The City has never seemed so lightweight
The UK government’s drive for a ‘hard Brexit’ lays bare the diminished status and authority of the financial services industry. Scandal after scandal, combined with the appalling cynicism of Britain's new prime minister, have brought us here.
Theresa May, the UK’s prime minister, has made a habit of looking authoritative, even as she mouths platitudes like “Brexit means Brexit”.
The combination of apparent competence and laughably little content calmed markets through the third quarter of the year. With no news, but a steady stream of central bank money pouring into financial assets, prices had to go one way, regardless of the prospects for the UK’s economy.
Now that’s all over. The Conservative Party conference has been chosen as the venue for May’s unelected government to reveal how it plans to interpret the result of the referendum on June 23, and to systematically rubbish the hopes of much of corporate UK that the worst effects of Brexit will be avoided.
So the May government wants to avoid unpleasant political complications in the UK by denying Parliament a vote on triggering Article 50, which begins the formal exit process from the EU.
The government has also set a fairly tough timetable for launching Article 50; the UK will formally apply to leave in March 2017.
Before then, it plans to repeal the European Communities Act, which, in effect, suspends the application of EU law in the UK. This, of course, is in contravention of EU law, meaning the UK will be in breach of its treaty obligations while it tries to negotiate preferential trade arrangements with those same treaty partners.
When it comes to negotiations themselves, we’ve been assured that the government will not be giving blow by blow updates. Or, in fact, any updates or outline at all. Everything we can glean about their progress comes from other countries stoutly rebutting the assertions of the three ministers jointly responsible for Brexit.
But May’s speech to the Conservative Party conference made it clear that full control of immigration would be the government’s priority in future talks, rather than preserving single market access for British firms, let alone passporting for the sale of financial services.
Perhaps the UK will deign to apply for third country equivalence under MiFID and EMIR, a status which will place UK-regulated firms in the same bucket as those based in Korea, South Africa and Mexico for the purposes of derivatives regulation.
This is surely the low-water mark of the influence of banking on politics.
For the best part of 200 years, financial services and the Conservatives have been able to rely on each other. Banks backed Conservatives to deregulate and lower taxes, and City professionals reliably turned out for the Tories. The City of London is the only inner London constituency to consistently vote Tory, and the stockbroker belts in Surrey and Kent, and some of Essex's barrow boy trader heartlands, are an even deeper blue
For a good laugh, take a look at the BBC interviewing “yuppies” after Thatcher’s re-election in 1987; there’s champagne drinking at lunchtime, a look at SG Warburg’s trading floor, and the colourful jackets of the Liffe exchange.
Particularly rich in irony is one of the talking heads from 1987, declaring that self-regulation (under a Conservative government) was for the best, and that “everyone had learned their lesson” from the last round of City scandals — presumably a reference to the Guinness-Distillers share price manipulation.
The failure of everyone to learn their lesson has brought the City to its present pass. The financial crisis itself, tax avoidance, PPI mis-selling, Libor fixing, FX manipulation and a litany of other offences, some inconsequential but many grievous, has made a vigorous defence of financial services in London politically poisonous.
Taking on the outraged shires for the sake of a few bankers is no longer a viable option, and that’s the fault of repeated failures to demonstrate prudence and probity in banking.
But it’s not a purely self-inflicted wound. In the two week turmoil following the Brexit vote, plenty of possible scenarios for how the exit would work flew around, and all of them implied trade-offs. Either anger the die-hard Leaver base in the Conservative Party, or the party’s donors in finance and industry. Enrage the other governments of Europe and the bits of the UK that are not England, or risk losing more political ground. Run another referendum or an election to decide what the vote actually meant, and risk fracturing the UK’s political party system beyond repair.
These are all choices between principle and politics for May, a Remain campaigner. If she believed a tenth of the platform she campaigned on in the referendum campaign, government in the national interest implies taking on the entrenched interests in her own party, and pushing for ways to soften the blow of severance from the EU’s trading bloc.
But those entrenched interests are strong enough to keep her in power, provided she do nothing to deviate from the hardest possible line on Brexit.
As an unelected prime minister appointed by default, she needs all the political friends she can find — and will, apparently, see the country wrecked to make sure she stays in power. The referendum result gives her a kind of cover. However destructive hard Brexit becomes, she can divert blame to voters, rather than her interpretation of their message.
A country where banks have less political power is surely a healthier, more vibrant democracy than the alternative. Excessive closeness between any industry and politics is grubby and damaging, but banking doubly so, because of its pervasive influence in every other commercial endeavour, and because of the state supported and walled garden business model inherent to every large financial institution.
But in the UK, we have a vibrant democracy in which 52% of turkeys voted for Christmas. A cleaner, more respectable City would have a better chance of heading off Theresa May’s cynical Brexit calculation, and the country would be the stronger for it.