Chancellor Rachel Reeves seeks to stimulate economic growth at home, and Britain’s cities minister will visit European capitals next week to deepen ties with the European Union on financial services.
Lucy Rigby will meet with counterparts in Paris, Berlin and Luxembourg to discuss strengthening market ties and identifying areas for closer collaboration to help companies raise capital, according to people familiar with the matter who spoke on condition of anonymity.
Keir Starmer’s Labor government is trying to forge closer ties with the bloc six years after Britain left the bloc, and Reeves has identified financial services as a key area that could help revive Britain’s faltering economy. As part of that, ministers see room to improve ties with EU financial services, people familiar with the matter said.
Rigby’s visit follows the chancellor’s Mace speech this week, in which she criticized the impact of Brexit on the UK economy and said the UK would seek closer alignment with the EU where it was in the UK’s interests. The City of London, the crown jewel of Britain’s dominant services sector, has lagged behind the rest of the economy in the years following the 2016 Brexit vote.
“We want to work with our European partners to remove friction, reduce unnecessary burdens, and strengthen capital market connections so that businesses can invest and scale faster and we can address shared challenges,” Rigby said in a statement. “A closer and more stable economic relationship with Europe must be guided by national interests.”
Brexit is forcing companies to move assets and operations to the EU, while also putting pressure on the wider economy due to new non-tariff trade barriers. Figures from the Office for National Statistics show that UK financial and insurance output has grown by just 0.3% since 2015, the year before the EU referendum, while the overall economy has grown by 15%.
However, Brexit also gives the UK the opportunity to rewrite the rules that were put in place during EU membership, such as bonus deferrals and investor documentation, and some senior figures in the City of London are keen for the government to maintain the UK’s regulatory flexibility.
Upcoming issues that could affect the UK’s financial relationship with the EU include the potential impact of the EU’s latest capital requirements directive, due to be implemented in 2027, which will prevent any non-EU banks from lending to the EU unless they set up a local branch.
“This could dampen investment from London at a time when the EU economy is stalling and requires significant additional investment,” the City Corporation said earlier this year.
Another issue is the repeated postponement of the EU’s 2028 deadline to wrest euro clearing from Britain, affecting the trillions of euros of derivatives cleared through London exchanges. EU Finance Minister Maria Louise Albuquerque said she hoped to meet the deadline but had “no idea” whether it would be extended again.
Photo: Skyscrapers in the Square Mile financial district in London, England, Wednesday, July 17, 2024. Photo credit: Chris Ratcliffe/Bloomberg
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