City In For Softer Brexit Following May's Election Flop?

City AM
By City AM Last edited 26 months ago
City In For Softer Brexit Following May's Election Flop?
Photo: Daniel Coyle

City bosses are set to push for a softer Brexit after Prime Minister Theresa May failed to win a majority in last week's General Election.

"The chances of the City's asks being listened to during the Brexit negotiations increase now," a senior City source said yesterday.

"Aspects like mutual access, a workable transitional agreement and access to international talent could be easier to achieve as a result."

The mood was enhanced by Sunday's ministerial reshuffle, in which May allowed a number of prominent Remain-backers into her fragile new government. The embattled PM granted prominent roles to Damian Green, David Lidington, David Gauke, while Gavin Barwell — who lost his seat last week — was appointed May's chief of staff.

"It is in the interests of the City and the UK economy for us to be able to trade freely with the EU and continue to access and attract the global talent and expertise that makes London the world's financial heart," Lloyd's of London boss Inga Beale told City A.M. "I hope that whatever approach is taken... this is a factor in the government's thinking."

Photo: John Esslinger

Pantheon Macroeconomics believes there is a 60% chance of a soft Brexit, and only a five per cent chance of no deal.

But Sir Martin Sorrell, chief executive of advertising giant WPP, told City A.M. he felt the election result meant that, "paradoxically", the chances of both a soft Brexit and a "no deal" scenario have both increased. He said the "general view" of business is in support of a soft Brexit, meaning, in his view, "free or freer movement, and [remaining] in the Single Market".

Star fund manager Neil Woodford said May's mooted tie-up with Northern Ireland's Democratic Unionist Party could lead to a new kind of Brexit.

"Membership of the EU customs union could be seen as a minimum requirement if a deal is to be struck with the DUP and, in turn therefore, the probability of a softer Brexit outcome has risen," he wrote in a note to investors.

City lobbyist and prominent Remain-backer Iain Anderson added: "For inward investors and City investors that do not want to see a hard Brexit, and want a mechanism to access the Single Market, [the election result] could well change everything."

May went into the election pledging to quit the EU Single Market and reform immigration rules, seen by some as a so-called hard Brexit. But her plans suffered a severe setback after the Conservatives failed to win the 326 seats needed to secure a parliamentary majority, casting doubt on the kind of Brexit May will be able to pursue.

Photo: philip robins

In a reshuffle, work and pensions secretary Damian Green was handed a substantial new role as first secretary of state. Although the role has no formal responsibilities, it conveys seniority and makes Green, a long-time ally of May's, the UK's de facto deputy prime minister.

Treasury minister David Gauke will replace Green, and May also promoted former Europe minister and leader of the House of Commons David Lidington to justice secretary.

All three backed a Remain vote during last summer's Brexit campaign.

The raft of announcements indicated the limits of May's power, with the prime minister confirming the roles of many existing cabinet members despite speculation that some, like communities secretary Sajid Javid, were due to be sacked if May had secured a fresh majority.

Michael Gove, consigned to the backbenches after the referendum, has been appointed as environment secretary. He replaces Andrea Leadsom who has been appointed leader of the House of Commons.

The surprise election result has also sparked talk of a softer Brexit in some quarters of Europe. EU budget commissioner Guenther Oettinger told German newspaper Frankfurter Allgemeine that it has now become possible to "talk about closer relations between the UK and the European Union than Mrs May had originally planned".

He added: "If, for example, London were to remain in a customs union, it would not have to renegotiate all trade agreements. That would greatly relieve the government."

One top bank CEO told City A.M. the sector would welcome such a deal.

Additional reporting by Mark Sands.

This article originally appeared in City A.M.

Last Updated 12 June 2017