With Britons set to vote this Thursday on whether to leave the European Union, there has been no shortage of speculation of how a British exit – or Brexit – would impact the economies of the UK and its trading partners.
Last week, Canadian Finance Minister Bill Morneau added his own dire prediction to the pile, predicting that a “leave” vote could put at risk tens of thousands of UK jobs at Canadian companies with operations in Britain.
It’s not unusual for politicians to make hyperbolic statements ahead of referenda that have the potential to shift the economic map. Just ask the head of Unilever, who said last week Britons could see ice cream costs rise by as much as 50 per cent if Britain leaves the union.
But while “tens of thousands” is a pretty broad range, the claim follows a report by PricewaterhouseCoopers that the UK economy as a whole could lose 950,000 jobs if the Brexit goes through, so Morneau’s not alone is seeing significant fallout. And experts agree a “leave” vote could cause many British jobs to do just that.
“There could be a significant loss in Britain, but I think there’s also going to be a significant disruption in the world,” says Jack Mintz, an economist and president’s fellow at the University of Calgary’s School of Public Policy.
“It partly depends, even if Britain left, on what kinds of arrangements follow after that.”
Indeed, the one certainty of a leave vote would be the uncertainty that would immediately follow. But what seems clear is that Canada to would have negotiate new trade deals with the UK, while UK’s broken ties with Europe would make the UK market considerably less appealing for many Canadian players.
“What actually happens in terms of accommodation afterwards is one thing,” says Mintz.
“The other thing is if Canadian firms operating in Britain are finding it difficult to access the EU, they could easily go to another country with access to the European Union.”
While Canadian companies operating in Britain run the gamut of industries – Bombardier is a major employer, Nexen another – it’s the financial and high-tech sectors where the major job losses are likely to occur, says Kurt Huebner, a political science professor at the University of British Columbia.
“We have to look carefully what those Canadian companies are doing in the UK. Are they producing (goods) or are they in the financial sector?” he says.
“Some of them may have very low transfer costs for them moving from London to somewhere else.”
In other words, while it’s a major endeavor for Bombardier to pull up a production line and move it overseas, a bank or software producer would have more flexibility to shift to another centre if it makes sense.
And banks and tech firms cover a lot of jobs among Canadian companies in the UK.
Royal Bank of Canada, Bank of Montreal, and Toronto-Dominion Bank are all employers in the UK, while the Canada-United Kingdom Chamber of Commerce counts among its member several small tech, legal and support companies, many of whom value their London address for the access it provides to the rest of the European market.
“It all depends on how many of these Canadian banks were there for the eurozone relationship transaction type of clearing things. That’s the key,” says Angelo Katsoras, a geopolitical analyst at National Bank Financial.
“If they leave, the process of moving this stuff out begins fairly quickly, in my opinion.”
This also means that Canadian-based companies that export to the UK could see business hurt, though the impact on this side of the pond is not expected to be too significant.
Dana Fox, director of global business development with Canadian-based Athena software, says a Brexit would mean he would have to forge individual relationships with EU countries, rather than enjoying full access through Athena’s UK office.
“Cost of entry into each of these countries independently will exceed our capacity to invest in business development in the EU,” he says.
This doesn’t necessarily mean Athena will cut jobs, but it would have to rework its expansion strategy, he says.
Of the companies that do end up cutting jobs, Mintz says it might not be too long before they reappear again, as North American companies looking for European access find an alternative to London, such as Frankfurt, or even Dublin.
“If Canadian firms operating in Britain are finding it difficult to access the EU, they could easily go to another country with access to the European union,” he says.
“I suspect that one of the things that could happen over time is that Ireland could be a very significant beneficiary of Britain leaving.”