The UK’s city minister will visit European capitals next week in a push to deepen ties with the European Union on financial services as Chancellor of the Exchequer Rachel Reeves seeks to spur economic growth domestically.
Lucy Rigby will meet counterparts in Paris, Berlin and Luxembourg to discuss strengthening market links and finding areas where closer cooperation would help firms raise capital, according to people familiar with the matter who spoke anonymously in order to discuss plans that have yet to be announced.
Six years after Britain left the European Union, Keir Starmer’s Labour administration is trying to forge closer links with the bloc, and Reeves has identified financial services as a key area that can help revive the UK’s stuttering economy. As part of that, ministers sees scope for an improved financial services relationship with the EU, the people said.
Rigby’s visit follows the chancellor’s Mais lecture this week, where she criticized the impact of Brexit on the UK economy and said that Britain would seek closer alignment with the EU when it served Britain’s interests. The City of London, the crown jewel of Britain’s dominant services sector, underperformed the rest of the economy in the years following the Brexit referendum in 2016.
“We want to work with our European partners to strip out frictions, reduce unnecessary burdens and strengthen capital markets links, so firms can invest and scale faster and we can meet shared challenges,” Rigby said in a statement. “A closer and more stable economic relationship with Europe must be guided by the national interest.”
Brexit hit the City by forcing firms to relocate assets and operations into the EU, while also weighing on the wider economy due to new non-tariff barriers to trade. Financial and insurance output in Britain has grown just 0.3% since 2015, the year before the Brexit vote, compared to 15% growth in the wider economy, according to data from the Office for National Statistics.
However, Brexit has also given the UK the opportunity to rewrite rules that were set during EU membership, such as on bonus deferrals and investor documents, and some senior figures in the City are keen for the government to preserve Britain’s flexibility on regulations.
Upcoming issues that may affect UK-EU financial ties include the potential impact of the EU’s latest capital requirements directive, due to be implemented in 2027, which would block any non-EU banks from lending into the bloc unless they set up local branches.
“This could potentially choke investment from London at a time when the EU’s economy is stagnating and needs large sums of additional investment,” the City of London Corporation said earlier this year.
Another issue is a repeatedly delayed 2028 deadline for the EU wresting euro clearing from the UK, affecting trillions of euros in derivative clearing that is done through London exchanges. The European Union’s finance chief, Maria Luis Albuquerque, has said she hopes the deadline will be achieved but “didn’t know” if it might be extended again.
Photograph: Skyscrapers in the Square Mile financial district of the City of London, UK, on Wednesday, July 17, 2024. Photo credit: Chris Ratcliffe/Bloomberg
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