The financial sector is crucial to the UK and its largest and only megacity London – therefore, when Brexit threatened this, chaos broke out as people struggled to find a solution while the problems kept building
Another possible outcome of Brexit is the departure of various businesses involved with finance or international trade based in the United Kingdom. They would face tax reforms and new, possibly stricter regulations from Brexit as the UK begins to form its laws. Instead, they would move locations to avoid these rules and would most likely move to a European country to follow the same laws, pay similar taxes, and maintain the same progress they would have made in the UK if it was not leaving. For example, London is one of the world’s most significant financial capital’s, with trillions of dollars moving through the London Stock Exchange. The various companies that provide advanced financial services inside England’s capital city employ thousands of high-skilled workers, earning extremely high wages, which translates to millions in income tax revenue, which combined with the billions amassed in corporation tax, allows London to be England’s most prominent city both in population and economic prosperity. It accounts for 22% of the UK’s GDP with only 14% of its people, with a large amount of this money being provided by the finance sector, allowing London to become the UK’s fastest-growing city. A massive banking corporation based in London like Lloyds or HSBC that is heavily involved in the finance industry will have a revenue of tens of billions, such as with HSBC generating over $50 billion per year, which means to tax this value even further would outrage them as it would cost them a vast proportion of this total, reaching maybe even hundreds of millions. To prevent this, they may move their headquarters away from London to a country like Switzerland, which is commonly associated with banking and finance due to its relatively lax regulations surrounding the taxation of businesses, especially in the finance industry.
It has made it a very lucrative option for the many businesses already situated there, which contribute to its total GDP of $700 billion, of which the finance industry forms 10%. This can be put into perspective when compared to the number of employees in the finance sector – the Swiss finance industry employs approximately 220,000 people, which only amounts to around 2.6% of Switzerland’s population of 8.5 million, and yet are still able to contribute almost four times that proportion in terms of national revenue. These figures and benefits attract prominent banking institutes like HSBC and Lloyds to move to such countries and do business there instead, and this was a pressing issue in the first few weeks after the announcement of Brexit. It became wide-spread news that these large banks planned on moving their main headquarters, with HSBC being one of the ones taking the headlines as it gave a pre-warning before the results were announced – before the votes were even cast – that they would move at least 1000 roles at their corporation to Paris in France. The primary concern for the UK government was that if they did, the rest might follow in their footsteps. Although the tax reforms and new regulations heavily influenced the decision to make such an announcement, the main reason for these financial businesses especially to be concerned is that they can hold an EU Banking Passport while in London, but if the United Kingdom left the European Union this would no longer be possible.
The EU Banking Passport is essentially a document that allows banks and financial companies to base themselves in one EU country and operate and trade within others without additional tariffs or rules that would usually be implemented when dealing with a non-EU country. It is formally defined in the following – ‘The EU passporting system for banks and financial services companies enables firms that are authorised in any EU or EEA state to trade freely in any other EU or EEA state with minimal additional authorisation.’, which makes these passports the cornerstone and foundation of the EU single market for financial services. This is why many financial corporations placed their main headquarters in London – it already gives them direct access to one of the world’s largest financial capitals, the home to the FTSE Index (Financial Times Stock Exchange Index) and access to the powerful EU Banking Passport. However, it does not seem as appealing anymore when the latter is removed. As previously mentioned, countries like Switzerland in the European Union seem to be the better option as they are also vital financial centres and will give them access to the EU Banking Passport, which enables them to operate within the European Union’s financial single market relatively issue-free. London’s financial sector generates billions which are usually re-invested into London and the rest of the UK. So if these businesses left, it would impede this supply of funding for London and the rest of the UK and would essentially paralyse the United Kingdom’s finance sector and its economic development.
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