Professor Tim Congdon
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How is Britain to remain a well-paid, successful and influential nation in the 21st century?
In our own nation such service activities as financial services, legal work, accountancy, publishing, journalism, business information, management consultancy and advertising (plus its associated activities of design and market research) tend to be located in London and to be well-paid by UK standards. Much of the output of these industries is exported. Left to themselves, current pay differentials argue that the UK is likely to specialize in these areas, which might be termed “international business services”.
However, the UK’s position as a world leader in the provision of international business services is under threat.
EU regulators, the European Banking Authority, the European Insurance and Occupational Pensions Authority and the European Securities Authority have been established to forge a common set of rules, which is to apply uniformly and consistently across EU member states. Under the European Systemic Risk Council and the European System of Financial Supervisors umbrella (i.e., that of the European Commission ultimately), they are to resolve disputes between national supervisors and regulators, and work towards “a common regulatory culture”. In the extreme they have the power to close down a British financial institution. The EU bureaucracy has already interfered extensively, and on numerous occasions, in the management of UK financial institutions.
This threatens an important industry.
1. The UK’s international financial services sector (i.e., “the City of London”) was by far the most dynamic part of the UK economy from the 1960s to 2008. The City remains massively important to London’s prosperity and indeed to the economic well-being of the UK as a whole. Unhappily, the City of London is now in retreat, with excessive and unfriendly EU regulation being largely to blame.
2. In the fourth quarter of 2013 business services accounted for 1,517,000 jobs in London, which was 28.0% of all London employment. (Their proportion in UK employment as a whole was much lower, 15.7%.)
3. London-based international business services (i.e., both financial and non- financial services) employ about 5% of the UK’s working population and produce perhaps 8% - 10% of its national output, with most of that output exported. Continued growth of these activities at above the growth rate of output as a whole would be positive for the UK’s average living standards.
4. The UK’s position as a world leader in the provision of international business services is under threat. A move of regulation from the UK to EU institutions is under way as a result of the Lisbon Treaty. The UK’s financial services industries have increasingly been subject to harmful and unsympathetic regulatory interventions from the EU, and the extra regulatory burden is an important reason for the halt to growth. The rapid growth in the UK’s financial services industry in the 40 years to 2008 now lies in the past. EU-level regulation is more costly, cumbersome and inefficient than the previous regulatory structure under the UK’s own control.
5. The regulatory powers of the EU bureaucracies are determined by qualified majority voting in the EU’s Council of Ministers. The UK has no veto. This is one reason, although only one reason, why a radical re-appraisal of EU membership has become essential.
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