Britain, while others would come back… or would they? Let’s pick that up later.
Taxes and Regulation
One of the main reasons that the UK wants to leave the EU is that over the past decade it has been mired by the bloated bureaucracy in Brussels. A couple examples are banker bonus caps, and financial transactions tax. Let’s take the latter for instance. Starting in mid 2016, all financial transactions that take place within the EU will be taxed anywhere between 0.1% to 1%. By being outside of the EU, London based institutions would have a competitive advantage over those in Paris or Frankfurt, and a level playing field with New York and Hong Kong based institutions. Uncapped bonuses on the other hand would attract top talent from all over Europe, and that would answer the free movement of labor question.
A Simplistic View
Many readers will rightfully argue that this is a simplistic view on the issue. I would argue it is an extremely simplistic view. The matter of Brexit and its impact on the City of London is a much more complex issue, and it wouldn’t be properly assessed on a 400 word essay; however, some of the points brought forward here are just to illustrate that Brexit is far from the end of the world as we know it, and that the City of London is in a strong enough position not only to survive, but to thrive outside the EU.