City must come first in Brexit, May told

THERESA MAY risks crippling the economy unless the City of London is prioritised immediately in Brexit talks, senior City sources said yesterday.

There are concerns that a weakened Prime Minister will shy away from putting financial services, the backbone of the economy, at the forefront of the agenda as the UK starts its negotiations with Brussels.

Instead, they believe the Government is prioritising sectors such as carmaking or fisheries, which the public regard as more important than banking or financial services but that employ fewer people and generate less tax.

An urgent rethink is needed, senior City figures told The Daily Telegraph, with Britain fast running out of time.

The longer it takes for the Government to strike a deal ensuring the City continued access to clients and markets in the European Union, the more likely it is that banks, insurers and asset management firms will have to move significant numbers of jobs to the continent, the sources warned. Many of these roles pay high salaries and their departure will inevitably result in reduced tax for the Treasury to spend.

William Wright, the managing director of New Financial, a think tank, said: “The focus since the election has been on a free-trade agreement for goods with UK politicians talking about German cars, Italian prosecco and French cheese. But the most complicated area of any future agreement with the EU will be services, especially financial services.

“Banks, asset managers and insurers will have to assume the worst-case scenario unless they get the answers they need in the next few months.”

A banking source said: “It is hard to tell whether the Government doesn’t want to be seen to be giving the City preferential treatment given the political toxicity of the banks or, worse, they still don’t understand the complexity, urgency and necessity of getting a deal done.”

In his Mansion House speech on June 20, Mark Carney, the governor of the Bank of England, emphasised the importance of the City to the economy, saying: “One million people across this country work in financial services.

“The industry contributes 7 per cent of output and pays taxes that cover almost two thirds of the cost of the NHS.”

Many executives at banks and asset management firms based in the UK complain that they have had limited access to No 10 and the Brexit department since the referendum a year ago. The

Treasury has been more sympathetic but has at times appeared sidelined. Since the election, City figures have been cheered that Philip Hammond, the Chancellor, who is considered one of the Cabinet members most open to the City’s arguments, now appears relatively secure.

That is offset by the fact that all the ministers in the Department for Exiting the European Union, except its head, David Davis have moved on. “Just when we thought we were beginning to make some progress, we’re back to square one,” said another City source.

Brussels last month made its biggest push yet for greater oversight of the lucrative business of clearing financial instruments in euros that is conducted in London, but stopped short of the “land grab” many had feared.

City figures are optimistic that this kind of cooperation agreement with the EU could serve as a model for a wider financial services agreement.

However, the clock is ticking. In April, the Bank gave City firms until July 14 to reveal their plans for coping with Brexit and preparing for all eventualities, including a “no-deal” Brexit.

Many banks, insurers and asset managers feel that they will have to start implementing those plans if the UK does not soon spell out what the country’s transitional agreement with the European Union will be.

James Chapman, who was until recently chief of staff to Mr Davis, warned that if Mrs May “doesn’t show more flexibility, show more of the pragmatism that she did demonstrate in the Home Office, she won’t get this stuff [her Brexit deal] through Parliament”.

Mr Chapman, who also worked for George Osborne, told BBC Radio Four’s Week in Westminster that Mrs May had created red lines “that make the job he [Mr Davis] has to do very difficult”.