My Lords, I am delighted to welcome the Bill. After the debate that we have had today and the many interventions, I may be among a small minority in doing that. The Bill is not without its problems, as we have just heard from the noble and learned Lord, Lord Morris, but it is one that we can all welcome because it brings a degree of confidence in terms of what is happening in our leaving of the European Union. Business needs the certainty that the Bill starts to bring to where we will end up after the end of the negotiations.
We can all agree that, in leaving the EU, we wish to do so with as little disruption as possible. Perhaps the Bill is an important part of that, although a fairly small part. It is clear that both the other 27 members of the EU and ourselves will prosper from a mutually beneficial exit agreement. I hope that the Bill will strengthen our hand in our negotiations in persuading the other 27 that there is no point in a punishment-beating type of exit, and bring both sides to a grown-up recognition that it is in everyone’s interests for trade to carry on very much as it does now. There is one area where that is more of a problem than for physical exports, and that is for services—particularly financial services and the related support services such as the legal and accountancy professions. We need to be clear on the way forward for these important industries.
It matters very little whether financial services benefit from what is called passporting, which is likely to end on our departure from the EU, or from mutual recognition of the EU’s and UK’s regulatory regimes—what is sometimes, and rather controversially, called regulatory equivalence. They both give reciprocal market access, enabling EU firms to continue trading services in the UK and UK firms to continue trading in the EU. Both passporting and mutual recognition come to the same thing in broad terms and are both to the advantage of the providers of the services and to the client.
Under either system, a bank operating out of London providing services to a French client, say, will benefit from not having to create artificial structures such as setting up a subsidiary in Paris with staff and capital to channel the French client’s financial and trading needs through to London or New York. Equally, the French client will benefit from reduced costs in meeting their banking needs. After all someone, inevitably the client, will pay for the additional costs of setting up artificial structures. The client will also benefit from the increased competition, and therefore lower costs, of having the maximum number of banks prepared to offer global services in France.
The real cost of erecting artificial barriers to the trade in services will be met by an additional group of people. It is not just the client at the bank who will lose out; it will also be damaging to the employees of the bank. If banks are required to open subsidiaries in Paris, say, which they would not otherwise have done, the staff who would be transferred there would predominantly be French staff currently working in
London and servicing French clients. There is a good reason we have so many EU nationals working in financial services in London. Part is due to lifestyle and part is due to our still-benign personal tax regime, but it is principally because, if you work in financial services and are ambitious, there are only two cities in which to build your career: one is New York and the other is London. I know very few EU nationals working in financial services in London who would see it as a good career move to return to their home countries.
The need for easy access to the financial markets of the other 27 countries after we leave varies greatly from one financial institution to another. Some, such as insurance companies and brokers, have always operated from subsidiaries and will continue to. Many banks already have subsidiaries, which enable them to meet any regulatory requirements with, perhaps, a little tweaking of their capital structures. Asset managers tend to operate offshore in any case and sell their products on the basis of their performance. While the financial service industry will continue to prosper regardless of any changes to our relationship with the EU, there are many things we can do to make that more certain and a lot cheaper. I hope that, when we come to consider this Bill in detail, we will be able to explore ways to make the transition for the financial services industry seamless.
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