The Prime Minister is entirely correct to be seeking to build on our relationship with closer ties with the EU, writes Chris Hayward

The UK’s relationship with the European Union (EU) has undergone significant change in the last decade. Yet, perhaps to the surprise of many in the Square Mile, the City has proved remarkably resilient. 

We are the world’s leading financial centre, our workforce has grown by 25 per cent to almost 700,000 jobs, and EU banks are doing 60 per cent more business with UK institutions than they did prior to the referendum.

Amidst this success, the Prime Minister is entirely correct to be seeking to build on our relationship with closer ties with the EU. The bloc is by far our largest trading partner – and breaking down barriers will be key to unlocking growth the country is crying out for. 

The UK’s economic ties with Germany

Now, it will be for the politicians to determine what form this new relationship takes. What the City wants to see is a new relationship that unlocks more investment, supports innovation, strengthens sustainability and delivers prosperity. 

That was the message I took to Europe’s largest economy, Germany, last week, where I met with the Federal Chancellery, the Federal Ministry of Finance, members of the German Parliament, the Bundestag and representatives of the German financial services industry. 

There was a mutual recognition of the growing importance of UK-German relations. The UK and Germany stand shoulder to shoulder in support of Ukraine; the Federal Republic is the UK’s second-largest sovereign trading partner; we are Germany’s third-largest trading partner outside the European Union, with trade worth more than £149bn per year – a quarter of that is in services. 

These figures tell an important story. Our economic relationship with Germany, and Europe, where much of its economic policy is devised, remains strong, but there is enormous potential to build on. The question is how we make those connections work better for our economies.

Both sides recently ratified the Kensington Treaty, the first ever legally binding bilateral treaty between the UK and Germany, with the aim of promoting prosperity, growth and innovation in both countries. The City of London strongly welcomes this important agreement and we encourage both sides to use it to further deepen our ambitious cooperation.

The UK-EU Summit on 20 November provides an opportunity to turn political goodwill into practical economic gains between the UK and all of the EU. Financial and related professional services belong high up on the agenda. 

Mutual recognition of professional qualifications would make it easier for businesses to access talent. Greater certainty around data arrangements would support digital trade and innovation. And closer regulatory cooperation could reduce unnecessary duplication and make cross-border investment easier, while maintaining high standards and ensuring financial stability.

We must also be careful not to create new barriers that restrict the flow of investment. Europe needs capital to strengthen its energy security, expand its defence capabilities and support businesses with the ambition to grow. The European Union’s Capital Requirements Directive (CRD VI), if implemented in its current form, would put this at risk, by making it harder for British Banks to support businesses on the continent. 

Supporting prosperity across Europe

London can provide the capital Europe needs. Our financial markets give European companies access to international investors, while our expertise in areas such as insurance, technology and sustainable finance can support projects across the continent.

Of course, the UK must also remain competitive. International investors need confidence that Britain is a place where they can establish businesses, raise capital and plan for the long term. We should be proud of the strengths that continue to attract investment to London, from our legal system, rule of law, regulatory expertise, global talent and our financial ecosystem and international reach.

Britain and Germany have a shared interest in a resilient European economy and we should use our strong, shared foundations to make cooperation deliver for businesses and communities. That means keeping financial services at the heart of the conversation, reducing friction where it serves both sides and giving investors certainty to commit capital. The prize is a partnership capable of creating jobs, security and prosperity across Europe.

Chris Hayward is the policy chairman for the City of London Corporation