Financial services companies will be relocating away from the UK

The financial sector has always been one of the leading industries in the UK, London being one of the financial capitals of the world. As such, there is a heavy reliance on the industry to provide a stable foundation for the UK’s economy. However, like all other areas of business, the financial sector is coming under increasing pressure due to continued Brexit uncertainty.

“In the event the UK leaves the European Union without a deal, financial services firms have plans to mitigate as far as possible the impact on their business and customers.”

According to data gathered from EY’s Financial Services Brexit Tracker (as of Thursday 28 February 2019), 23 companies have announced the transfer of their assets from the UK to Europe—it is likely there are other companies planning on doing to same who have yet to announce this publicly.

EY has reported that the cost these 23 companies will drum up between them is to be around £1tn, which is an increase from the £800bn of last quarter.

As well as this, the Big Four firm has revealed that the number of jobs that could end up being relocated from the UK to Europe amounts to 7,000. 39 companies have confirmed the specific number of potential staff moves.

“Since the Referendum, [London] has been on the front foot in planning for Brexit,” said Omar Ali, UK financial services leader at EY.

“In the event the UK leaves the European Union without a deal, financial services firms have plans to mitigate as far as possible the impact on their business and customers.

“But, as the day draws nearer, we need to recognise that there are risks that are out of the sector’s control. No financial services businesses can know for sure how a disorderly Brexit will impact them: their clients, people, and supply chains—or, more broadly, the UK economy.”

“Whilst the numbers of staff being relocated is flat quarter on quarter, the number of financial services companies that have put a number on the staff they are moving or considering moving out of the UK into Europe leapt 30% from 39 up from 30.”

Since the Referendum in 2016, 63% of investment banks, brokerages, and universal banks have revealed that they are considering (or have confirmed) relocating their operations and/or staff to Europe. Considering the fact that 52% of these companies will be directly affected by limited access to Europe in the event of a weak trading deal, this statistic is unsurprising,

28 of these companies would not be moving too far away, as Dublin remains the most popular location. Other European countries who will be hosting these companies include Paris (18), Luxembourg (19), and Frankfurt (21).

EY stated: “The proportion is particularly high in the banking sector, and even more marked amongst Globally Systematic Important Banks (G-SIBs).”

75% of the 24 G-SIBs EY has been monitoring have announced they, too, will be moving their operations and staff as a direct result of Brexit. Nonetheless, the size of these moves remains relatively small, with the majority of G-SIBs’ current UK business not moving away at this stage.

“Even at a conservative estimate that the average salary was at the bottom of the highest tax bracket of £150,000, the direct loss to the exchequer from employment taxes would be around £600m.”

“As the 29 March draws nearer, companies are reconfirming or revising the statements they have made about the extent of staff and operational changes they are making, but we are not seeing many last-minute surprises—firms are executing their plans as expected,” said Ali.

He continued: “The value of assets is creeping up, the number of jobs moving is relatively stable as a total, but we are seeing individual firms reduce the number of staff they are moving, whilst still ensuring they are in a position to serve their end customers. Continued uncertainty will undoubtedly lead to more assets and people being transferring from the UK and not necessarily to the EU.”

According to EY, 39% of all financial services companies have publicly confirmed a move from the UK to Europe. The overall statistic proves to be lower when considering the financial sector more broadly, as it includes the likes of FinTechs, private equity, and UK-focused retails banks—all of which are less likely to need to move or publicise their plans.

The relocation of those in financial roles is a particularly concerning problem for a country that is heavily reliant on the quality of the financial services they provide.

EY stated: “Whilst the numbers of staff being relocated is flat quarter on quarter, the number of financial services companies that have put a number on the staff they are moving or considering moving out of the UK into Europe leapt 30% from 39 up from 30.”

“Financial services are crucial to the UK’s future prosperity and are clearly negatively impacted by the uncertainty around the future of the UK’s trading relationships. [London] is resilient, and it will remain the dominant European financial centre, thanks to the breadth of capabilities and the depth of its capital markets, but there is no room for complacency.”

Having to be more reactionary to the currently unstable climate perhaps goes against the naturally risk-averse nature of the financial services industry. At this time, however, it is essential that companies continue to look over their plans for the future; companies are constantly revising the number of roles they plan to move out of the UK.

One factor that EY has highlighted to be unavoidable is how the relocation of 7,000 high paid finance jobs will have an inevitable effect on the UK’s tax base. This is due to the fact that the very nature of the roles that are being relocated (for reasons such as regulatory changes) are at the very top of the salary spectrum.

“Even at a conservative estimate that the average salary was at the bottom of the highest tax bracket of £150,000, the direct loss to the exchequer from employment taxes would be around £600m,” EY revealed.

The average salary – and therefore the total tax loss for the UK – will likely be much higher than this figure. Furthermore, the additional loss of VAT and corporate tax will need to be looked at.

The Big Four firm added: “Across Europe, in addition to the 7,000 roles relocating from the UK, more than 2,300 new jobs have been added or are in the process of being added to the financial services firms in response to Brexit. Of these, just over 500 are people hired/or to be hired in London.”

“Financial services are crucial to the UK’s future prosperity and are clearly negatively impacted by the uncertainty around the future of the UK’s trading relationships,” Ali emphasised.

“[London] is resilient, and it will remain the dominant European financial centre, thanks to the breadth of capabilities and the depth of its capital markets, but there is no room for complacency.”

He concluded: “With only three paragraphs on financial services in the political declaration about the future trading relationship with the EU, it is critical that politicians focus on achieving an orderly exit and then securing a future trading relationship that adequately covers financial services.”