Brexit: financial services Contents

Chapter 1: Introduction

Financial services and the UK economy

1.The UK is the world’s largest exporter of financial services and insurance: in 2013 UK net exports were $71 billion. London is ranked by the Global Financial Centres Index (GFCI) as the world’s leading financial services centre, just ahead of New York and significantly ahead of other EU cities.2 In 2011–12 the sector contributed 12% of PAYE income tax and national insurance, and 15% of onshore corporation tax received by the Exchequer, and in 2013 employed an estimated 1.1 million people.3 In his evidence to this inquiry Anthony Browne, Chief Executive of the British Bankers’ Association, put these figures in context:

“Financial and related professional services pay over £60 billion a year in tax. Of that, banks pay about £31 billion. Of that £31 billion, slightly over half … is paid by foreign banks based here. It is worth noting that that is bigger than the entire UK net contribution to the EU budget.”4

2.When related professional services are added, the UK workforce in financial services numbers nearly 2.2 million. This includes 483,000 in management consultancy, 314,000 in legal services and 391,000 in accounting services.5

3.The health of the sector is thus hugely significant for the UK economy. Moreover, while ‘London’ or ‘the City’ are often used as shorthand for the UK financial services industry, the reality is that a large proportion of jobs and activity in the sector are based in other parts of the UK. Simon Kirby MP, Economic Secretary to the Treasury, told us that “financial services contribute more than 7% of UK GDP, and around half of that comes from outside London. They employ more than one million people, two-thirds of whom are outside London.”6

4.The UK financial services sector plays a vital role in providing services to the wider economy, both in the UK and internationally. Analysis by the consultancy Oliver Wyman calculates the annual financial revenues at around £200 billion, £90–95 billion of which is domestic business, £40–50 billion relates to the EU, and £55–65 billion relates to the rest of the world.7

5.Despite the poor public perception of the sector since the financial crisis of 2007–2008, financial services are vital to the prosperity of the whole of the United Kingdom, and therefore should be an important element in the forthcoming negotiations on Brexit. Ensuring a smooth and orderly transition to a new relationship with the EU will be a critical consideration, which we discuss in greater detail in paragraphs 97–111.

The EU Committee’s work

6.Following the referendum on 23 June 2016, the European Union Committee and its six sub-committees launched a coordinated series of short inquiries, addressing the most important issues that will arise in the course of negotiations on Brexit.8 The pace of events means that these inquiries will necessarily be short, but with this constraint we are seeking to outline as far as possible the major risks and opportunities that Brexit presents to the United Kingdom.

7.Our inquiries are running in parallel with the work currently being undertaken across Government, where departments are engaging with stakeholders, with a view to drawing up negotiating guidelines. But while much of the Government’s work is being conducted in private, our aim is to stimulate informed debate, in the House and beyond, on the many areas of vital national interest that will be covered in the negotiations. As far as possible we aim to complete this work by March 2017.

8.Given the size of the financial services industry, its importance to the wider UK and EU economies, and the potential impact of Brexit on the sector, it was clear to us that financial services should be the first issue to be investigated by the Financial Affairs Sub-Committee.

9.This report was prepared by the Sub-Committee on the basis of evidence sessions with nine panels of witnesses, in September, October and November 2016, as well as written evidence. Before we embarked on this inquiry, immediately following the referendum, members of the Sub-Committee met industry representatives at a seminar hosted by the City of London Corporation to discuss key issues. We are grateful to all those who contributed to the inquiry.

10.We make this report to the House for debate.

2 Long Finance, ‘Global Financial Centres Index 20’ (September 2016): [accessed 29 November]. See Appendix 4 for the full rankings.

3 HM Government, Review of the Balance of Competences between the United Kingdom and the European Union - The Single Market: Financial Services and the Free Movement of Capital (Summer 2014) pp 35–36: [accessed 29 November 2016]

5 TheCityUK, Key facts about UK financial and related professional services, (March 2016), p 6: [accessed 29 November 2016]

7 Oliver Wyman, The impact of the UK’s Exit from the EU on the UK-based financial services sector (4 October 2016): [accessed 29 November 2016]

8 See the European Union Select Committee, Scrutinising Brexit: the role of Parliament (1st Report, Session 2016–17, HL Paper 33).

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