The UK’s position as Europe’s leading financial services hub is at risk and the balance of peace and democracy in Europe has been shattered. My view is that Brexit is largely to blame for both.
I have a somewhat unique and unusual perspective on both Brexit and the private equity industry. It is well known that I left the UK in 2009 when the Inland Revenue (as it was known before it was merged with HM Customs and Excise in 2004) singled out one private equity firm and one hedge fund to aggressively target. On principle, I felt that I could not remain in the UK while the Inland Revenue was taking what my advisors and I felt was an absurd position in relation to the UK private equity and hedge fund industry. The hedge fund that was targeted clearly felt the same as it also moved offshore. The Inland Revenue ultimately dropped its position two years later so either the absurdity of its approach must have become obvious to them or it must have realised that it risked losing the entire industry.
Since then, the UK has supported a system of tax transparency for hedge funds and private equity which is no different to low tax jurisdictions such as Guernsey, where I now live. In hindsight, it would have been far better for me and my business if I had stayed. I do enjoy living in the countryside instead of the city, and being part of a smaller community instead of a metropolitan one, but it was a big mistake from a business perspective for me to leave the UK.
However, Brexit threatens the advantages that the UK has historically offered. London in particular has benefited from a virtuous circle whereby talented people are attracted to the City of London and add to its extraordinary collection of creative, intelligent and well-informed financial, legal and business professionals. I worry that with Brexit, ambitious individuals and employers will turn to other European cities such as Paris or Amsterdam, which offer free movement and uncomplicated access to the European open market.
When the UK left the European Union, France’s influence vastly increased to the detriment of Germany. I am largely English by upbringing, so naturally I love French wine, French food and the French countryside. However, I loathe French politics. Britain as a member of the European Union used to counter France’s influence, often allied in our opposition to France with Germany, which served us well. Unfortunately Brexit means that we are no longer in the room to take this approach and we have seen a radical change in the EU away from Northern Western European influence towards the French and Southern Europeans.
The French dislike the City and its success, perhaps due to jealousy or ingrained suspicion of the British or both. They would like to see a number of changes to reduce the City of London’s competitiveness, including tax equalisation and replacing English law with European law. These changes would undoubtedly undermine the City. We already saw Paris overtake London as the largest European stock market at the end of last year. It is now better to have a European holding company rather than a UK one, and I believe it will soon be essential. I, like many UK hedge funds and private equity funds, am considering where in Europe one should base oneself, which I find an extremely sad but an inevitable result of Brexit.
The fact is that most people who voted for Brexit weren’t aware of the potential downsides of doing so. Indeed, when weighing up a deal, most people don’t want to hear about the risks if they have an under 20% probability of happening, let alone 10%. I’ve come to learn that it is often those “10% risks” that come back to haunt you. I said in 2014 that if the UK left the EU, there would be a war in Europe by 2025. People thought I was mad and that the chance of it happening was very low but surely it was always at least “20%” given Putin’s public statements and personality. Regrettably, the tragic events in Ukraine have been unfolding for a year now. Hopefully my prediction of a nuclear war by 2030 will not come to pass but again it must have at least a “20%” probability.
It is unhelpful to think about the winners and losers of Brexit as in Europe we will all be worse off because of it. Instead we would do well to remember that Europe has had more than enough suffering over the past 100 years and as is often said, it is when the people in power can no longer remember the suffering caused by the last great catastrophe that the next great catastrophe occurs.
Guy Hands is founder, chair and CIO of the private equity firm Terra Firma and oversees the Hands Family Office