How would Scotland’s financial sector fare under Brexit? The report by Jeremy Peat, Visiting Professor of the International Public Policy Institute and Owen Kelly, former chief of Scottish Financial Enterprise, found that one of its conclusions hogged the headlines: ‘ Scottish independence would hit Scotland’s £8bn-a-year financial services industry harder than Brexit’.

That was not the main preoccupation of the study – in fact, the preamble specifically ruled out consideration of indyref2 consequentials: that, the authors stated, “could be another topic for another day”.

The study came to the conclusion that a ‘Hard Brexit’ would be detrimental. But here the authors struggled with the most unpromising materials, such as, for example, hard evidence.

The report’s cautionary preamble is particularly worth noting as it sets out loud and clear caveats about coming to any firm conclusions at this stage – a wholly welcome admonition that other critics of Brexit would do well to note.

Now the authors cannot be held responsible for the way in which such reports are covered. Certainly few journalists much bother with cautionary preambles in the rush to secure a story line that would survive the short attention span of news editors.

So it is worth giving the salient lines of the report’s introduction: “At present”, it declares, “There is clarity neither as to what BREXIT will mean for the UK nor how this will play out for the UK financial sector. There is also a good deal of uncertainty regarding Scotland’s future constitutional arrangements with regard to relationships both with the UK and with the EU.

“Given the extent of these uncertainties, we decided to omit reference to the possibility of a second independence referendum and what that might mean for the sector. That could be another topic for another day.

“A great deal has already been written and said about the possible impact of BREXIT on the UK financial services sector, but it is clear that most of this is, inevitably, conjecture. We do not know what BREXIT will mean, nor when it will actually come to pass and whether there might be special arrangements for the financial services sector and/or an extended transition period.

“…The UK government has not set out its priorities in full; nor have formal negotiations started… the vacuum of knowledge on which proposals can be based has led to only very generalised commentary and discussion.”

Note those phrases no “clarity as to what Brexit will mean for the UK…”; “a good deal of uncertainty”; “another topic for another day”; “most of this is, inevitably conjecture”; “we do not know what Brexit will mean”; “a vacuum of knowledge”; “only very generalised commentary and discussion”.

Had such precautionary statements headed a new story for the FT it would have hit the spike very rapidly.

But those phrases need to be borne in mind in considering whether the conclusion of the authors against a hard Brexit is well evidenced.

Much is made of the importance of “passporting” in financial services – the arrangement whereby British companies in the sector are permitted to trade across the whole of the single market and also foreign firms can achieve that right by establishing passporting via links with UK companies.

But a passport covers travel in both directions and not all EU regulatory arrangements governing the UK financial services sector are benign. In fact, on many occasions over the past few years UK companies have had to fight a rearguard action against harmful Brussels intrusion.

A particularly egregious example in Scotland was the move by Brussels to include investment trusts in an EU Directive covering hedge funds (which investments are definitely not).

The directive was drafted on the assumption that all “alternative” investment funds are broadly similar – that they entail a high degree of risk, lock in their investors, employ complex investment strategies that are hard for prospective investors to understand, and therefore are not suitable for private individuals.

None of this was true in respect of investment trusts. It was widely recognised that the original draft of the Alternative Investment Fund Managers Directive was rushed through without proper prior consultation and as a result was deeply flawed.

The fact that some £100bn of UK savings are invested in UK investment trusts and would be adversely affected, appeared to make little difference. A sustained and ferocious campaign had to be mounted on a directive that treated oranges as if they were lumps of cheese – an all too frequent problem with Brussels.

In truth, there is little by way of a single market in retail financial services across the EU as investors generally prefer to have their savings managed by institutions based in the jurisdiction within which they themselves reside.

One scary possibility floated by the Jeremy Peat paper is that consumer banking could be detrimentally affected by Brexit as acceptance of UK credit cards in EU countries could, at the transaction level, become problematic.

Tout alors! The maitre’d at your favourite Paris bistro turning down your RBS Visa card? That could soon seize up the whole of the UK consumer banking system and moving our accounts to BNP Paribas. It’s a wonderful scare story for the Remoaners.

Unfortunately for the International Public Policy Institute, a full consideration of the pros and cons requires rather more hard fact and firm evidence than the confection it has currently presented.

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