No-deal Brexit ‘disaster’ for Scots financial sector
Experts warn of torrid time with EU regulators if UK crashes out in chaos
SCOTLAND’S financial sector faces “pretty horrific” consequences in a no-deal Brexit, MPS were warned yesterday, as a key EU figure said it was more likely than ever before.
At a special session in Edinburgh, financial experts warned Westminster’s Scottish Affairs Committee that a chaotic exit next March could cause huge problems with EU regulators.
They told MPS that financial transactions currently carried out seamlessly across Europe by UK firms could be deemed regulated activities and become illegal overnight on the Continent.
The Association of British Insurers warned of the stark prospect of clients in other EU states being denied pensions or insurance payouts based on UK products.
EU council president Donald Tusk last night told EU leaders a no deal was more likely than ever before, while German Chancellor Angela Merkel spoke of growing difficulties.
The US carmaker Ford also said a no-deal would be pretty disastrous for the British car industry and force the company, which employs 14,000 in the UK, to rethink its investment strategy.
Fellow carmaker Nissan, which employs 8,000, and drugmaker Astrazeneca, which employs 7,000, also warned of serious disruption if the UK crashed out the EU without a transition to a new trading environment.
The warnings coincided with a Commons statement by Theresa May that stubborn problems over Northern Ireland meant there would be no Brexit deal at this week’s EU summit.
A deal was supposed to tee up a final sign-off in November, but that is now set for December – if it happens.
The Prime Minister insisted Brexit remained on track despite disagreements over the EU’S demand for Northern Ireland to stay in the single market and customs union in a no-deal.
She called for cool, calm heads to prevail in talks, stressing she did not believe the UK and the EU were far apart but expressed frustration that virtually all the remaining points of disagreement centred on the so-called backstop.
She told MPS: “We cannot let this disagreement derail the prospects of a good deal and leave us with the no-deal outcome that no-one wants. I continue to believe that a negotiated deal is the best outcome for the UK and for the European Union. I continue to believe that such a deal is achievable.”
She repeatedly refused to put a firm end date on a temporary deal to keep the UK in the customs union pending a solution to the Irish border question.
Her expectation was this would end by December 2021, but she did not go any further.
Over 100 minutes, not one MP spoke in support of her Chequers deal for a soft Brexit.
The PM’S evident difficulties prompted Mr Tusk to tweet: “It always seems impossible until it’s done. Let us not give up.”
However, he also issued a letter to EU leaders in which he said the hoped-for deal had “proven to be more complicated than some may have expected”. He said: “We should nevertheless remain hopeful and determined, as there is goodwill to continue these talks on both sides. But at the same time, responsible as we are, we must prepare the EU for a no-deal scenario, which is more likely than ever before.
“Like the UK, the Commission has started such preparations. But let me be absolutely clear: the fact that we are preparing for a no-deal scenario must not, under any circumstances, lead us away from making every effort to reach the best agreement possible, for all sides.”
The financial services industry in Scotland manages more than £800 billion in funds, employs 100,000 people directly, and generates £8bn a year for economy.
At the Scottish Affairs Committee, Alastair Ross, of the Association of British Insurers, said the UK was the largest insurance hub in Europe, selling around £10bn of products each year into the EU, while importing a few tens of millions.
Replacing some of that trade after Brexit was already “quite a challenging prospect”, he said.
However it could be made far worse if financial regulators in other EU countries stopped recognising the current arrangements in the event of no deal.
He said insurance firms had been planning for Brexit since the second half of 2016, and while arrangements
were well advanced, some would not be ready for a no deal.
He said: “A no-deal scenario would mean – to put it in very fundamental terms – that it could become illegal for insurers to actually honour the contracts they’ve entered into with people.
“People… would find that it may be illegal for them to pay into a policy or to contribute to a pension they’d signed up to, or that it’s illegal for the insurer to pay out on those policies.
“Now that’s certainly not in the best interests of the customer, but that’s the situation we could find ourselves in, where regulators in the EU27 states say the payment of that money is a regulated activity, and therefore you’re breaking the law.”
When SNP chairman Pete Wishart called the scenario “pretty horrific”, Mr Ross agreed.
Mr Ross said no deal would also end the European Health Insurance Card system, forcing people to claim medical care in the EU on travel insurance, pushing up premiums.
UK drivers and haulage firms would also lose automatic Eu-wide motor insurance, meaning a return to the “green card” system of the 1970s.
Conor Law, of UK Finance, the trade association for the finance and banking industry, said there were around £22 trillion of contracts between the UK and the rest of the EU.
In a no-deal, many would be deemed “regulated activity”, at best pushing up costs for firms, while in a worst case scenario businesses would struggle to function because the parties couldn’t intervene as before and “make the contract work in the way that it should”.
Earlier, in a speech in London, Nicola Sturgeon said there was a common sense alternative to Chequers: staying in the customs union and single market.
Dismissing the choice between a bad hard Brexit or no-deal, the First Minister said: “It is probably the case that the only option with any chance of commanding a parliamentary majority is single market and customs union membership.”
The First Minister later had a short meeting with the Prime Minister in the Commons about the current state of the Brexit negotiations, ahead of tomorrow’s EU summit.
Afterwards, Downing Street said Mrs May had spoken of “real progress” in recent weeks, but also outstanding issues in relation to Northern Ireland and the backstop.
Ms Sturgeon’s spokesperson said it was clear “fundamental issues” still had to be resolved between the UK and the EU.
Mrs May was last night due to talk to French President Emmanuel Macron as part of a round of calls to EU leaders before she goes to Brussels for the EU summit.
Leif Johansson, chair of Astrazeneca, yesterday said his company would not invest in the UK until it had clarity about future trade relations.
Labour MP Ben Bradshaw, of the People’s Vote campaign, said: “Nobody voted for our world-class pharmaceutical industry to be starved of investment. Yet the increasingly shambolic Brexit process is ensuring just that.”