The bosses of several of America’s biggest banks and corporations have warned Theresa May they will pre-emptively shift operations into Europe unless she can provide early clarity on the future shape of EU-UK relations, The Telegraph has learned.
The ultimatum was delivered at a round-table meeting with Mrs May in New York this week attended by a host of key US investors, including major City investors such as Goldman Sachs, Morgan Stanley and BlackRock.
According to an account of the meeting obtained by The Telegraph, Mrs May declined to provide information about how the British government would approach the Brexit negotiations, other than pursuing a deal that was “in the national interest”.
There followed “frank exchanges” in which bosses warned they could not wait to discover the final outcome of the two-year Article 50 negotiations before making major investment decisions that could see thousands of UK jobs shift to Europe.
“The message was clear from at least some of those present: if Theresa May cannot provide some early clarity about where the negotiations will end up, the only way to avoid that uncertainty would be a move towards Europe – there will not be time to wait,” said the City source with knowledge of the meeting.
Before the June 23 vote to leave the EU, the heads of several major foreign banks including JPMorgan and UBS warned that “significant” numbers of jobs could be shipped to Europe when the impacts of Brexit became clear.
Estimates of possible City job losses from a “hard Brexit” have ranged widely from 40,000 to 80,000 over the next decade, with JPMorgan and Morgan Stanley saying they could shift over 1,000 employees. Citigroup, Goldman Sachs and Bank of America have also warned of jobs losses to the Continent.
The move piles pressure on Mrs May whose determination to “take back control” of Britain’s borders after Brexit, it is now widely assumed, will make it impossible to retain the City’s current “passporting” rights that enable UK-based financial services companies to trade freely in Europe.
A separate source in Whitehall said that Philip Hammond, the Chancellor, has walked back his initially optimistic predictions for the City post-Brexit, cautioning banks that the retention of “passporting” is highly unlikely given Mrs May’s stance on ending EU free movement.
Downing Street’s uncompromising line on curbing EU migration has caused friction between Mr Hammond and Mrs May’s political team which is dominated by former Home Office officials who “understand the politics of migration rather better than the economy”, the source said.
Financial services generate more than £60bn pounds a year in tax, a quarter of which comes from foreign-owned banks, revenues that the Treasury fears will now be put in jeopardy.
According to the account of the New York meeting, banks now accept the likely loss of EU pass-porting but warned Mrs May there must be guaranteed transitional arrangements to give firms the time and certainty they need to adapt to the new regime.
Anthony Browne, chief executive of the British Bankers’ Association, delivered a similar call for transitional arrangements when giving evidence to a House of Lords committee earlier this month, warning of the risks of a “cliff-edge” Brexit.
UK Treasury officials are now heavily pre-occupied with how to put in place transitional arrangements that – they readily concede – will only be possible with the political good will of the other 27 EU member states.
“A final deal could take years to negotiate, the real question everyone is focussing on now is what you do in between times that provides confidence and certainty to all business,” said an official with knowledge of the UK preparations.
The difficulties will be both practical and political, however, as European capitals continue to harden their stance ahead of future negotiations, ruling out any “cherry-picking” by the British side when it comes to accessing the single market.
Professor Alan Winters, director of the UK Trade Policy Observatory, has suggested that continuing existing arrangements for three years after Brexit could give space for a deal to be nailed down – but concedes this would require continuing to accept EU free movement during that transitional period.
The Telegraph understands that Mr Hammond has already cautioned bank bosses that delaying taking back control of borders for three years would be politically impossible, a position that would leave British negotiators ultimately reliant on EU goodwill.
“Financial services is very complicated and asking the EU to concede transitional arrangements is fixing one key piece of the negotiation before it has even started,” Prof Winters said, “We’d be asking them to give away one of their biggest pieces of leverage.”
In Brussels the current mood is defiant. Asked by The Telegraph recently about possible transitional controls, a senior EU official shrugged and smiled, adding: “Why would we? What’s in it for us?”
British negotiators hope, however, that common sense and mutual interest will prevail, citing the importance of the City to for EU capital markets and the continued creakiness of Italian and Portuguese banks as reasons why the EU will also want a smooth transition.
Tags: Bank of America, BlackRock, Brexit, Britain, British Bankers' Association, Citigroup, EU, EU pass-porting, European Union, Goldman Sachs, Hammond, Jean-Claude Juncker, jobs could be shipped to Europe, JPMorgan, Morgan Stanley, passporting, take back control of Britain’s borders, Theresa May, UBS, UK, UK Treasury