Britain crashing out of the European single market could costbanks and associated businesses in the U.K. almost 40 billionpounds ($51 billion) in lost revenue, undermining a key sector ofthe economy, an industry report will warn on Wednesday.

Finance firms are making a fresh bid for special status inupcoming Brexit negotiations with the EU after U.K. governmentofficials this week indicated banks will get no favors. The report,prepared by Oliver Wyman on behalf of TheCityUK lobby group, warnsthat almost 70,000 jobs and 10 billion pounds of tax revenue are atrisk from a so-called hard Brexit, according to two people familiarwith its contents.

Prime Minister Theresa May has ruled out prioritizing protectionof the banks in Brexit talks and has dismissed their key businessdemand for an interim deal to help ease the transition out of thebloc, Bloomberg News reported Monday, citing three governmentofficials. Finance executives have threatened to move jobs ifBritain doesn't secure a deal allowing them to serve Europeanclients from London.

“A strong U.K.-based financial and related professional servicesindustry is fundamental to a thriving economy,” TheCityUK ChiefExecutive Officer Miles Celic said in an emailed statement inresponse to the Bloomberg report on May's stance. A positiveoutcome to negotiations “would be mutually beneficial to the U.K.and the EU, would cause minimum disruption to the industry and thecustomers it serves, and help to ensure financial stability.”

Two Scenarios

The U.K. financial services industry generates between 190billion and 205 billion pounds of revenue annually and employs 1.1million people, according to a draft of the report obtained byBloomberg. The industry pays between 60 billion and 67 billionpounds in taxes each year.

A spokesman for Oliver Wyman declined to comment on the contentsof the report.

The report details the impact of two different Brexit scenarios.If the U.K. is outside the European Economic Area butmaintains ongoing access to the single market on broadly similarterms to now, then 4,000 jobs could be at risk. Such a move couldcost the industry 2 billion pounds in lost revenue every year,resulting in a drop of 500 million pounds in tax paid to the U.K.Treasury.

At the other end of spectrum, if the U.K. loses all passportingrights, then 35,000 industry jobs could be on the line, along with20 billion pounds of annual revenue and 5 billion pounds in losttax receipts. The impact on the wider financial ecosystem of suchan outcome could “almost double the effect of Brexit,” the reportsays.

Bank representatives are lobbying May and EU leaders to strikean interim agreement to allow banks in London to continue toprovide services across the EU beyond the end of the two-yearnegotiation period for a Brexit.

“What we want is to have as full access to the single market aswe have at the moment so that banks in the U.K. can carry onserving customers in the EU-27,” said British Bankers' AssociationCEO Anthony Browne. “The top priority for the industry is gettingagreement on a transition arrangement to make sure there is anorderly process and no risk to financial stability.”

Bloomberg News

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