A view that has been gaining currency in recent weeks is that the UK could follow the Swiss financial services model, a country that has thrived outside of the EU.
However, Smith believes that Switzerland’s relationship with the EU could not be replicated, and that evolving legislation could push financial services activity towards the continent if the UK votes for Brexit.
Of particularly relevance is his view that the UK asset management industry – with assets under management totalling £6.2trn ($8.8trn, €8trn) in 2013 – is likely to suffer should Brexit occur.
“Under the EU’s Ucits directive, collective investment vehicles, such as unit trusts, are permitted to be sold across the region on the basis of authorisation from one member state,” he said.
“The regulatory burden on the UK fund management industry outside of this special zone would be severe, and it is highly likely that many European or international fund houses currently choosing to headquarter in London would move at least part of their operation back to the mainland.”
Would the UK’s budget balance improve substantially if it was to leave the EU?
It is true that the country would be around £9bn better off in the current tax year if it did not have to make contributions to the EU.
However, Smith believes that at least two-thirds of this saving would probably be eroded by associated losses and compensatory domestic public expenditure.
“Perhaps the greatest risk to UK finances is that Brexit would create uncertainty, which could, by itself, reduce growth,” he said.
Rathbones’ final myth is that foreign investors will withdraw from the UK if it leaves the EU.
Smith stressed it is difficult to conclude that the prospect of Brexit is derailing investment flows.
He explained: “2014 was a record year for inward investment, despite the inevitability of the referendum. Surveys indicate that R&D will be the focus of investment projects over the coming years, and here the UK has unparalleled attractiveness.
“Although it is difficult to forecast the long-term implications of Brexit, we do not expect a divestment of foreign investment in the short to medium term, but suggest that investor uncertainty could adjourn future inflows.”
