Leaving the EU: Financial Services

Simon Kirby Excerpts

Thursday 3rd November 2016 Commons Chamber

[The Economic Secretary to the Treasury (Simon Kirby)]

I am grateful to the Backbench Business Committee for allocating time for this debate, and to the hon. Members for Leicester West (Liz Kendall) and for Nottingham East (Chris Leslie) for requesting it.

Earlier this year, the British public made it clear that they want a new relationship with the European Union. Although we are under no illusions that this will not mean hard work and adjustment, we are committed to getting on with the job to make Brexit a success for people across the UK and for businesses across our industries. That includes, of course, our world-leading financial services sector, because it is clear, both from the many points raised today and the regular discussions I have with Members on these issues, that we are all in agreement on the importance of this industry to the British economy and of making sure this sector remains robust, highly competitive and open for business after our withdrawal from the EU.

First, it is worth reflecting on why this sector is of such importance to our economy. We have heard many statistics today, and they tell a compelling story. Last year, this industry contributed more than 7% of the value of all goods and services produced in the UK. The industry also exports £63.7 billion of services worldwide every year, making it the world’s largest exporter of financial services. From a Treasury perspective, the sector also brings a huge amount of money to our Exchequer. Let me give hon. Members a sense of the scale: in 2015, the banking sector alone contributed £24.4 billion through just corporation tax and PAYE. Recent analysis suggests that if we look at the broader financial services sector, we find that the tax contribution increases to £67 billion.

Leaving aside the enormous value this industry adds to what we produce, the services we export and the taxes we receive, we also have to remember how many jobs this industry gives to British workers. Across the country, more than 1 million people have jobs in this sector, with two thirds of these outside London, and in addition more than 1 million people are employed in jobs related to the financial services sector. To give just one example, the north-east has more than 50,000 people working in financial services.

What are the Government doing to ensure the continued success of an industry of such huge importance to our economy? First, since the referendum result we have been engaging extensively with companies across the financial services industry, to understand how we can make sure that our withdrawal from the European Union is a success for the financial services industry.

Secondly, the Prime Minister has made it clear that we will invoke article 50 no later than the end of next March to begin our formal negotiations with the EU. The Government are determined to continue with that plan. Finally, we have said that the European laws and regulations will be transferred to British law on our exit from the EU to provide continuity for businesses that operate in the EU.

On the points that have been raised, the hon. Member for Leicester West (Liz Kendall) asked me for some clarity. I am very pleased to say that, hopefully, I can do just that. She asked about passporting. I can say that the Under-Secretary of State for International Trade, my hon. Friend the Member for Wyre Forest (Mark Garnier), was not correct on this matter. Passporting, or rather the access to EU markets that comes with it, is one of the key areas under negotiation. The UK is looking for a sensible discussion on how our two markets can continue to serve one another, and on what is needed to support that. She also mentioned freedom of movement. It might be helpful if I were to quote the Chancellor of the Exchequer, who said:

“I see no likelihood of our using powers to control migration into the UK to prevent companies from bringing highly skilled, highly paid workers here.”—[Official Report, 25 October 2016; Vol. 616, c. 134.]

The hon. Lady mentioned transitional arrangements. We are determined to secure the best possible deal for UK goods and services, and that is very much in the interests of both the UK and the EU. Given the strong level of interconnection between our economies, continuity of service and an orderly withdrawal from the EU are also very much in the interests of both sides,

The hon. Lady finally asked me to agree with her that the best possible Brexit for the UK was also the best possible Brexit for Europe. I do agree with her, and that is a message that we should all do our very best to persuade others of: it is in everyone’s interests that we get the best possible deal.

I thank my hon. Friend the Member for Wimbledon (Stephen Hammond) for his thoughtful and sensible contribution. The hon. Member for West Bromwich West (Mr Bailey) asked about the impact of withdrawal on smaller businesses. It is a very important point and we must always remember that companies involved in financial services are not necessarily all huge firms in the City of London. My hon. Friend the Member for Stone (Sir William Cash) obviously knows a great deal about Europe and I am always very pleased to hear from him. He made an interesting contribution, and I can reassure him that it is our intention to secure the very best possible deal.

The hon. Member for Wirral South (Alison McGovern) made the good point that not all financial workers are fat cats in the City. Indeed, they are hard-working people up and down the country, two thirds of whom operate outside the City of London. From Edinburgh to Brighton, and from Belfast to Bournemouth, the financial services industry is a very important employer, and I pay tribute to all those people who work so hard in it.

My hon. Friend the Member for Tonbridge and Malling (Tom Tugendhat) made an excellent point about the benefit that the UK offers to all of Europe, and it is in our common interest to get the best possible deal. The hon. and learned Member for Edinburgh South West (Joanna Cherry) might be pleased to know that I am planning to visit not only Scotland but Northern Ireland and Wales in the near future to look at financial services and to demonstrate the Government’s interest in all parts of the country. The hon. Member for Islwyn (Chris Evans) will also be pleased to hear that Wales is an important part of the solution. The hon. Member for Aberdeen North (Kirsty Blackman) sought certainty. What I can say is that I am certain that we will seek the best possible deal, and the clearing function is an important element of that deal.

As usual, the hon. Member for Nottingham East (Chris Leslie) made some thoughtful points. I can assure him that I listened to them carefully. The hon. Member for East Lothian (George Kerevan) thanked me and said that I was doing a fine job. Who am I to disagree? I can tell him that Brexit does mean Brexit, we will not be giving a running commentary, and we do intend to get the best possible deal. I thank the hon. Member for Stalybridge and Hyde (Jonathan Reynolds) for his sensible and constructive contribution. We all want Brexit to work for everyone and I look forward to working with him where we can to make sure that we get the best possible deal.

In conclusion, it is important that we retain our reputation for excellence in financial services and remain the most competitive place in the world to do business. It is not only about doing what is best for the British economy, but about doing what is best for everyone throughout the country, maintaining the quality of financial services available to British customers and taxpayers.

Once again, this has been a useful debate. I thank everyone for sharing their thoughts. We are very much in listening mode and I look forward to listening as things progress.