Top of the City’s wishlist for 2017 would be a firm commitment from Theresa May to pursue a transitional deal for the financial industry to ease Brexit-related disruptions. Here, for example, is the Christmas message from Mark Boleat, policy chairman at the City of London Corporation: “Firms’ nervousness can only be allayed if they know how they can continue running their business. A transitional arrangement should be agreed as soon as possible.”
He’s right, of course. The “cliff edge” model of Brexit is dangerous for everyone, including the rest of the EU since the UK is “effectively the investment banker for Europe”, as Mark Carney put it last month. Given the City’s dominance in critical areas such as foreign exchange and debt issuance, a sudden rupture could increase the cost of borrowing across Europe. Better to adjust slowly and avoid the need for contingency plans and double overheads.
But how slowly? Lobbyists like Boleat would help their case if they spelled out what they want. There is a strong suspicion that a rapid transition – say a year or two – would barely be an improvement on a cliff edge. Carney, in front of the Treasury select committee in November, pointed out that the shortest transition period he had ever seen in a trade deal was two years, which was the Swiss-EU deal on insurance. “Normally, it is in the range of four to seven years,” he said, adding that the post-crisis Basel reforms to the banking industry were phased in over eight.
Such a timetable might cause uproar, at least with hardline Brexiters. But, if the City thinks an orderly transition implies half a decade or more, it should speak up and make its case in detail. Being vague creates a real danger that the UK government serves up a grossly inadequate arrangement and proclaims it to be a triumph of negotiation.
