In the previous article, we discussed how large financial corporations might have left in the aftermath of a Brexit decision – here, we’ll go into what this would have led to next.
The departure of the UK’s largest financial firms, which power one of its key sectors, would cause a multitude of problems, the most prominent being a labour market crash. The departure of these corporations would cause a labour market crash due to two scenarios. The first is a loss in jobs from businesses moving headquarters to countries where their profits would remain uninterrupted and would fire their British employees to find new ones to establish their relocated offices. They may feel this would be cheaper than having to convince and pay for all their current British workers to move to a different country simply for the sake of their business. Although it may not seem to cause substantial damage if a few companies left, the finance industry in London employs roughly 729,000 highly-skilled, well-paid workers, the majority of whom would lose their livelihoods at once. The labour market would crash because these hundreds of thousands of proficient workers adapted to finance would flood the market, with no demand for them due to all the major financial companies moving away. Crime rates may also rise as people who no longer have an income and have nothing left could be forced to resort to extreme measures to survive, and the following months would see increased use in benefit schemes and a rise in stress-related illnesses. This will require much more funding as the government will have to spend more paying those unable to find a job and powering the NHS, which would see even more strain from the increased number of patients.
Furthermore, as many of these workers would have earned very high incomes, they would have led very lavish lifestyles. When their source of income is suddenly removed, they may not be able to maintain their current standard of living. As a result, many mortgages on high-value properties and other loans may end up being defaulted on as thousands become bankrupt, which may cause the banks that decided to stay to lose even more as they do not receive their money back. Overall, the government would be forced to provide billions of pounds in funding for revival schemes to recover the economy. This depletes the budget for other progressive projects, preventing the government from improving and upgrading other sectors of the economy, possibly indirectly damaging the UK economy for the years to come.
The alternative scenario that would have caused a labour market crash is a movement of these high skilled high-income earning workers moving with the financial corporations. This causes a massive loss of labour capital in one of the UK’s largest industries, which, as previously mentioned, accounts for 10% of the United Kingdom’s GDP. The companies providing this revenue are leaving, and so is the labour used to produce this income. This prevents the new start-ups from growing as they cannot find skilled labour, leading to a deficit in this specific type of job and essentially crippling the financial sector for the next few years to come until a new generation of skilled workers can be trained. Even this eventuality will not assist much as the major companies and banks are located in foreign countries, meaning if the workers were trained in the UK, most would still move to fill the vacancies in these businesses. In the worst possible scenario, London would regress from its position as one of the world’s most robust financial capitals. It may become so severe that the city’s exponential and unparalleled growth may finally slow to a halt, or at least the city will attract much less investment than it usually does. London may not be able to keep up with other rapidly advancing capitals like Tokyo and New York, which would quickly meet the demands in the global market that London may not be able to fulfil if it begins to slow down and stumble.
A contrasting advantage of this is that investment will be more evenly distributed across cities in the United Kingdom and allow them to prosper and grow. However, the issue associated is that although it is levelling up the North, it degrades the South, so its economic contribution and net profit are not substantial. This is one of the critical economic and political debates that trouble UK politicians and economists – you cannot level up the North without levelling down the South, at least not without a radical systemic change. Therefore, the government has decided to renege on finding a solution for now and instead focus on fuelling London and on a wider scale the South’s vast economic growth and practically abandoning the North. I have discussed this issue further in my article on ‘Left-behind areas’. It addresses the neighbourhoods that are deprived and experiencing modern-day poverty, most of which are found in the Northern regions of England, and how to improve the dire situation without restricting London and the South’s infinite potential for economic development.
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