It is a pleasure to serve under your chairmanship, Mr Stringer, and I warmly congratulate my hon. Friend Bim Afolami on securing this debate on an important topic. I am sorry that more hon. Members are not present, but I hope that the quality makes up for the quantity.
I am particularly keen to speak in this debate because I have a personal and constituency interest in this matter, and because it is critical to our country. About 36% of the working population of my constituency is employed in the financial or professional services sector, and that is about the 15th highest proportion in the country. Most of those people commute to London, although the European headquarters of Direct Line insurance—one of our principal insurance companies—is based in Bromley, and is the largest private sector employer in the borough. This issue matters for the prosperity of my communities, as well as impacting on the national picture.
This debate is important, but perhaps the reason why there are not more people here is that we have come to take it for granted that we are world leaders in financial services and the allied professional services that underpin them—of which more shortly. We take it for granted that the City will always be all right. I use the City as a shorthand for the broader financial services sector because, as my hon. Friend pointed out, only about half that sector’s output is generated in London, and many of the jobs are in fact based outside.
The idea that “the City will be okay” is something that we have to challenge a little. It will be okay, provided that it continues to have the right regulatory tax, fiscal and political environment to support it. It will be okay if we leave the European Union on sensible terms with a deal that protects the interests of our market access, but it will not necessarily be okay in the event of a catastrophic exit from the EU. Although larger firms will be able to manage come what may, smaller firms, which are often the innovators in this sector, will be more at risk. That makes it all the more important that we get it right for the City and the financial services sector as we leave the EU.
My hon. Friend properly referred to the contribution made by the financial services sector to the UK economy, and it is worth mentioning the report “Total tax contribution of UK financial services”, which was issued by the City of London Corporation, to which I pay the highest respect for its work to promote the sector nationally and internationally. The report, which was published in December 2018, highlighted the fact that the industry’s contribution to the Exchequer increased over the past year to £75 billion. That is 10.9%—nearly 11%—of the Government’s total tax receipts from all sources. It is 6.6% of the UK’s economic output. The number of jobs has already been referred to. This is a critical national economic and strategic asset, and Government policy must treat it as such.
It is worth saying that access to the European markets remains important, as it should do. My hon. Friend the Member for Hitchin and Harpenden is right to recognise that there are opportunities to be had from growing our contacts and trade with emerging economies. I was in Hong Kong in September at a legal conference looking at the opportunities for British law firms and their financial services clients, in relation to the belt and road initiative. No doubt there is much that can be done there, but at the moment, often, trade with China—particularly in the service sector—comes with strings attached, and perhaps a lack of transparency about access to the relevant sectors that would frankly not be acceptable in UK terms. The same applies with India, where there are great opportunities, but where there has so far been a marked reluctance about liberalisation in the service sector. As to my profession, as a lawyer, there is marked difficulty with India in getting liberalisation in the legal services sector. I hope that the Government will give more attention to that.
I was the sort of lawyer who became involved in the matters in question if regulatory procedures had not always been properly followed, whereas my hon. Friend was someone who made sure they were. What I have pointed out makes good, robust and internationally recognised regulatory frameworks all the more important. I previously had a spell working for Scottish Widows insurance, and as a trainee jobber, when such things existed, with Ackroyd and Smithers, who were then the leading gilts jobbers. It is an area of law in which I have always taken an interest, aside from its constituency importance for me.
The benign regulatory environment is something we need to watch, as we leave the EU. My hon. Friend is right to say that sometimes EU regulators have been difficult to deal with, from our perspective. Equally, however, dealing outside the EU, with a proper free trade agreement with third countries, to include financial services, will not be without challenges. I am secretary of the all-party parliamentary group on financial markets and services and have just come from a breakfast meeting with the group to discuss the prospects of a free trade agreement in services with the United States. There are real regulatory obstacles—not least having to deal with not one regulator but, in relation to the insurance sector, for example, 50 state insurance regulators as well as a national regulator. With banks, would one be dealing with the federal regulator, the regulator in New York or the state regulator in Chicago?
There is a multiplicity of issues to be addressed, which is why it is critical that we leave the EU with a deal, and with a transition period in which we could maintain all the good aspects of market access to the EU and have time to sort out arrangements and opportunities with non-EU countries. Let us be honest and not kid ourselves—those complexities will not be sorted out overnight. It will take time, and to benefit we must be patient about how we go about things.