Third country status for the UK after Brexit could cost 35,000 financial sector jobs — and a £5 billion hit to the exchequer according to research led by Oliver Wyman.
A report published by the firm today was commissioned by TheCityUK and developed with input from its senior Brexit Steering Committee, senior industry practitioners, and major trade associations. It offers an analytical toolkit to enable quantification of the impact of potential regulatory options arising from Brexit in terms of jobs, tax and industry revenues.
Oliver Wyman estimates that a Brexit where the UK is outside the European Economic Area but delivers passporting and equivalence — allowing access to the Single Market on terms similar to those that UK-based firms currently have — will cause only a modest reduction in UK-based activity. In this scenario, revenues are predicted to decline by up to £2BN (2% of total wholesale and international business), 4,000 jobs would be at risk, and tax revenues would fall by less than £0.5BN per annum.
Under conditions where the UK moves to a third country arrangement with the EU, without any regulatory equivalence and its relationship with the EU is defined by terms set out under the World Trade Organization, up to 50% of EU-related activity (£20BN in revenue) and an estimated 35,000 jobs could be at risk, along with £5BN of tax revenues per annum.
When taking into consideration the knock-on impact to the whole financial services ecosystem — the possibility of shifting of entire business units, or the closure of lines of business due to increased costs it could almost double the effect of Brexit.
Sir Hector Sants, Vice Chairman, Oliver Wyman, says the firm's work, "highlights that the impact of the UK's exit from the EU on the UK-based financial services — and the jobs, income and taxes it generates — will vary dramatically with how much access to the EU is retained.
"It is in everyone's best interests for there to be a positive outcome to the negotiations that is mutually beneficial to the UK and the EU, causes minimum disruption to the industry and benefits customers who have come to rely on the UK as a uniquely skilled and connected ecosystem for financial services."