For decades, Britain’s bankers have relied on their industry’s outsized status in the economy to find a receptive ear in government.
But in the aftermath of the country’s vote to leave the European Union, the sector that generates about a tenth of national economic output is grappling with an uncomfortable new reality where economics doesn’t always trump politics.
June’s vote to quit the EU has triggered a change in leadership and tone in the British government with new Prime Minister Theresa pledging an industrial revival and to build “an economy that works for everyone” – setting nerves jangling in the City of London global financial hub.
Reuters spoke to several senior bankers from big British and international banks based in the city, including some involved in discussions with the government over Brexit.
Many said their warnings about the impact of a so-called hard Brexit – where they lose their access to the European single market – were being met with scepticism by the government and accusations from some eurosceptic lawmakers that they were undermining the message that Britain can thrive outside the EU.
“It’s almost as if we were back in the 1940s and we were looking for fifth columnists all over the place because people are trying to do Britain down,” said Ronald Kent of the British Bankers’ Association (BBA). The term “fifth column” refers to a group of people that acts secretly against the state to assist an external enemy.
The head of the BBA, Anthony Browne, said on Sunday that the public and political debate was “taking us in the wrong direction” and that big international banks were preparing to move some operations out of Britain in early 2017.
The government has pledged to execute Brexit following a vote to leave the European Union that was driven in part by a desire to curb immigration and was regarded as a repudiation of a London elite, including a banking sector still the subject of lingering public anger over its role in the financial crisis.
While finance minister Philip Hammond and his ministerial colleagues have been keen to assert the financial industry is of great importance, officials say privately the Brexit deal will have to work for the country as a whole – and means the banking industry cannot expect special treatment.
“There is no question of prioritizing the financial sector, or any other sector in those talks – it’s not fair to talk in terms of special cases,” said one source with knowledge of the government’s approach to the negotiations with Brussels.
The finance ministry referred a request for comment for this story to remarks made by Hammond to a parliamentary committee last week. He said addressing the Brexit challenges faced by the financial industry was a very high priority for the government.
NO SPECIAL STATUS
Some government officials have said that the industry could be over-stating the importance of issues such as “passporting” – the system by which they can carry out certain activities across the EU but be regulated just in one country.
Financial services minister Simon Kirby told a parliamentary committee hearing last week that the finance ministry was looking into the passports used by businesses for various financial activities.
“Some of those passports are redundant or unused,” he said. “Actually getting to a situation where you can assess the impact is not quite as straightforward as you think.”
Several bankers said they were surprised by the ruling Conservative Party conference this month, when May appeared to move towards a hard Brexit stance by signaling that curbing immigration would take precedence over single market access.
“Undoubtedly, things have changed for financial services,” said one senior executive at an international bank, who declined to be named due to the sensitivity of the matter, adding that there had been a “sea change” in how banks are viewed by the government.
Another banker told Reuters that although the mantra so far has been that there would be no “special status” for any industry group, they and other banking executives had sensed a more conciliatory tone from the government when dealing with carmaker Nissan this month – in contrast to the harder line they perceive as being taken with the financial sector.
The largely foreign-owned car industry was a strong supporter of continued membership of the European Union ahead of the June 23 vote, benefiting from unfettered access to the world’s biggest trading bloc and its standardized regulations.
Nissan CEO Carlos Ghosn said on Oct. 14, after meeting the prime minister in London, that he was confident Britain would remain a competitive place to do business.
David Davis, the minister in charge of Britain’s exit from the EU, said last week he was determined to secure the best possible terms of trade for the financial services sector.
The financial industry, which pays about 60-67 billion pounds in annual taxes, could lose up to 38 billion pounds in revenue in the event of a hard Brexit, and 75,000 jobs could disappear in Britain, according to a report commissioned by industry group TheCityUK.
But there are signs that a four-month lobbying blitz by some of the world’s largest banks has backfired.
Officials say the banks have failed to appreciate the sheer scale of the government information-gathering exercise as it tries to determine its priorities.
The finance ministry is doing a sector-by-sector analysis of the different Brexit scenarios on revenues, employment and tax receipts to inform Britain’s negotiations with Brussels.
One source complained that London financial services firms had presented a disparate list of demands and then quickly become impatient that their views were not being listened to.
There is also a sense among officials that the industry’s warnings have not panned out in the past, several banking and government sources have said.
After the financial crisis many banks threatened to move operations overseas because of a wave of higher taxes and regulation. At the turn of the century, some financial sector executives also warned the failure to join the euro would lead to a withering in London’s role as a hub for global business.
“The government is underestimating the impact this time. This is not an idle threat,” said one banker, who has held talks with government officials.
Banks including HSBC, JPMorgan and UBS have already warned that they could move thousands of jobs from Britain.
Government sources, while acknowledging the huge importance of the financial services sector to the economy, say talk of a mass exodus is unrealistic.
“The feedback from Wall Street was that any move to Paris would happen ‘over their (global banks’) dead bodies’,” said the source with knowledge of the government’s approach, speaking on condition of anonymity. “And Frankfurt simply isn’t big enough to handle it (being a global financial hub).”
Some eurosceptic lawmakers have suggested that a “soft Brexit”, where Britain might retain some access to the single market in return for a degree of free movement of people from the bloc, would thwart the democratic will of voters.
“Bank lobbyists are going down the wrong route on Brexit. They just seem to be whining,” Conservative Party lawmaker Jacob Rees-Mogg told Reuters. “They don’t like the fact that they’ve been overruled by the people who voted.”