20 February 2019

Jo Johnson: Politicians must stand up for the City of London after Brexit

Bank of America has confirmed a $400m move of its European headquarters to Dublin, joining others that have shifted staff and funds since the Brexitreferendum. Yet there is near silence from the City of London. How come we have heard so little from a sector that stands to lose so much? [...]

As things stand, the outline trade deal will prioritise “comprehensive arrangements” for goods but neglect services where, sadly, the British government is aiming for little better than bog-standard third country market access.

For financial services, in which the UK has a large surplus, this is bleak, with the Centre for European Reform, a think-tank, reckoning that a free trade agreement would shrink exports to the EU by almost 60 per cent. This means job losses among the 2.2m people employed in the financial and professional services ecosystem, of whom a number live in my constituency of Orpington, and an annual £10bn hit to tax revenues, according to consultants Oliver Wyman.

Facing this rout, the City and the Treasury have pinned hopes instead on a quick and dirty settlement that will, at best, offer a patchy, one-sided and precarious “equivalence” between the UK and the EU. This third division status crystallises the loss of “passporting”, which will deprive financial institutions of the cross-border market access they enjoy today in vital areas such as corporate lending and insurance.

Why are the government and the City willing to accept a destination for our most important sector so unattractive that it is probably even worse than being in the single market with no say at all, as a straight rule-taker?

Such a suboptimal choice is only conceivable because the sector lost its social licence to operate during the financial crisis and is blamed for the recession and austerity that played a big part in producing the vote for Brexit in the first place. For a political class that has never been clearer about wanting finance less proud, passporting is an unmourned collateral victim of prime minister Theresa May’s “red line” over freedom of movement.

Even as costs mount, politicians who have spent a decade castigating bankers and stereotyping the City as an unpatriotic casino cannot now easily proclaim its virtues or urge the government to expend negotiating capital on it in Brussels. Senior figures in the financial industry, meanwhile, accordingly hope for little in these negotiations from a government prepared to lay waste to the UK’s most productive sector.

Ten years on from the crisis, the sector lacks the self-confidence to speak up for itself as a great British — and European — asset, not least in case it be accused of now sabotaging Brexit. [...]

It would be extraordinary in the current environment to suggest that any bank chief executive — of any nationality, of any company — should prioritise economic benefit to the UK in his decision-making.

It is unrealistic to expect the ultimate owners of these institutions to seek a voice in UK public affairs and to enmesh themselves in toxic debates. They want a transactional relationship with a rational UK state.

We shouldn’t wait for the City to find its voice — foreign owners are understandably staying quiet in order not to provoke another round of banker-bashing. The problem is in Westminster. It’s the job of government to nurture our financial centre, and the Treasury’s perception of itself as the friend of the City is not widely shared.

Politicians at the highest level need to find the courage to say in public that the City is a substantial asset for the UK, which it is in the national interest to preserve. And to match words with action. I am not holding my breath.

Full op-ed on Financial Times (subscription required)

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