British financial-services companies will get no special favors in Brexit negotiations from Prime Minister Theresa May, who wants to change the relationship between the government and the City of London.
According to three senior figures in May's administration, the government will refuse to prioritize the protection of the sector after the U.K. has left the European Union. Her team has also dismissed the key business demand for an interim deal with the EU to help ease the transition out of the bloc, one of the people said. All asked not to be named because the information is sensitive.
Downgrading the concerns of the City, as the capital's financial district is called, signals a clear break from May's predecessor, David Cameron, who put the risk to financial services at the heart of his failed referendum campaign to keep the U.K in the EU. Cameron argued that Brexit would be a high-stakes “gamble” for the U.K. and its financial-services sector, which accounts for almost 12% of economic output and 1.1 million jobs.
The shift also risks adding to investor concerns about a so-called hard Brexit. The pound sank to its lowest level since July on Monday amid growing speculation May's government is prepared to surrender membership of the European single market for trade in return for more power over immigration, law-making and the budget.
May's office had no immediate comment on the shift in attitude when contacted on Monday.
In her speech on Sunday to the Conservative Party conference in Birmingham, central England, May didn't refer to the City of London, instead saying only that she wants the Brexit deal to involve free trade in goods and services as well as cooperation on law enforcement and counter-terrorism work.
May told the BBC before her speech that she wants to achieve the right deal for business in her Brexit negotiations. “We owe it to businesses, people who want to invest in the United Kingdom for the future to actually ensure that we get the right deal for trading goods and services,” she said.
Shock Realization
Business leaders are failing to recognize that the new prime minister has a different view of the City of London from Cameron, the people said. May does not simply accept what the City says in the way that Cameron and his former chancellor, George Osborne, tended to do, according to one person. That realization will be a shock to some in the City, the person said.
Financial-services firms risk damaging their relationship with lawmakers by repeatedly complaining about the impact of Brexit on their businesses and threatening to move their offices out of the U.K., one senior figure said, dismissing as a joke the idea that London-based financial-service companies would all move to Frankfurt, Paris or Dublin.
While it's possible the government may be bluffing ahead of the Brexit negotiations to come, any attempt to keep the City at arms length risks alienating a core driver of the U.K. economy at a time of heightened uncertainty. Banks including JPMorgan Chase & Co. and UBS Group AG have warned they will move jobs abroad if the Brexit negotiations threaten to hurt their businesses. That could undermine the 65 billion pounds ($84 billion) the financial industry contributes to the nation's coffers each year.
Transitional Period
On Monday, Miles Celic, the chief executive of TheCityUK lobby group, said that “what the industry wants to see agreed and secured as early as possible is a transitional period to help ensure financial stability, and minimize disruption to businesses' ability to provide products and services to customers.”
Inside the government, officials believe the impact of Brexit on the City will be to cut the size of a few bankers' bonuses, with only a few hundred jobs moving elsewhere in Europe. Voters would welcome rather than complain about such an outcome, one of the people said.
The 2008 financial crisis tipped the economy into recession, eroding residual public concern over banks and banking jobs. The signs of changing attitudes were highlighted in a report in The Times of London on Monday that David Davis, the Brexit secretary, seemed unconcerned by the prospect that a hard departure from the bloc could result in the loss of 75,000 jobs from the City.
May announced on Sunday that she would trigger the Brexit process by invoking Article 50 of the EU's Lisbon Treaty by the end of March, marking the formal start of a two-year negotiation process. Banks and analysts have suggested an interim agreement with the EU may be necessary to preserve existing passporting rights and give businesses the time to make arrangements to move some operations to other European cities.
British government officials rejected the idea of seeking an interim deal in blunt terms.
Steve Baker, a member of May's Conservative Party who serves on Parliament's Treasury Committee, said the finance industry must adjust to the new post-Brexit reality.
“Given the obvious steel in our new prime minister, the City would be ill-advised if they did not accept the new political reality,” he said in an interview. “For a very long time, the City is seen as having enjoyed a privileged status and London has ended up becoming a kind of city-state, separate from the rest of the nation. Actually we have all got to go forward as one United Kingdom — and that is bound to mean change.”
Bloomberg News
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