LONDON — The City of London will not be given any special treatment during the UK’s Brexit negotiations and the government is ready to let businesses leave, senior figures in the City have reportedly been told.
The Daily Telegraph reported on Monday night that Chancellor Philip Hammond and Brexit Secretary David Davis met a group of 10 City bosses and told them the government doesn’t want it to look like it is prioritising the financial sector in its negotiations.
“There was quite a blunt warning that politically the Government does not want to be seen to do a deal to favour rich bankers if it doesn’t comply with Brexit voters’ wishes – that there is more to the negotiation that just the City,” an unnamed “industry leader” told The Telegraph.
Another added: “The message was: ‘You’re not the only sector. You’re a very important sector but you’re not the only sector and so what we have to do is to understand how we factor in your needs along with the needs of the other sectors in the country’.”
The leaks appear to confirm the sector’s fears that the government is placing little importance on retaining all of the City’s business, instead prioritising controls on immigration and global trade deals.
Hammond and Davis also told the meeting — which was attended by senior staff from Barclays, Santander, and Goldman Sachs, and held at the Warwick Business School in The Shard — that the government realises some business will leave the City as a result of their stance.
Attendees reportedly said there was an acknowledgement that a modest amount of business and jobs will move to financial centres like Frankfurt, Paris and Dublin.
Anthony Browne, the chief of the British Bankers Association, told a conference attended by Business Insider last week: “All the banks that have any operations across Europe are doing contingency planning,” in case Britain’s financial passporting rights are lost.
The use of the “financial passport,” which allows firms to access the EU single market of 28 nations (including the UK), could be one of the rights the UK loses in the British exit from the EU.
In September, the chief of Germany’s Bundesbank, Jens Weidmann, warned that the UK won’t get a special deal from the EU on the passports and will need to allow free movement of citizens from EU nations if it wants to maintain the right.
Weidmann told The Guardian: “Passporting rights are tied to the single market and would automatically cease to apply if Great Britain is no longer at least part of the European Economic Area.”
Hammond and Davis were, however, keen to reassure the City that it won’t be completely ignored, presenting a “united front” on the government’s stance. The ministers promised a “smooth and orderly transition,” according to an account of the meeting given to the Financial Times.
This could suggest that a transitional deal — whereby the UK or the City has a period of adjustment before fully leaving the EU — could be on the table. Participants in the meeting said Davis was “not dismissive” of such a deal despite expressing concerns about the idea in the past.
Bank of England Governor Mark Carney is a strong advocate for a transitional arrangement. “It’s very much desirable from a European perspective in the financial services sector,” Carney told Channel 4 on Monday night.
News of the government’s arms-length approach to the City’s interests in Brexit negotiations comes as a PwC and City of London Corporation report showed that the annual tax contribution of the financial services sector has hit a record high of £71.4 billion.