Take bank threats to leave Brexit London 'with dose of scepticism'
While warnings by financial institutions that they will shift jobs away from London due to Brexit poses a risk the country’s economy and commercial property markets, there was a call on Thursday to “take their threats with a dose of scepticism”.
As banks have recently said they will move out of London in light of ‘hard' Brexit, Eduardo Gorab, UK property economist, as Capital Economics said that threat could prove difficult to carry out due to supply conditions in Europe, rent prices, reluctant bankers willing to move due to low income tax and low corporation.
Since Theresa May’s major speech on Tuesday, which she said Britain will no longer be a member of the European single market and a part of the European Economic Area’s customs union once it leaves the EU, several major banks have mooted plans to shift jobs out of the country.
HSBC have said they will move about 1,000 jobs to Paris and UBS about 300 to Madrid from London, while banking heavyweights JP Morgan have suggested they will move between 4,000 and 3,000 to an EU country.
Gorab said “that there is an incentive for banks to publicly threaten to move positions away from London” in order rto secure the “best possible deal” when the country negotiates with the EU.
He said that banks have threatened to move before to Singapore or Hong Kong, but none of the moves have actually come to fruition, which shows that banks “have cried wolf in the past”.
The costs of the relocating operations would not be costless, the economist said, due to a lack of supply on the continent and that the positive demand shock would likely drive up rental prices in likely EU destinations of Paris, Frankfurt and Dublin.
Gorab also said that UK’s lower corporation tax is not as attractive as in France with 33% or Germany with 30%. Chancellor Philip Hammond has indicated Britain could lower corporation tax in order to remain competitive post-Brexit, but has lately backtracked on the remark. Ireland has a 12.5% tax rate for trading income.
Migration was also a going to be a problem, with British bankers making the move could be “difficult”.
The marginal rate of income tax in France, Germany and Ireland is “at the very least comparable to the UK’s”, while a bonus cap of around 200% of base salaries is still in place across the European Central Bank’s jurisdiction.
Gorab said: “Given their track record, the current threats are probably best taken with a healthy dose of scepticism. In our view, a more plausible solution, therefore, seems to be a mixture of hiring freezes in London and headcount boosts in Europe. All else equal, this would not seriously undermine the current central London occupier base.”