“Brexit frees us to build a truly global Britain,” enthused Boris Johnson in his Telegraph column immediately after being appointed Foreign Secretary. If anything presently embodies the vision of “Global Britain,” it is the City of London, that marvel of a world-leading, cosmopolitan, ferociously competitive and efficient financial centre that serves as a powerhouse for the entire UK economy. But just as the City owes much of its current awe-inspiring prosperity to European integration, the brutal realities of Brexit will make it shrink, not thrive.
All this is bleak news, not just for the City but for the national economy. London’s financial sector is a huge generator of tax receipts for the government: according to the City of London Corporation, in the year to March 2015, the City paid £66.5bn in tax, equivalent to almost two thirds of the national education budget. It also provided revenue and profits for innumerable non-financial businesses, not to mention easier access to capital for many UK companies. For all the anger directed at fat-cat financiers, their mass emigration will do the nation no good. The reason, in a nutshell, is that the European Union’s single market has always been much more than a free trade zone. From its very inception as the 1950s European Coal and Steel Community, the EU has been about removing “behind-the-border” barriers to business and creating a single economic space regulated by supranational authorities. (This is why EU-level competition policy is so central to the whole project.) Deep economic integration goes hand-in-hand with supranational administrative capacity, especially in economic sectors that require intrusive public oversight, such as regulated services and especially finance. As Dani Rodrik, the Harvard economist, put it in his 2011 book The Globalisation Paradox: “Markets are most developed and most effective in generating wealth when they are backed by solid governmental institutions.” The EU project, for all its twists and turns, can largely be summarised as applying this insight to a continent-sized region. The fact that the single market vision is still far from fulfilled, especially in the service sectors, does not invalidate the logic of deep integration.
“The network effect, which has been the City’s best friend, could become its most implacable enemy”
Until now, the City has benefited disproportionately from the EU single market. London achieved its current dominant position in…