24th Mar 2018

Column / Brexit Briefing

The City is right to be worried

  • London's economic dominance doesn't make it popular with the rest of the UK. (Photo: Harshil Shah)

“Tired of the fog? Try the Frogs” is the catchy slogan that the Parisian department of Hauts-de-Seine is using in its advertising campaign to lure British financial firms.

But the prospect of France’s tax regime and employment regulation is considered a painful one. And the idea of upping sticks to Frankfurt, Amsterdam or Dublin isn't terribly appealing either.

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  • La Defense business district, in Paris, tries to woo City bankers.

Even so, London’s masters of the universe are feeling unloved right now.

The financial services sector is the UK’s biggest cash cow, employing just over 1 million people and contributing more than £66billion (€75 billion) in taxes in 2015, equivalent to around 11 percent of total government tax receipts.

So you would think that prime minister Theresa May and her ministers would pull out all the stops to give it at the top of the government’s Brexit strategy, and guarantee the continued access to the single market it craves.

In public, the government insists that it will do what it takes to protect its golden goose.

"We have to treat as absolutely central to what we do maintaining the stability of both the City, but also the European financial markets... we will therefore do anything necessary," Brexit secretary David Davis told MPs last Thursday (20 October).

One idea that the City of London, which administers the financial district, has come up with is for a “regional visas” system that would allow sectors like finance and healthcare to selectively hire foreign workers.

"This is not a London solution to a national problem, but actually something that can support growth outside of the capital across a wide variety of sectors," City of London policy chief Mark Boleat said.

In the meantime, Xavier Rolet, the CEO of the London Stock Exchange, and other City big-wigs are still pushing for the UK to breathe life into the European Commission’s Capital Markets Union initiative.

Privately, however, city executives worry that they are being shut out, and that their political stock is low.

All eggs in the Remain basket

The reputation of the ‘big bad banks’ - tarnished first by the 2007-8 financial crash and then by the rate-fixing scandals that were gradually uncovered by European and national regulators in the years that followed - is poor.

Nor does London’s economic dominance make it popular with the rest of the UK. The wealth produced by the financial sector does not really trickle down to the rest of the UK. Instead, it has helped entrench the widening economic and cultural divide between London and surrounding south-east commuter belt, and the north of England, Scotland and Wales.

By promising to prioritise migration control in Brexit talks, Theresa May has given a clear signal that she will prioritise provincial England.

Part of the problem is that the major banks put all their eggs in the Remain basket. US mega-banks Goldman Sachs, JP Morgan, Citigroup and Morgan Stanley stumped up £1.5 million to the Remain campaign coffers between them, offering an easy line of attack for Leave campaigners. They backed the wrong horse, a fact which did not go unnoticed, particularly by Theresa May’s three Brexiteers ministers Johnson, Davis and Fox.

The three Brexiteers made it clear at the Conservatives party conference earlier this month that they will give no special favours to the big banks and are prepared to call their bluff on their threat to leave the UK if it pursues a ‘hard Brexit’ outside the single market.

As unpopular as politicians

"The financial sector is as unpopular as politicians at the moment," one senior bank executive told us.

"We’re just not being listened to," said another.

Whatever happens between British ministers and their counterparts across the EU, financiers will be bound by EU regulation as long as they want to continue doing business.

But it would be a mistake to assume that the City’s difficulties pave the way for a mass migration of financiers across the Channel. Some organisations will set up new organisations inside the EU in order to retain the right to "passport" their services across the bloc, but are unlikely to transfer large numbers of workers and capital. If there is a substantial exodus from London, New York is likely to be the main beneficiary.

Yet these are very uncertain times. David Cameron bet the house on the British people putting economic stability first in the referendum. The Treasury and Bank of England were wheeled out to warn that Brexit would hit everyone in the wallet and that leaving the EU would weaken the City of London. But politics is being decided by arguments of the heart rather than the head and the voters didn’t blink.

The banks are right to be worried.

Benjamin Fox, a former reporter for EUobserver, is a consultant with Sovereign Strategy, a London-based PR firm, and a freelance writer

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