In a week of treachery, this is the most shameful U-turn yet
AMID all the political manoeuvring over post- Brexit customs arrangements, Theresa May’s Government and Whitehall forgot one essential fact: Yes, goods going between Britain and the Continent are important, but what really counts for the nation’s prosperity are services – from the creative output of brilliant recording artists to the complex financial work done in the City of London.
Indeed, the City is Britain’s biggest earner, generating a surplus (selling more services overseas than we import) of an eye-watering £70billion a year.
No wonder then when the Government’s white paper on Brexit finally emerged this week the anger from leading financial organisations and companies was barely contained. Instead of the clarity that had been debated and promised there was, to put it kindly, another messy fudge.
The harsh reality is that the Chancellor Philip Hammond will need to act fast if he does not want to see our competitive advantage in financial services gobbled by competitors on the Continent and in New York.
All the major City organisations have been seeking – and had been assured – that a deal based on what has become known as ‘mutual recognition’ was in the bag. Under such an arrangement, the EU would acknowledge that financial regulations on the Continent and in Britain are equally robust so there is no reason to fiddle with the existing rulebook.
If disputes were to arise they could be dealt with through an agreed commercial arbitration procedure. This approach was adopted by no less an authority than the Bank of England and contained in a detailed report provided to Hammond and the Treasury.
BUTwhen the White Paper appeared the whole idea of mutual recognition was consigned to the dustbin – leading organisations such as TheCityUK, representing the bankers, and the Association of British Insurers spitting tacks.
Instead of the clean, simple approach to the future, on which serious investment decisions could be based, the City was presented with a package of Whitehall gobbledegook. Writing in the Financial Times the Chancellor sought to assure the City that the arrangements would define how the relationship will be managed.
The new system he proclaimed would be ‘less than mutual recognition’ – as had been discussed and pledged – and ‘more than the EU’s equivalence regime’. What any of this civil service style waffle means is anyone’s guess.
Under the EU’s equivalence protocols the City’s approach to regulation and trading will be fine as long as it doesn’t deviate from those laid down by the Brussels bureaucracy. However, the moment there are rule changes in Brussels or Frankfurt (home of the European Central Bank) the UK would be obliged to adopt the changes in 30 days or fall foul of the equivalence procedure.
In other words the City of London, which in the past has written much of the financial regulation in Europe, would become a ruler taker rather than a rule giver. With France among others determined to undermine Anglo-Saxon dominance of financial markets this could amount to open war on the Square Mile.
When leading financiers questioned the Treasury on why ‘mutual recognition’ had been abandoned it was explained that this was a term unacceptable to Brussels because it had been discredited at past summits on harmonisation of trade standards. Some kind of equivalence would do the job instead.
The failure of the Government to nail down the future of the City, with banking and investment assets amounting to up to 400 per cent of the nation’s total output, is the most shaming backtrack in a treacherous week for Brexit.