Giving up membership of the EU is changing the UK economy. But not in the way the headlines suggest. Last week there was much crowing that Brexit Britain had secured a £1bn electric vehicle hub in Sunderland, where Nissan will produce a new all-electric car model and its partner Envision will build a huge battery factory. This was good news. But there was less focus on the fact that the units built will be tailored to rules set by Brussels.
Ministers are coy about what was paid to keep the Japanese car giant here. States often dangle economic carrots to attract investment. The UK would have done so had we stayed in the EU. Instead, with Britain outside the bloc, Nissan had the upper hand in negotiations. If the plant had gone somewhere else, it would have been a clear signal that Britain was a less attractive destination outside the EU than it was within. Without the investment, ministers could have credibly been accused of betraying “red wall” voters.
If Nissan’s investment is a vote of confidence in Brexit, then one has to ask what to say about companies that have left since 2016. Job offerings in UK finance have plunged downward since the 2016 referendum. This ought not to surprise anyone: before Christmas, Boris Johnson managed to get a thin trading agreement with the EU that brought relief for manufacturers but dismayed financial services, which make up 7% of the country’s GDP.
Mr Johnson called this an “Australian-style” deal. In fact it was worse than that: it is now easier to sell many financial products to the EU from Sydney than London, despite the latter being 10,000 miles closer to Brussels. There had been some hope that the chancellor of the exchequer, Rishi Sunak, might have been able to salvage this situation by convincing the EU to grant “equivalence” for City businesses to operate on an equal footing with local European firms. But on the same day as the Nissan announcement, Mr Sunak said his attempt to secure such terms had stalled. The upshot will be that those wishing to trade and clear securities in the EU will have to move their operations to the continent. This is already happening. Before Brexit, more than half the trade in EU equities was in London; now it’s less than 20%. Remarkably, the City now risks slipping behind Amsterdam as Europe’s largest share-trading centre.
Some might see such a loss as a much-needed rebalancing of the British economy, with the need for more jobs making things and fewer shuffling paper. But financial services employ about six times as many people as the motor industry, and surely a rebalancing is better done on our terms, not on other people’s. Our laissez-faire approach to the economy has left us catching up. The UK stock market is filled with polluting stocks and lacks green industrial investment opportunities. The government’s £15bn green gilt offer may help lower the cost of raising capital for renewable energy companies, but the help is smaller than that offered by the US, France and Germany.
Britain might bet on fintech companies and attempt to set the rules in a fast-growing sector. It could opt for greater deregulation by lowering authorisation requirements and dropping disclosure rules. That would be unwise and encourage the kind of sharp practices that led to the last financial crash. Britain should have regulated the City better. It didn’t need to leave the EU to do so. Helen Thompson, a professor of political economy at Cambridge University, argued in 2017 that Britain’s position as a non-euro member of the EU, while possessing the offshore financial centre of the eurozone, made Brexit inevitable. Now we have lost that role, Britain is in search of another.