Bankers threaten early exodus, while PM May tries to head off a constitutional crisis
Bloomberg
Emma Ross-Thomas
Banks will start moving operations out of the U.K. late this year and early next as they anticipate a hard Brexit. That's according to Anthony Browne, chief executive officer of the banking lobby group BBA, writing in the Observer newspaper on Sunday.
International banks’ “hands are quivering over the relocate button,” he wrote. “Many smaller banks plan to start relocations before Christmas; bigger banks are expected to start in the first quarter of next year.”
Without identifying any banks by name, he said lenders can’t wait until the last minute and have to “plan for the worst,” especially because “public and political debate at the moment is taking us in the wrong direction.”
Handily, some real estate companies are already finding them new digs. A property company managed by Schroders Plc is bidding for an office building in Frankfurt, joining CBRE Global Investors LLC and Standard Life Plc, which are seeking to purchase office space in cities from Dublin to Amsterdam.
Real estate investors are seeking to capitalize on a shortage of available offices in Paris, Frankfurt and Amsterdam, Bloomberg's Jack Sidders reports. The lack of development and growing domestic demand has already pushed vacancy rates for prime space in the business districts of those cities to the lowest levels in about a decade, according to broker Savills Plc.
Hammond's Headache
If bankers do leave, it presents a headache for Chancellor of the Exchequer Philip Hammond just as he's planning to ease the budget to support the economy.
At stake is some of the 66 billion pounds ($81 billion) that financial services paid in taxes in 2014-15, equivalent to 11 percent of tax revenue and more than enough to cover the U.K.’s annual defense bill.
If finance’s footprint is reduced, Simon Wells, chief European economist at HSBC Holdings Plc, predicts wages for the sector’s 1 million workers could also be subdued, lowering the tax take from such high-earners.
The government may also need to sacrifice revenue to make London more appealing to the financial industry. Open Europe, a research group, said in a report last week that Hammond should consider scrapping the bank levy and corporate-tax surcharge for banks or at least reduce the burden.
The levy was introduced in 2010 at a rate of 0.05 percent on U.K.-based banks’ balance sheets and gradually rose to 0.21 percent, generating an average of more than 2 billion pounds a year. The government last year announced plans to halve it to 0.1 percent by 2021.
As for the surcharge, it took effect in January and amounts to 8 percent of banks' profits on top of the 20 percent tax for all firms. The British Bankers’ Association called on Thursday for it to be phased out as soon as possible.
Nuclear Option?
Meanwhile The Sunday Times reported that advisers to Prime Minister Theresa May have developed a plan to cut the corporation tax rate to 10 percent from 20 percent, to be used as a “nuclear option” should the EU block a free-trade deal or deny financial companies access to the single market. A government spokesman told the newspaper such a drastic cut in taxes wasn’t being floated.
The levy was introduced in 2010 at a rate of 0.05 percent on U.K.-based banks’ balance sheets and gradually rose to 0.21 percent, generating an average of more than 2 billion pounds a year. The government last year announced plans to halve it to 0.1 percent by 2021.
As for the surcharge, it took effect in January and amounts to 8 percent of banks' profits on top of the 20 percent tax for all firms. The British Bankers’ Association called on Thursday for it to be phased out as soon as possible.
Nuclear Option?
Meanwhile The Sunday Times reported that advisers to Prime Minister Theresa May have developed a plan to cut the corporation tax rate to 10 percent from 20 percent, to be used as a “nuclear option” should the EU block a free-trade deal or deny financial companies access to the single market. A government spokesman told the newspaper such a drastic cut in taxes wasn’t being floated.
Constitutional Crisis
May is due to meet the leaders of Scotland, Wales and Northern Ireland today as she seeks to get them on board with her Brexit strategy, and at the same time, keep the increasingly fractious union together. The devolved administrations will be offered a "direct line'' to Brexit Secretary David Davis to allow them to "help shape the U.K.'s exit strategy,'' her office said.
The meeting, which is the first such gathering in two years, comes amid warnings that Brexit will prompt a constitutional crisis if the government in London fails to get the rest of the union onside.
“As with a dog walking on its hind legs, we should be impressed if the four governments manage to work together at all,” said Akash Paun, a fellow at the Institute for Government, a London-based advisory group. “But when it comes to Brexit, the stakes are high. If the dog topples over after a few tentative steps, and consensus cannot be reached, the result could be a constitutional crisis.”
Scottish First Minister Nicola Sturgeon is already preparing legislation for another referendum on independence if May strikes a Brexit deal that takes the country out of the EU single market for goods and services. Scotland and Northern Ireland, the only part of the U.K. to share a land border with the EU, voted overwhelmingly to remain part of the union.
“The Scottish government is becoming increasingly concerned that the U.K. is heading for a hard Brexit with all the damage that will bring to the Scottish and U.K. economies,” said Michael Russell, Scotland's Brexit minister. “Four months on from the referendum, we have yet to see a proposal from the U.K. government on how the views of people in Scotland will be taken into account.”
Brexit Bullets
* London can't be Europe's “offshore financial center,” Euronext CEO Stephane Boujnah told Le Figaro
* Labour's Hilary Benn, the newly chosen head of the parliamentary committee to scrutinize Brexit, said on Sunday that Parliament must have a vote on the government's negotiating plan
* UKIP lawmakers vie for leadership as party aims for a new head by the end of next month
* Nissan will decide whether to continue producing the Qashqai SUV from its U.K. plant in November
* Toys 'R' Us says Brexit vote is a game-changer for its U.K. unit, according to the Mail on Sunday
On the Markets
The pound may be experiencing a period of relative stability, but it’s an uneasy calm that traders shouldn’t get complacent about, Bloomberg's Lukanyo Mnyanda writes.
While a measure of anticipated volatility fell last week, sterling is still seen posting the biggest price swings among its Group-of-10 peers over the next six months.
And Finally...
It was Citigroup economists who coined the term “Grexit” in February 2012, spawning a series of neologisms including “Brexit.”
Now HSBC's Wells is declaring victory over who first used the now ubiquitous "Hard Brexit." At a conference of clients in London on Friday, Wells noted he and colleagues first asked in a February 2015 report "Exit soft or exit hard?" If nobody can identify an earlier mention of hard or soft then Wells says he’s "going to call it for HSBC.''
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