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Another brief Brexit blog

12th June 2017

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In which case, we are not yet much further forward than "Brexit means Brexit" and "Brexit for the many not the few".  

 

Until the Government does collapse, we will be in a perpetual period of election campaign. The danger is that unless Theresa May and Jeremy Corbyn change their positions, as the Brexit negotiations unfold and the economic consequences of leaving our most important trading block become more apparent, Labour will not challenge the concept of leaving the single market, but merely its execution. Theresa May will be attacked for negotiating the wrong sort of hard brexit.

 

So what does this mean for the Financial Services industry? Assuming that we end up somewhere between the extreme outcomes of not leaving at all or leaving with no deal, any successful negotiation with the EU will entail a series of compromises. Within the broad range of things to fight for and things to surrender, the position of the financial services sector does not look strong, from a political perspective. Banker bashing proved to be a successful strategy for Labour during the election campaign, and the campaign is unlikely to end until after the next general election, which could be pretty much at any point. For as long as the Conservatives are leading the Brexit negotiations, they will have Labour watching out for any example of them "looking out for their friends the bankers, not the many".  A change of Government is unlikely to result in a more banker friendly outcome....

 

So what does this mean in practice?

I wrote our previous post Brexit blog nearly a year ago, in the immediate aftermath of the referendum result and the Conservative leadership election. At the time, I commented on how difficult it would be for Theresa May to hold together the Brexiteers and the Remainers in the Conservative Party. Having more or less successfully kept a lid on the divisions for the last year, the failure to win a mandate in the snap election has brought the differences back into the spotlight. The Labour Party too has major fault lines. Most Labour MPs were pro-Remain and many in their local general election literature campaigned on opposing a hard Brexit even though this broadly contradicted the Labour manifesto.

 

So we are in a position where both major parties are fundamentally divided on the issue, with the differences bubbling to the surface. The indecisive election outcome may result in pressure for either a softer Brexit or for a harder Brexit. At the moment we do not know. The most optimistic scenario is a concensus in the centre supported by those from all parties who support access to the single market for the softest of soft Brexits, along the lines of Norway or Switzerland. The huge political challenge of this is that it requires acceptance of free movement of labour, surrender of regulatory sovereignty and continued contribution to the EU budget. It is difficult to explain to the populace what we have achieved by leaving. It also requires a surrender of traditional party loyalty by many Conservative and Labour MPs. Up until the start of the election campaign, the Conservatives had been surprisingly successful at achieving continued loyalty, whilst the different wings of the Labour party had been bludgeoning each other with cudgels.

 

After a jittery weekend the Conservatives seem to be successfully circling the wagons again and parliamentary Labour Party too seems to be rallying behind its leadership. The risk is that the closeness of the result and the distinct possibility of another election in the near future encourages both parties to continue with their meaningless fudges.