As a hard Brexit looks increasingly likely, British business leaders are making their concerns known about how crashing out of the EU will affect them. A group of 100 recently formed a group, Tech for UK, calling for a second referendum. Their worries certainly seem justified by how major industries have reacted to the first fifteen months of Brexit negotiations. The so-called “Brexodus” has already begun, sapping the UK of its labour force and prompting firms to engage in their “backup plans” of building bases on the Continent.
Some sectors are being particularly hard hit. Financial services, which contributes 12% of the British economy, is one of them. Outbound investment projects by the UK financial services industry jumped 93% in the year following the referendum. Major financial firms have already begun moving billions of pounds out of the City and recruiting staff on the Continent. Frankfurt and Paris are rapidly emerging as Europe’s future financial hubs, and both are making concerted efforts to lure British firms and workers.
“We shouldn’t be under any illusion that London will have to remain a major financial hub, will have to remain the capital market for Europe for some time to come”, emphasized John Cryan, the CEO of Deutsche Bank AG. Earlier this year, Deutsche became one of the first major banks to announce that it was beginning to migrate its clients out of London in response to the Brexit vote. Other important players, including Barclays Bank and Goldman Sachs, are also making contingency plans, cutting down their operations in the UK and looking for new trading hubs to manage their European business.
The uncertainty around the outcome of Brexit negotiations between the EU and the UK has been a major factor in these firms’ decision to relocate capital. In addition to multinational banks, a number of asset management firms have also set their sights on Europe. M&G Investments, for example, is making arrangements to transfer €39bn worth of client assets to Luxembourg.
In addition to sending billions of pounds out of the UK, these financial firms are also considering relocating large portions of their staff to the Continent. Companies including HSBC, Bank of America Merrill Lynch and JPMorgan, amongst others, have announced they will relocate up to 4,000 jobs to Paris, while the Bank of England has warned that as many as 10,000 financial jobs may leave London before Brexit Day.
The financial sector, though high-profile, is by no means the only British industry in trouble. As London faces losing its pre-eminence as a financial centre, Britain’s tiny overseas territory of Gibraltar—which voted 96% to remain in the EU—faces losing its own dominance as a lucrative gambling hub. Just this week, William Hill, the UK’s largest bookmaker, announced that it is opening a satellite office in Malta, worried that its current headquarters in Gibraltar won’t be enough to shore up its European business post-Brexit.
William Hill’s move fits into a broader trend of British gambling firms choosing Malta as a post-Brexit base. Sport betting giant Bet365 is reportedly looking to relocate up to 1,000 employees from Gibraltar to Malta, while 888, another major online gambling company, recently declared it is setting in motion its backup plan to apply for a gaming licence in Malta. More companies are likely to follow suit, which could be catastrophic to the Gibraltarian economy, which relies on the online gambling industry for 25% of its GDP.
Malta, the smallest country in the EU, might seem like a surprising choice to become the hub of an €85 billion industry. Malta’s gambling regulator, the Malta Gaming Authority (MGA) however, has made a name for itself for fairly and efficiently regulating the sector, being business-friendly while also protecting players. The Maltese government is in the process of enacting new all-encompassing gambling legislation, which will provide more powers to the MGA in supervising all gaming activity, formalising its player protection framework, and encouraging innovation and development in the industry.
The MGA also continually seeks to streamline its regulation & embraces new technology—it’s been heavily involved in the roll out of blockchain & cryptocurrencies on the island. In the initial phase of this roll out, the MGA will be cryptocurrency in a specially-engineered, highly-regulated “sandbox” environment. The outcome of this will determine how blockchain & cryptocurrency will be incorporated into the Maltese economy, particularly its gambling sector.
Gibraltar has enacted similar measures to try and stay on the cutting edge of gambling regulation, and introduced a swath of laws in January 2018 to regulate cryptocurrency and blockchain. The string of high-profile moves to Malta, however, indicate that these initiatives haven’t been enough to outweigh firms’ concerns about the Rock’s status after Brexit.
The financial and gambling sectors won’t be the only victims of the looming “Brexodus”. The UK Trade Policy Observatory at the University of Sussex estimated a hard Brexit scenario could result in manufacturing exports being slashed, affecting British aerospace, automotive and pharmaceutical companies. A recent survey indicated more than a fifth of manufacturing firms in the UK are planning to lay off workers to absorb the financial burden that comes with Brexit.
In a toss-up between fight or flight, it seems almost every sector in the UK economy is leaning towards flight as a response to Brexit. This could mean major disruptions the British economy in terms of investment, manufacturing and labour—turmoil which will take hold long before 29 March 2019, the official date of departure from the EU.
With the Brexodus gathering steam before the terms of the Brexit “divorce” are anywhere close to finalized, it’s no wonder that British business owners are starting to realize how enormously their country’s economy will be affected— and calling on the UK government to strive for serious compromises rather than the “fantasy” EU officials have warned they are chasing.