BEIS White Paper on Audit Reform: Will Kwarteng's reforms really unchain entrepreneurs?
As Head of our Employment Department, and co-chair of our Business Services Group, I have, like many, been totally absorbed in the debate over Brexit. Whether you are for it, or against it, everyone can agree it has proved to be the most significant challenge for business in a generation. Unsurprisingly, the uncertainty it has created has caused confidence to drop and business decisions to be put on hold.
That is plainly not good for all of us in the immediate term, and if the process was to continue, not, in the longer term too.
But the Referendum was in the Summer of 2016. That will soon be two years ago. Of course the time in between has been tumultuous for us. But I do believe that the Brexit fog is, finally, beginning to clear. I do not suggest that we have certainty over what comes next: there is simply too much road to be travelled for that. But I do think we are coming to a period when some clarity is beginning to return. Why so?
First, since the terms of the "divorce" were struck in December last year, we have actual pronouncements from the Prime Minister as to how we are going to manage our trading relationships with the EU in the future. I know there has been much vacillation around some of the major decisions we are going to have to take, but Mrs May has now ruled out our being a member of the Single Market, our being a member of the Customs Union, and our being a member of a Customs Union. That seems to leave us with two main alternatives. One is that we have no customs arrangements with the EU at all and we are free to make whatever deals we like with the rest of the world. The second is that we put in place some sort of bespoke arrangements. One such model being suggested currently is a mutual recognition agreement, whereby Brussels and London each recognise the other’s regulatory systems.
Everyone will have their view. For myself I am finding it difficult to accept that any increase in trade with countries outside Europe is going to make up for any decrease in trade with the EU, if we go it alone. For me, Liam Fox has got some distance to travel physically as well as metaphorically, before he has made out the case otherwise. So I would favour doing a deal before we leave. In any event, once the call has been made in that respect, we will undoubtedly have passed another important hurdle in this Brexit process, and it would seem a decision is going to be made quite soon, if recent reports are to be believed.
If we are out of the Single Market, and have not signed up to any customs union with the EU, I think it fair to say that in time there will not be full alignment between our legal system and Europe's. But I would expect convergence to be key. From a business perspective we will have so much to gain by ensuring our systems are as close to the EU’s as possible, without disappointing those who felt there was much to be gained by cutting our ties.
This will, I expect, be reflected particularly in our financial services arrangements. They are not built around customs agreements as with goods. However, for the whole of the UK, and especially for London, they are every bit as important. Financial services accounts for some 12% of our economic output, and 11% of our total public spending. The industry employs more than 1 million people in the UK. Only the most ardent of Brexiteers would want to put that at risk. Whatever the bravada in Paris, Frankfurt and Dublin, the financial arrangements of the EU would suffer grievously if the expertise built up over decades, even centuries, in London, was not to be tapped for the benefit of Europe as a whole.
We now know that the scare stories we heard in the immediate aftermath of the Referendum do not seem to have been realised. Nor may they be. At first it was feared that thousands of jobs were to be transported to the various financial centres around mainland Europe. But that does now look unrealistic. Indeed recently the banks have been backtracking on suggestions they were to send their people back across the Channel in large numbers. UBS, for example, is now telling us that they are anticipating maybe 200 jobs will go to mainland Europe.
The Chief Executive of Goldman Sachs, Lloyd Blankfein, may have been teasing us with suggestions he was to spend more time in places like Paris and Frankfurt, and undoubtedly there will be a number of his employees, particularly those who speak the relevant languages, being encouraged to do so. However, from our own vantage point as a firm that specialises in acting for employees in banking and financial services, we have not seen any of those Armageddon type scenarios being realised. That is not to say there are no concerns, even major worries about the future, but I very much doubt there is going to be a wholesale clearout from the banks in the near future.
One monitor to test that theory could be the demand for office space. Reuters, for example, recently surveyed a large number of UK and international banks and insurers and discovered that whilst some 10,000 jobs may relocate because of Brexit, that would only account for around 0.5% of the total amount of London's office space.
What has been the effect of the Vote on investment into our financial services industry? Let us take Fintech for example. Last year, in 2017, we managed to attract double the amount of venture capital into our financial technology industry, than in the previous year. Indeed, Fintech companies raised $1.8 billion of venture capital last year, as compared to $704 million in 2016.
There are other indications that we are returning to some sort of normality. Sterling, as we know, crashed by about 20% following the Vote in 2016. But it is slowly recovering, and is already back at around $1.37 to the pound.
A big fly in the ointment I admit, are the growth figures. Growth was after all pretty anaemic in 2016 (1.8%) and in 2017 as well (again about 1.8%) . The Office for Budget Responsibility is now forecasting growth at around 1.4% for 2018. Yet, on the positive side, growth in the US, China, and in mainland Europe is now being forecast at a pretty good level. In 2017 it was 2.4% in Europe and the European Commission now expects 2.3% growth for 2018 and 2% for 2019. The UK will benefit from that, and although our growth numbers are unlikely to reach the same level as they would have been had we remained within the EU fold, we are unlikely to see the sort of negative growth numbers that were being predicted in the immediate aftermath of Brexit.
For businesses, the world is not going to continue post-Brexit as before. But we have better vision as to how things are likely to shape up once we leave the EU. The Armageddon type scenario is, for many, no longer on the agenda. Investment is returning, business decisions are being made, and all of us are moving forward. Of course we have rocky times ahead. We have not yet agreed terms for our transition period post March 2019, never mind how things will be configured two years later. And in this debate it is vital that the views of business are heard. But from a business perspective, I think many are now leaving the 'shrillness' of the current debate to the politicians, whilst the rest of us reconvene, restructure, and push on – ironically in a very British way…
Lawyers from Kingsley Napley are regularly blogging about employment matters, including in relation to the impact of Brexit.
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