In a week of treach­ery, this is the most shame­ful U-turn yet

Daily Mail - - News - Alex Brum­mer’s

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.

As­sur­ances: Philip Ham­mond

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