British financial-services companies will get no special favours in Brexit negotiations from Prime Minister Theresa May, who wants to change the relationship between the government and the City of London.
According to three senior figures in May’s administration, the government will refuse to prioritise the protection of the sector after the UK has left the European Union. Her team has privately dismissed the key business demand for an interim deal with the EU to help ease the transition out of the bloc, one of the people said. All asked not to be named because the information is sensitive.
The pound fell amid signs the concerns of the City, as the capital’s financial district is called, may be sidelined in a clear break from May’s predecessor. David Cameron put the risk to financial services at the heart of his failed referendum campaign to keep the UK in the EU. He argued that Brexit would be a high-stakes “gamble” for the UK and its financial- services sector, which accounts for almost 12% of economic output and 1.1mn jobs.
The shift also risks adding to investor concerns about a so-called hard Brexit. The pound resumed its decline on Tuesday amid growing speculation May’s government is prepared to surrender membership of the European single market for trade in return for more power over immigration, law-making and the budget. Sterling was down as much as 0.8% in London, dropping to the lowest level since 1985.
In an e-mailed statement, a UK government spokesman said that no decision had been taken on any interim Brexit arrangements.
“We are working to deliver the best possible exit from the European Union and it is completely wrong to suggest we have ruled in or out transitional arrangements,” the spokesman said in the statement. “Just this week we announced that European laws and regulations would be transferred to British law upon our exit from the European Union, in order to provide certainty for businesses that operate in the UK.” In her speech on Sunday to the Conservative Party conference in Birmingham, central England, May didn’t refer to the City of London, instead saying only that she wants the Brexit deal to involve free trade in goods and services as well as cooperation on law enforcement and counter-terrorism work.
“I recognise the concern that business has, they want to see a smooth process as we go through these negotiations and transition out of the European Union,” May said on Tuesday in an interview with ITV. “I want to make sure we’re listening to business and I’ve had meetings with businesses big and small and government ministers are talking to businesses across different sectors.” Business leaders are failing to recognise that the new prime minister has a different view of the City of London from Cameron, the people said. May does not simply accept what the City says in the way that Cameron and his former chancellor, George Osborne, tended to do, according to one person. That realisation will be a shock to some in the City, the person said.
Financial-services firms risk damaging their relationship with lawmakers by repeatedly complaining about the impact of Brexit on their businesses and threatening to move their offices out of the UK, one senior figure said, dismissing as a joke the idea that London-based financial-service companies would all move to Frankfurt, Paris or Dublin.
“What you’re probably seeing is a real tension going on within the British government,” Craig Oliver, Cameron’s former director of communications, told Bloomberg Television. “Something’s got to give.”
While it’s possible the government may be bluffing ahead of the Brexit negotiations to come, any attempt to keep the City at arms’ length risks alienating a core driver of the UK economy at a time of heightened uncertainty. Banks including JPMorgan Chase & Co and UBS Group AG have warned they will move jobs abroad if the Brexit negotiations threaten to hurt their businesses. That could undermine the £65bn ($84bn) the financial industry contributes to the nation’s coffers each year.