May’s Brexit blueprint faces backlash after sacrificing services

The Brexit White Paper is a blow to the City of London but not unexpected. [Wikipedia]

Even though Theresa May’s Brexit White Paper prompted a furious reaction from a large section of her Conservative party, not to mention a broadside from US President Donald Trump, not everyone was unhappy with it.

“This is a massive step forward,” said the Confederation of British Industry’s director general, Carolyn Fairbairn.

That message was echoed by Adam Marshall, director general of the British Chambers of Commerce.

“This vision should not have taken two years and three weeks to emerge, but it is nevertheless a welcome starting point for businesses,” he concluded.

The biggest potential winner from the White Paper, should its proposals become reality following negotiation with the EU, is the manufacturing sector.

Under the terms proposed by the document, the UK would effectively remain in the single market for goods but revert to WTO rules on services unless it can broker a “new economic and regulatory arrangement with the EU on financial services”.

That suggests that the recent interventions by Airbus, Jaguar Land Rover, Nissan, Rolls Royce and Unipart, all of whom hinted that they would relocate from the UK if they were shut out of the EU’s single market, were important.

In contrast, the London-focused financial services sector is set to be the biggest loser.

UK officials say that they want a future agreement on financial and other services to go beyond existing deals with 3rd countries.

The EU’s standard agreement on ‘regulatory equivalence’ in financial services would not work, they say, largely because that would give the European Commission the power to rescind equivalence at very short notice. Instead, they are seeking ‘enhanced equivalence’ that goes beyond what the EU already has with other countries

“We have accepted that our equivalence proposal was not getting any traction with the EU. We will lose passporting – we are explicit on that,” a UK official revealed.

The EU’s refusal to countenance special treatment for financial services meant that the UK’s change of tack is not unexpected, Even so, the loss of passporting – which allows firms based in the UK to sell their services across the EU – is a big hit.

The White Paper was “a real blow,” said Catherine McGuinness, the policy chairman for the City of London Corporation.

“With looser trade ties to Europe, the financial and related professional services sector will be less able to create jobs, generate tax and support growth across the wider economy. It’s that simple,” she added.

That will give more ammunition to Frankfurt and Paris who have been lobbying hard for banking, pensions and insurance firms to shift their operations out of London.

The City of London’s lobbying power has steadily waned since the 2008-9 financial crash when it was widely traduced for plunging the UK economy into recession.

Ahead of the June 2016 referendum, the likes of Goldman Sachs and JP Morgan pumped money into the Remain campaign and warned that leaving the EU would put the multi-billion tax receipts and jobs created by the City of London at risk. London voted to ‘Remain’ in the EU by more than 60-40, but was the only part of England to do so. The ‘Leave’ vote was, in part, a rejection of London’s economic and political dominance.

That has had a knock-on effect on their lobbying muscle with UK ministers.

“Lloyds of London and other City people are now protesting that they have been let down as services are excluded. But they refused to campaign or put real pressure on the Government,” says Denis Macshane, the UK’s former minister for Europe.

“They hired ex Tory Ministers to travel around EU capitals and commissioned expensive management and consultancy LLP reports which produced solution that suited the City but were utterly disconnected from EU reality. The whole City approach was inward looking and complacent and the Government cannot be bothered to help,” adds Macshane.

Nor are other service sectors encouraged by May’s blueprint. On digital policy, the UK government has repeated its demand for an ‘adequacy’ agreement that would allow data to continue to flow between the UK and the EU but put little further meat on the bones.

That threatens to put at risk the €272 billion worth of trade in Europe that relies on data flows, but would be particularly deleterious for the UK, for whom three quarters of cross border data flows are with EU countries.

“It’s good we now have a white paper, but with months to go there are still an awful lot of questions and not enough concrete answers,” Dom Hallas, executive director of Coadec told EURACTIV.

“The white paper does confirm that UK tech startups and scale-ups will have less access to European markets than they have now, but what this access will actually look like is still up in the air. We need to move beyond woolly talk of ‘new models’ to practical solutions as soon as possible.”

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