Charles Day

If Jo Johnson is so worried about financial services, he should back Brexit

If Jo Johnson is so worried about financial services, he should back Brexit
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Jo Johnson has noticed that Theresa May has managed to unite the country, in that both Leavers and Remainers worry that her deal will let the EU pass our laws and regulate our markets but leave us no say in that process. But why does he think that staying in the EU is a remedy for the problems he outlines? He focused on a supposed threat to the service sector, spelling out the damage he seems to think Brexit would do. Here’s what he has to say:

“Even if we eventually secure a customs arrangement for trade in goods, it will be bad news for the service sector — for firms in finance, in IT, in communications and digital technology. Maintaining access to EU markets for goods is important, but we are fundamentally a services economy. Many in Orpington, for example, are among the two million Britons employed in financial services, commuting into the centre of London to jobs of all kinds in the City. Countries across the world go to great lengths to attract financial and professional services jobs from our shores. An agreement that sharply reduces access to EU markets for financial services — or leaves us vulnerable to regulatory change over which we will have no influence — will hurt my constituents and damage one of our most successful sectors.”

Oh dear. Where to start? It’s quite true that the UK economy is all about services: some 80% of our economic output. It is also true that the jewel in our service economy crown is the Financial Services Industry. The Global Financial Centres Index for 2018 puts us as number 1. The Eurozone’s best showing is Frankfurt, which is 20th. But the truth is that our services sector does well in spite of EU membership, not because of it.

Back in 1992, the EU promised to create a single market in services. That would have been brilliant for our economy, and had this actually happened then Jo Johnson might have had an argument now. We actually would be leaving something worthwhile. But the absence of a single market in services explains why the UK economy never really got anything out EU membership. This was bad enough until the EU started to regulate our services, including the financial services. It does so badly and we lose jobs (mainly to Switzerland) as a direct result while causing other problems that JoJo doesn’t seem to have noticed.

Take, for example, the MCD (mortgage credit directive) which stops people getting on the housing ladder. The MCD insists that mortgages issued by banks are ‘affordable’, but it defines the word in such a way as to exclude renters who pay mortgage (and profit margin) to a Buy to Let landlord. So the tenants are stuck in renting because E.U. regulation wrongly judges them unfit to afford a mortgage.

Then there is MiFID 2 which is supposed to regulate derivative products but can’t quite define them, which just creates a mess. And let’s not forget the Tobin Tax, still being discussed in EU consultation papers, as is harmonised corporation tax. If Jo Johnson is so worried about our service economy, and financial services in general, why isn’t he worried about this?

JoJo might argue that these are under-the-bonnet problems. But I think everyone noticed GDPR. That cost the City billions. It’s ridiculously punitive. And as anyone with an inbox can attest, it has not stopped us being spammed.

Johnson is right to say that our service sector needs protection. That’s why, should he ever have his way with a second referendum, the result will likely be an even bigger endorsement of Brexit.