Between Hammond and a hard place

Spreadsheet Phil is right – a deal with the EU needs to protect the City or else be regarded a failure. There’s only one problem: the EU has no intention of making such a deal and all the optimistic talk in the world of “mutual interest” won’t change that.

It’s no secret that the City is a golden goose for the UK economy, but the UK financial services sector as a whole contributes much more: comprising around 7% of UK GDP, the industry employs 1.1 million people, two-thirds of whom are outside of London. It’s not just about jobs – we pay for many of the public services up and down the country using the significant tax revenue we accrue on the back of this loot. At a time when our hospitals are under-resourced, our military is under-equipped and our schools are struggling to cope with the pressures of a growing population, no deal would be a very big deal.


So it was as predictable as the Pope taking Sunday prayer, to see the Chancellor last week (6th March) attempting to reassure the financial services sector that everything will be A-Okay after Brexit.


Trouble is it won’t be, and there’s a good reason why.


Hammond plays up the “mutual interest” side of things, highlighting how much EU debt is facilitated by the UK and the intangible qualities of the City that position it so perfectly for the role it currently plays in the world. He argues that “cherry-picking” is a natural part of negotiating new trade deals and that the EU’s attempted inclusion of financial services in TTIP and CETA show that the EU is stubbornly refusing to play ball in order to push the UK into a corner.


He’s right on the first part (to an extent) - even if his second point blindly ignores the fact that TTIP and CETA negotiations on financial services failed. While the likes of Italy, Germany and France won’t give up on snaring firms, jobs and lucrative activities such as Eurobond clearing, the City does have an infrastructural advantage over competitors - especially having acted as the financial capital of the world for as long as it has.


Yet it all seems like a bit of a throwback to the 2016 referendum, except the tables have suddenly been turned and the Government is now banking on a cold financial pitch. Just a few hours prior to Hammond’s speech, Donald Tusk gave a press conference. Sat alongside the Prime Minister of Luxembourg, Tusk took the opportunity to remind his opposite numbers in the UK that “Europe is not just about finances and business” and to think along such lines, as the Chancellor’s speech appears to do, “would be to misunderstand what the European Union is about”. As the director of think-tank The Institute for Government wrote in the Evening Standard on Thursday, when Hammond says “mutual interest”, the EU hears “an existential threat to the single market and to the European project itself”.


The Government must therefore fess up to the public: we’re not going to get a bespoke deal on financial services – it’s just not in the EU’s interests.


The City will probably survive, wounded but walking, okay but not great. But that’s not the point. No deal on financial services will hurt the most vulnerable in our society – and that should be deal-breaker for Brexit.