7 February 2019

  |  CBI Press Team

Press release

No deal threat to London's long-term competitiveness

A no deal Brexit could hit London’s valuable services sector.

No deal threat to London's long-term competitiveness

Rain Newton-Smith, the CBI’s Chief Economist, has issued a clarion call to politicians alerting them to the potentially disastrous long-term effects of a no deal exit on the UK’s services industry, which accounts for 80% of the economy.

The value of London’s services exports to the EU in 2017 was £16 billion - equivalent to 37% of the city’s total services exports. The capital’s vital and successful services businesses, from broadcasters to tech firms, are concerned about increases in non-tariff barriers arising from a no deal scenario.  

Rain Newton-Smith, CBI Chief Economist, said:

“The services sector is hugely important for London and the wider UK economy. The reality is that no deal would not be a short, sharp shock - it could spark a long-term decline in the capital’s competitiveness, with severe knock-on effects for London and the rest of the UK.

“London – and the UK as a whole – has a hard-won reputation as a fantastic place to live, work, start and grow a business. Our vibrant capital bristles with creativity and expertise, making us world-beaters across many sectors, from fashion to financial services. Yet the threat from a no deal Brexit is chilling investment and starving growth.

“While the good news is that a no deal scenario is avoidable, until it’s off the table firms are spending hundreds of millions of pounds preparing for an event which the UK simply cannot manage and need not happen.”

UK financial services possess a strong competitive advantage, generating a trade surplus of £21 billion with the EU. The sector provides more than a million jobs in the UK, with roughly two thirds outside London.

Rain added: “No deal would create considerable issues for our world-leading services firms, in most cases only avoidable by moving jobs and investment from the UK to EU.  Lower tax receipts from firms moving overseas would mean less money available to tackle challenges ranging from climate change to caring for our ageing population.

“While the number of jobs moving to the EU are currently at lower than expected levels, there is a significant flow of assets from the UK and London in particular, happening right now. An acorn planted in Paris or Frankfurt could grow into a mighty oak – or not – but it wouldn’t be in London.

“Other vital services industries would also suffer. Ending cross-border data processing will hit firms from Green Street retailers to tech start-ups in Silicon Roundabout. Nearly 30,000 SMEs serve UK broadcasters, with the majority London-based – as channel licenses move overseas, staff will likely follow.”

Other examples of no deal risks to London services firms (see notes to editors for full details):

  • Insurers wouldn’t be able to service EU clients direct
  • London Fashion Week – promoting a £28billion UK industry– would no longer be protected by EU-wide intellectual property rules.
  • British lawyers working across Europe would find themselves dealing with individual member state regimes rather than one.

Rain continued: “In the short term, no deal would likely lead to a sharp fall in the Pound and higher prices in the shops, which would hit lower income households hardest. 

“Longer term, London – and the wider UK economy – would be weaker. All this explains why a no deal Brexit would be so crippling for UK competitiveness, companies and consumers.”