Leaving the EU: Financial Services

Stephen Hammond Excerpts

Thursday 3rd November 2016 Commons Chamber

[Stephen Hammond (Wimbledon) (Con)]

I should say at the outset that I am chairman of the all-party group on wholesale financial markets and services, and that I worked in the industry for a few years before I entered the House.

I congratulate the hon. Members for Leicester West (Liz Kendall) and for Nottingham East (Chris Leslie) on securing this incredibly important debate. We are concentrating on an industry in which we have the greatest comparative advantage. It is important for the economy not just because it means that we can help public services, but because, as the hon. Lady pointed out, it is the lifeblood of many other industries. She has set out the facts about how many people it employs. It is the largest taxpaying sector and the largest exporting sector.

The sector is also the one with the largest trade surplus with the European Union. It is absolutely clear that one reason for that is that we have had access to and membership of the single market. London was always a financial centre, but membership of the single market has allowed it to become the undoubted capital for financial services not just in Europe, but arguably in the world. We have had a common set of regulations, we have broken down barriers, we have attracted huge investments, and global operations have moved to Britain. Leaving the single market or losing access to it would be calamitous for the financial services sector.

Some colleagues have argued that immigration was a key reason why we voted to leave the EU on 23 June, and that freedom of movement must therefore be at the forefront of our thoughts. I have heard colleagues argue that we should say to the EU 27, “Trade on these terms or we will leave on WTO terms.” Such an outcome would make access to the single market impossible. That would be hopeless for financial services, because we are already seeing, in both analysis and actuality, the impact of what has happened. The hon. Member for Streatham (Mr Umunna), who is no longer in the Chamber, mentioned euro clearing. We have already seen euro clearing for currency dealing leaving London, and euro clearing for securities would leave as well. As the hon. Member for Leicester West pointed out, many institutions are drawing up contingency plans for that.

Last night, I attended a meeting of the National Institute of Economic and Social Research. Its most recent analysis shows that if we leave the EU on just WTO terms, which exclude most financial services, London would lose 60% of financial services business with the EU. I do not think that anyone, whatever their view, would regard that as anything other than a calamitous result.

The hon. Lady was right to concentrate on passporting. Passporting is necessary. It is not just a case of putting up a brass plaque on a door somewhere else in Europe; since the change in financial regulations, there is much more to it than that. It would be much more difficult to establish trade functions across Europe if we gave up passporting. The Chancellor told the Treasury Committee two weeks ago that he accepted the importance of passporting, and I hope the Economic Secretary will assure us that the Government recognise that.

Passporting is not only important for the banking industry. The Association of British Insurers put out a brief this week—I also met its representatives this week—about the ability of businesses throughout the UK to carry out insurance business across the world, and how they will be unable to do that if we lose passporting.

[Sir William Cash (Stone) (Con)]

I am sure my hon. Friend is aware that there is not a single market in insurance, and that 87% of all insurers operate through subsidiaries in the EU, rather than in branches dependent on passporting?

[Stephen Hammond]

My hon. Friend would be right to claim that about asset management, but I think he is confusing the two industries. The London Market Group said this week that although the number is not as high as that for banking, the amount of business done in the EU is substantially higher than the number my hon. Friend cites. I am happy to ask the LMG to come and discuss that with him.

If the Government are prepared to be rational, a solution can be negotiated, and that is what many people will want to get out of this debate. We might be able to have cross-industry work visas that would involve some limit on access—that would fulfil the requirement of those who want to control freedom of movement—but would also allow us some access to the single market.

As the hon. Member for Leicester West pointed out, an equivalence regime would need to be established, but such regimes are fraught with difficulty. The issue is whether we could establish a bilateral equivalence regime similar to what we have with America. A regime dominated by the European Court of Justice would not be satisfactory for the financial services industry and would wind back our prospects substantially. I would have liked to have said more about that, but I will heed the strictures of the Chair.

It is absolutely clear that the Government must give some guidance on transitional arrangements. The industry cannot wait for the end of the article 50 process. This is a bridge: the Government might not be able to set out exactly where we are going, but they must show that they understand the importance of financial services to this country and our position globally by giving the sector some certainty that after the article 50 period—it is unlikely we will be able to do a deal within two years—they will have transitional arrangements in place. That would mean that wherever we end up, the financial services sector can start its journey over the bridge.

I have no doubt that the Prime Minister and the Economic Secretary understand the importance of this industry to our country. I also have no doubt that we can negotiate a hybrid deal through which we can retain jobs and maintain London as Europe’s financial centre.