Britain will lose its status as Europe’s top financial center unless it keeps borders open to specialist staff, improves infrastructure and expands links with emerging economies, TheCityUK said in a report published Thursday.
The report from Britain’s most powerful financial lobby group said continental Europe might eventually become the preferred destination for banks, insurers and asset managers as they relocate business there to retain access to the EU single market.
Although companies may begin by initially shifting a small number of jobs to Europe, this may accelerate when property leases expire, they carry out business reviews, or the cost of capital becomes uneconomical.
“Shifts out of the U.K. may gradually erode the ‘cluster effect’ of the financial ecosystem, with the threat of a tipping point in the ecosystem being reached,” the group said in an 83-page document outlining how the industry can thrive over the next decade.
Securing a favorable deal for financial services from the Brexit negotiations is one of the biggest challenges for the British government because it is its largest export sector and biggest source of corporate tax.
Britain’s finance industry could lose up to 38 billion pounds ($49 billion) in revenue in a so-called “hard Brexit” that would restrict its access to the EU single market, according to some estimates.
The report said the government must ensure businesses can recruit people to fill skill gaps and must simplify the process of getting a visa.
Brexit has already made it harder to attract people to Britain, and the government is introducing policies making immigration more restrictive and expensive, the report said.
It said the cost of hiring an employee on a five-year visa has risen by 250 percent to 7,000 pounds over the last year and the minimum salary a business may recruit staff for a visa has risen by almost half since 2015.
Aside from Brexit, the report also looks at broader issues that threaten the competitiveness of the city of London as financial services hub, including a need to invest in transport networks and technology.
It calls for government and financial services to work together closely to develop international trade policies and to improve the country’s digital and physical infrastructure, including speeding up travel times between airports and different financial centers around Britain.
One financial services industry veteran who had independent access to the report said it lacked urgency and there was too little on the impact of Britain leaving the EU given that “Brexit is a catastrophe for the city.”
Mark Hoban, a former financial services minister who chaired the report, said that Brexit was only one of several challenges facing financial services.
“The challenges facing financial services are much more than just about Brexit. It is about emerging financial centers and also, to a degree, about unmet needs in the U.K. as well,” Hoban told Reuters. “There is a very clear appetite to tackle these issues at various levels of government.”