Downing Street to seek parallel financial services talks with US
Downing Street is looking at whether a financial services deal can be done in tandem with a broader free trade agreement with the US.
The UK will begin talks with counterparts in Washington in the middle of this month, and today published an 184-page document setting out its mandate, which will prioritise industries such as ceramics and cars.
It is understood that financial services, which the document makes clear will not be a big winner from an FTA and could even lose out, may benefit from parallel talks taking place between the two Treasury teams. The main negotiations will be carried out through the Department for International Trade.
A decision is expected to be made within weeks, with Whitehall hopeful the carved out talks could yield a quicker result for the sector. The FTA itself could run into years, although sources have indicated that sector mini-deals or even state-level agreements could be reached in the meantime.
Under the modelling used within the mandate, the deal could actually erode the sector’s gross value added (GVA) by around 0.5 per cent. In 2018, financial services was worth £131bn, equivalent to 6.9 per cent of the UK’s GDP.
The document also reveals that employment in financial services is also likely to fall “in the long run”.
“This reflects a reallocation of resources towards other sectors in the economy as they expand following the free trade agreement [FTA],” the mandate stressed. “It does not indicate that the financial services sector would be smaller in the long run than it is today.”
It also insisted that the sector would be “more productive” as a result of the FTA, pointing to “a positive impact for consumers derived from lower prices and increased consumption”.
A DIT spokesperson said: “The government is committed to ensuring the UK continues to be a leading global financial centre. The UK and US have a unique opportunity to set a new gold standard for what can be agreed in FTAs on financial services.
“The economic modelling does not take into account all the factors relevant to financial services trade and does not reflect what we expect to achieve for financial services.”
Miles Celic, chief executive of TheCityUK, added: “The UK has the largest net trade surplus in financial services in the world, but we cannot take this for granted. Britain must constantly review its global competitiveness if we are to hold our lead.
“Deepening the UK’s wider trade and investment relationship with the US will strengthen one of our most important economic relationships, and this has the potential to deliver wide benefits.
“Measuring and modelling trade in services is notoriously hard to do – evidenced by the fact that in recent years, the UK and the US have both simultaneously reported a services trade surplus with each other. These challenges often lead to the value of services trade being underestimated compared to goods trade.”
Catherine McGuinness, chair of Canada Corporation’s Policy and Resources Committee, added:“The UK and USA are the world’s leading exporters of financial services and are each other’s biggest services trading partners, so these negotiations are an opportunity to set a new global standard on what is possible on cross border financial services trade.
“As the biggest contributor to the UK’s trade surplus in services and as a key driver for the prosperity of businesses and households on both sides of the Atlantic, the financial services sector should be a top priority in any future free trade agreement.
“Alongside these discussions, closer cooperation on regulatory issues can play an equally important role in increasing transatlantic trade in financial services.”