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Brexit Limbo Tightens Screws on U.K. Finance, Says Top Lobbyist

Brexit Limbo Tightens Screws on U.K. Finance, Says Top Lobbyist

(Bloomberg) -- The City of London’s Catherine McGuinness represents the financial district that employs about half a million people and generates tens of billions of pounds in yearly output. Three years after the Brexit vote, the City’s chair of policy and resources is concerned about leaving the European Union without a deal -- but also increasingly worried about the plans of the opposition Labour party. Her Q&A with Bloomberg News has been edited for length and clarity.

What’s been the impact of Brexit so far?

Near stagnation of the services sector, which is one of the biggest parts of the economy. A slowdown in investments into the U.K. Depending on how smoothly we leave I expect some distortion and volatility, but I wouldn’t expect the major crash I was worried about at the beginning. More broadly I expect fragmentation. This leads to reduced liquidity and reduced access to money. That’s why it’s critical that both sides reach a sensible solution that works for customers and businesses.

Is the City ready?

Regulated players are as prepared as they can be, except for some intractable cliff edge issues that they can’t resolve themselves. A range of temporary permissions will start running out. Small and medium-sized businesses are not yet ready.

The big firms have set up wrappers [in Europe] but many of them had operations already. They have the ability to move functions to other places. We haven’t yet seen the movement of people to populate that. I think they are ready. The question is, have their customers completed paperwork to shift contracts and business?

What will we lose?

About 5,000 jobs [this is based on estimates for near-term job losses issued by EY, although estimates vary]. We are very confident that fundamentals for the longer term mean that London is going to remain a great global center. We are seeing growth in fintech and tech generally.

A lot will depend on market access post-Brexit. We are one of Europe’s two largest financial centers and it’s in EU’s interest to continue using our services rather than cutting us off altogether, so I’m expecting we will come to a sensible solution. Will access look like the patchwork that the Swiss had in place that took years to build up? I hope we can strike a more bespoke arrangement.

I visited Switzerland recently. We talked about the discomfort of relying on equivalence when some decisions are clearly politically motivated. So it’s political, partial and revocable on short notice.

Have you been talking to Labour?

We work with whichever government is in power. I encourage whoever comes in to remember how important financial and professional services are to the economy and to look carefully whether their policies promote or undermine competitiveness. Some policies being proposed need a little more thinking through and we are very happy to speak to the Labour party about that.

We support the idea of employee engagement and have looked at employee share incentives. It’s a complex global sector that we house here, so any policy you bring in needs to reflect the fact that many of these organizations are across borders. Complexities of firms that cross lots of borders mean it isn’t obvious what you give employees in the U.K. You can’t give 10% of worldwide shares. It becomes complicated.

I have my annual tussle with [shadow chancellor] John McDonnell about a financial transaction tax. I’m concerned about how that would work and whether it would drive business away or not.

Is there fear of Jeremy Corbyn in the City?

People are watching the policies being proposed with interest, and in some case concern about how they work. At the moment the main focus is wanting to see progress on Brexit. Uncertainty is really damaging and holding people back.

To contact the reporters on this story: Viren Vaghela in London at vvaghela1@bloomberg.net;Silla Brush in London at sbrush@bloomberg.net

To contact the editors responsible for this story: Ambereen Choudhury at achoudhury@bloomberg.net, Marion Dakers

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