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At G-P, our industry leading Global Employment Platform™ helps companies unlock their full potential by building highly skilled global teams in days instead of months. But how does the everywhere workforce work together best? Here we discuss the opportunities – and challenges – in achieving the kind of global growth and success we can all share.
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2020 was a tumultuous year for companies all over the world due to the global pandemic. It was also a year of extreme uncertainty for UK-based companies as they braced for the UK’s departure from the European Union.
While the last-minute trade deal spared the UK from the dire consequences of a no-deal Brexit, there are key questions to be addressed about its impact on the UK economy, given the damage already caused by the crippling pandemic. In addition, the uncertainty around the future of London, and its financial dominance as an economic powerhouse, has created a lot of apprehension throughout the business world.
Brexiteers have long argued that the resultant of the separation between the UK and the EU will lead to lesser red tape and stronger ties with the rest of the world. According to The Economist, Britain was the international finance powerhouse and dominated the export of financial services in 2017, with a surplus of £44bn. Euronews reported that the financial services industry contributed to 6.9 percent of the economic output in 2018. However, due to Brexit, the UK has lost the automatic right to sell financial services in the EU, which comes as a major blow to the financial services sector.
The city of London was the capital of capital for most banks and financial institutions in the UK. In 2018 alone, the city generated a total of £132bn for the UK economy — which amounted to nearly half of the financial sector’s total output. The initial thought that pro-Brexit negotiators had in mind was that London would be strong enough to handle the unpredictable repercussions of Brexit.
Hence, they did little to keep the passporting rights and did not insist on mutual recognition, wherein the EU would accept the rules set by the UK as a basis for future trading. On the Jan. 4, 2021, a few days after signing the trade deal, the European Securities and Markets Authority (ESMA) withdrew the registration of six UK-based credit rating agencies and four trade repositories. The ESMA’s decision followed the end of the transition period of the UK’s withdrawal from the EU.
EY’s Initial Public Offering tracker showed warning signs for companies looking to go public. In 2019, EY reported that London’s bullish stock market saw the lowest number of companies to launch an IPO in ten years. Nomura, Japan’s largest brokerage and investment bank, aggressively downsized its European presence in 2019. London’s status as Nomura’s global wholesale hub was brought to a grinding halt, as the company slashed its staff due to uncertainties around Brexit, and the herculean task of adapting to European operations.
At one point, the UK was considered a springboard for doing business in Europe. However, given the tax incentives available in other European countries, many companies have left the UK and have remained downbeat about the prospects of investing in the UK.However, given the tax incentives available in other European countries, many companies have left the UK and have remained downbeat about the prospects of investing in the UK. Click To Tweet
AnaCap Financial, a UK private equity firm specializing in financial services, ditched the UK as a top-tier investment destination in 2017. New Financial, a London-based think tank, reported that more than 330 firms in banking and finance had departed the UK by moving their business, staff, assets, and legal entities from the UK to Europe.
The drain of capital taking place from the UK to different countries in Europe nearly crossed the trillion-pound mark. According to EY, 24 of the largest financial services firms, including banks, insurance companies, and asset management firms, transferred a reported £1.2 trillion out of the UK to the EU in 2020.
This has proven to be a great opportunity for London’s financial rivals. Dublin has emerged as the top relocation destination for many financial firms, followed by Luxembourg, Frankfurt, and Paris. In terms of moving banking assets, Germany has become a top spot for the big players. JPMorgan, Goldman Sachs, and Morgan Stanley have spearheaded the race, and transferred almost €350 billion from London to Germany. The uncertainty around rules and regulations could lead business to trickle away from London, not only to major financial hubs in the EU, but also to the U.S. and Asia.
The situation is looking grim for immigrant workers in London, as well as the UK. A study found that up to 1.3 million immigrants have left the UK — the largest fall in population since World War II.
While the pandemic was a major driving factor, Brexit has played an equally strenuous role by complicating the immigration system and ending the freedom of movement — in London, nearly 700,000 immigrants are believed to have relocated due to the pandemic and growing uncertainty around regulations.
Some argue that Brexit is not the sole reason for the mass migration, but it can certainly have implications for employees wanting to relocate back to the UK once the economy bounces back. The UK Economic Outlook Report by PwC highlights some of the key predictions for the UK’s future in 2021, suggesting that the combined effects of Covid-19 and Brexit could result in a negative annual net migration of EU citizens in the UK.
This means that the number of EU nationals who leave the UK could equate to more than those who settle. The pandemic has negatively impacted sectors which are most dominated by the EU workforce — mainly hospitality and transport. As jobs get harder to find and retain, migration to the UK will become more discouraging.
While the major financial cities in the EU may be celebrating the new Brexit-led opportunities, the European Union still suffers from a lack of solidarity. The huge dissimilarity in the tax and insolvency laws of the individual EU member states could prove to be a barrier while creating a single, unified market.
The financial expertise of major cities is highly diffused, with Frankfurt leading the way in investment banking, and Dublin in fund administration. The geographical location of the UK — in a time zone between New York and Asia — can have multiple advantages for companies. Brexiteers think that despite the loss of EU-related business, increasing investment and revenues from the rest of the world can revive the UK’s financial dominance.
If you are unclear about the recent changes to the UK’s employment laws and the introduction of the new points-based immigration system, or you are simply looking to gain more insight on Brexit, download our “Brexit Simplified: Understanding the UK’s New Points-Based Immigration System” eBook to know more.