UK Convergence Programme

Debate between Lord Wigley and Lord Vaux of Harrowden

Tuesday 9th April 2019 Lords Chamber

[Lord Vaux of Harrowden (CB)]

My Lords, I want to pick up on a point that the noble Baroness, Lady Kramer, made about financial services. I asked a Written Question on 27 February regarding what assessment the Government had made of the reduction in tax take that would arise from the actions taken by financial services businesses to enable their businesses to operate after Brexit.

The Minister was kind enough to respond, saying:

“The Government has published a detailed set of economic analysis on the long-term impacts of EU exit on the UK economy, its sectors, nations and regions and the public finances. The Chancellor will also be providing the independent OBR’s updated fiscal and economic forecasts at the Spring Statement on 13th March”.


In anticipation of finding the answer to my question, I ploughed through these analyses. You can imagine my surprise and disappointment when I was unable to find anything that answered it. I must have missed something, I assume.

This is important. The financial services industry is a significant part of our tax base, contributing around £72 billion or 12% of the total annually. My question is not theoretical; I am asking about actions that have already been taken. A study by New Financial has identified 275 firms that have stated that they are moving parts of their businesses out of the country. Only a small number of those firms have said what they are moving, but already the figures are very large: banks have moved or are moving some £800 billion in assets from the UK to the EU, insurance firms are moving tens of billions in assets, and asset managers have transferred more than £65 billion in funds. That £800 billion in bank assets is nearly 10% of the UK banking system. The final tally is likely to be much higher; there are suggestions that more than £1.5 trillion in assets has already been moved.

Studies also suggest that at least 7,000 financial services jobs have already been moved. That does not include the new jobs created in other countries that would have been created here but for Brexit. New Financial expects the headline numbers to increase significantly in the next few years as local regulators across the EU require firms to increase the substance of their local operations. They have also identified hundreds of firms that they think will have to move something somewhere to retain access to EU markets, but which have not yet done so.

It is inevitable that these moves will have an impact on the UK’s annual tax take in the current tax year, and that impact will continue and increase. Given the importance of the financial services industry to our tax yield, could the Minister now answer my earlier question and tell us how much of that £72 billion we are going to lose? Could he also tell us to what extent that has been taken into account in the Budget?

[Lord Wigley (PC)]

My Lords, I will follow up briefly on the comments made by the noble Lord, Lord Lea, a moment ago on the performance of the economy and the existing disparity. The efficiency of an economy clearly depends on overall capacity, capacity utilisation and labour productivity and efficiency. When we have as great a disparity as we have at present between the economy of south-east England and the economy elsewhere, clearly, diseconomies will happen. These could well be seriously exacerbated by the consequences of a no-deal Brexit. We are particularly concerned about sectors such as the Welsh tourist industry, where much of the labour is imported from continental Europe. If there is a cut-off it could affect our capacity to deliver.

There clearly needs to be a strategy for the post-Brexit period that addresses the efficiency of the overall economy but also that disparity. Bringing up the poorer-performing areas nearer to the average would clearly be in everybody’s interest. In that context, another factor for us in Wales is the loss of the EU structural funds, which will bite after 2020. That is a very serious loss. We are still waiting for a categorical confirmation from the Government that there will be a full replacement of that, not just to 2020 but ongoing thereafter. Without it, it will be impossible to get the economic restructuring we need.