Column / Brexit Briefing
City sounds Brexit siren, but who’s listening?
By Benjamin Fox
When the bosses of a country’s most lucrative industry tell politicians that their policies risk thousands of job losses, they expect to get an immediate reaction.
On Tuesday (10 January) Douglas Flint, chairman of megabank HSBC, told MPs he was worried about a negative outcome of the Brexit negotiations for the international banking industry based in London.
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"The economic system (in London) is like a Jenga tower," he told MPs. "You don't know what will happen if you pull pieces out."
Flint was backed up by London Stock Exchange boss Xavier Rolet who warned that a ‘hard Brexit’ could lead to “far more than just a few thousand or tens of thousands of jobs."
This has been the message from a number of City bosses since June: ‘please protect us in Brexit talks or the UK economy will suffer’.
Such talk would certainly have put the frighteners on David Cameron’s government, not to mention his Labour predecessors. It’s far from clear that anyone in Theresa May’s team is listening to the warning sirens from the City. On Sunday (7 January), May repeated that regaining control of immigration was a priority over retaining access to the bloc’s free-trade zone.
Project Fear doesn't work anymore
Economic ‘Project Fear’ doesn’t work anymore. Contrary to the expectations of Treasury, Bank of England and international forecasts, the UK economy did not take a hit in the six months following the referendum. Although the value of the pound has tumbled (it fell to €1.15 following Mrs May’s weekend interview), the FTSE 100 share index has hit record heights - good news for most Britons with a private pension pot.
In the meantime, London’s financial services sector seems to have lost confidence in its policy voice, afraid to fight its corner and the reputation of the ‘big bad banks’. A number of May’s ministers don’t believe that Brexit hard or soft will cause London to lose its place as Europe’s financial capital.
The sector appears to have given up on the prospect of retaining the ‘passporting’ rights that allow firms based in the UK to offer their services across the EU. Instead, a report published Thursday (12 January) by lobby group CityUK called for Brexit talks to harmonise regulation between the UK and EU, through “the mutual recognition of regulatory regimes, building on and going beyond the existing equivalence regimes.”
The likes of Rolet and Bank of England governor Mark Carney are also urging ministers to push for a five-year transitional deal, maintaining existing business arrangements and regulations, starting from the point at which Brexit negotiations were triggered.
"Without a clear path to continued operation of our global businesses, our customers simply would not wait," Rolet told MPs.
Risk for EU economy
For his part, Carney offered a different tack when he appeared before the Treasury committee on Wednesday (11 January).
Instead of a post-referendum redux of "Project Fear", Carney argued that, when it comes to financial services, Brexit poses a greater risk to the rest of the EU economy than to the UK.
“I am not saying there are not financial stability risks in the UK, but there are greater short term risks on the continent in the transition than there are in the UK," he told MPs.
For example, London firms and brokers provide 75 percent of foreign exchange trading for the EU, 75 percent of all hedging products (which help businesses insure against risk when making investments or buying products) and supports half of all lending. In total, the UK exports £26 billion worth of financial services to the EU, and imports just £3bn.
The implication is that firms across the rest of the EU have plenty to fear from the UK losing its status as the continent’s "investment banker".
There are few better ways to curry favour with Conservative eurosceptics than wheeling out the economic self-interest argument. That said, if Britain refuses to allow economic arguments to trump political ones there’s no reason to assume that EU leaders should behave differently.
Even so, hinting that the City of London can be an asset to be used aggressively rather than defended in the negotiations is smart politics. The City has taken a while to get used to the reality of having far fewer friends in government. Their best chance of surviving the Article 50 process may well lie in convincing May’s team that they can offer leverage rather than simply demanding favours from her.
Benjamin Fox, a former reporter for EUobserver, is a consultant with Sovereign Strategy, a London-based PR firm, and a freelance writer.