Ipsos MORI’s latest research among MPs, Business Journalists and the General Public provides warning signals in terms of perceived likelihood of the financial sector moving from the UK to the EU, and highlights the serious consequences for any banks relocating abroad.
As the government begins to focus on Phase 2 of the turbulent Brexit negotiations, one of the key questions is whether the finance sector will be afforded unique access to the EU. In this regard, City stakeholders will be buoyed by findings showing that the majority of MPs and Business Journalists hope that this will be case (57% of MPs say it should be prioritised and 81% of Business Journalists) – indeed, recent comments from David Davis have also been encouraging in this regard.
The priority treatment afforded to the sector aligns with its perceived importance to the health of the wider economy. As one Conservative told Ipsos MORI; “So much depends upon it. If we lose our supremacy in the City of London for financial services, it will do immense damage to the whole of the UK economy and there is a real danger that that could go to Paris or to Germany.”
Understandably, there is real concern among a majority of MPs and Business Journalists about the possibility of banks moving their operations abroad. Business Journalists are now twice as concerned as they were before the Brexit referendum (68% compared with 37% in summer 2015). Similarly, two-thirds of MPs (65%) are now concerned.
But not all MPs are concerned about banks relocating; very few leave supporting MPs are concerned (15%, compared with 83% among remainers). Likewise, concern among Conservatives is half what it is among Labour (43% Conservatives vs 86% Labour) – reflecting the higher proportion of Conservative Brexiteers.
However, it is striking how Conservatives are increasingly unconcerned about the likelihood of banks moving abroad (concern dropped 33 percentage points since 2015); in stark contrast to the trend among Labour MPs and business journalists.
Among those unconcerned about a financial sector ‘Brexodus’ there is a belief that London’s financial infrastructure and know-how will insulate it from any threat. A Conservative Minister explained; “London and its global reach is very much the centre of the global banking system, not just the European system. So the availability of what we see in London, the infrastructure and the access to international markets…” This view of London was echoed by Mark Carney at the Treasury Select Committee in December 2017; “The UK financial system, like it or not, is effectively the banker for Europe in the most complicated bits of finance – there are substantial economies of scale and scope that benefit both sides.”
There is also a belief that Brexit will open up wider international prospects outside of the EU. One Conservative MP told Ipsos MORI; “We can be international in our outlook following Brexit; there is no reason why we should put all our eggs into one basket, nor should banks either. 93% of the world's population is outside the EU.”
On the flip-side, those concerned about banks relocating emphasise the importance of the single market. As noted by a business journalist; “There would need to be progress made by the government…there's the actual nature of the agreement and then there's the timing of the agreement. For them to minimise jobs moving, there needs to be some sort of information as quickly as possible…”
There are also calls for an aligned regulatory framework between the UK and the EU and for the UK to retain pass porting rights; however, Michel Barnier has recently dismissed this as a possibility; “There is not a single trade agreement that is open to financial services. It doesn’t exist…In leaving the single market, they [the UK] lose the financial services passport.”
A bleak response from the EU’s Brexit negotiator which may dampen the buoyancy of City stakeholders raised earlier. So, if the concerns of MPs and business journalists do materialise, what would be the impact on banks moving abroad, both on their reputation and their business.
Thinking about the reputational impact, it is notable that customers would be more likely to blame their bank for moving overseas than to blame the government (40% would hold their bank responsible versus 20% the UK government). Interestingly, this pattern of holding banks more responsible than the government holds true even among some demographics who have been opposed to Brexit, such as young adults, those with a university education and London residents. Any UK banks relocating abroad and blaming Brexit for such a move, may therefore find little sympathy among customers.
Furthermore, many customers believe that services would deteriorate if their bank moved its headquarters from the UK to the EU; two-fifths (41%) of the general public would expect services to get worse compared with just 4% who would expect an improvement.
With expectations of a deterioration in services and a feeling that the onus of responsibility is on banks rather than government, our latest research shows that any banks relocating abroad could face serious reputation and commercial challenges. In fact, almost half (47%) the public say they would be more likely to switch provider if their bank relocated to the EU – indeed, 22% say they would be much more likely to switch in this scenario. A fifth of a bank’s customer base seriously threatening to walk away should be a real warning to any UK based bank before they consider relocating to the EU.
Responding to this it is clear that over the coming months the sector needs to continually remind the UK government of the vital contribution it makes to the UK economy and the trade-offs that may be needed if the health of the sector is to be maintained. It is clear that stakeholder engagement and communications will be key, with the need to communicate with both Westminster and Brussels to help broker a solution that avoids the need to move to Europe. Furthermore, the sector will need to tread carefully with regards to any possible announcements about moving staff or operations abroad to avoid potential reputational hits that may have a commercial impact.
In the months ahead, Ipsos MORI’s syndicated stakeholder surveys (such as the MPs and Business Journalists surveys) will help financial organisations understand the efficacy of their stakeholder engagement, while our general and engaged publics offer will help explore customer sentiment during this key phase of EU negotiations.
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