Brexit and the City: Business and Brussels – to stay or split?

HSBC chairman Douglas Flint entered a political firestorm last week when he said Britain’s biggest bank was considering moving its headquarters out of the UK.

 

Speaking at the company’s annual general meeting (AGM) in London on Friday, Flint said the bank was looking to relocate in part due to uncertainty over the UK’s relationship with the European Union.

 

“In February we published a major research study which concluded that working to complete the Single Market in services and reforming the EU to make it more competitive were far less risky than going it alone, given the importance of EU markets to British trade,” Flint told shareholders. 

 

Labour’s shadow business secretary Chuka Umunna jumped on the comments, saying, “HSBC’s statement today serves to illustrate how irresponsible it is to play fast and loose with the UK’s membership of the EU.”

 

“It would be a disaster for our financial services sector and business in general if the UK left the EU,” he added.

 

The Conservatives have promised an in-out referendum on Britain’s EU membership by the end of 2017, after a period of renegotiation with Brussels. Labour, meanwhile, remains committed to keeping the UK in the EU and has ruled out a referendum.

 

Conventional wisdom says the City broadly agrees with Flint, favouring access to the Single Market and rejecting the uncertainty of a referendum and potential “Brexit” thereafter. But does British business really back Europe?

 

Nearly three-quarters of City workers surveyed this spring by the non-partisan think-tank the Centre for the Study of Financial Innovation (CSFI) said they would either “definitely” (49 per cent) or “probably” (24 per cent) vote for Britain to stay in the EU in the event of an in-out referendum. Just 12 per cent of respondents said they would “definitely” vote out.

 

“Three or four years ago, when Brexit still seemed a very distant prospect, there appeared to be something exciting, even romantic about it,” CSFI researchers wrote in a report published last week. “More recently, however, as a referendum has become more likely, there has been a sense that the mood has changed.”

 

The CSFI said the City is more worried about “concrete short-term issues like jobs” than the “pie-in-the-sky long-term prospect of becoming a global and  financial economic powerhouse.”

 

But rejection of a referendum did not mean City workers were enthusiastic about Europe. Among those who said they would “definitely” or “probably” vote to stay in the EU, 65 per cent told the CSFI they believed the UK “gold-plates” EU legislation, putting UK firms at a competitive disadvantage. Just under 60 per cent said they felt Britain’s MEPs do not fight hard enough in support of the City, and nearly one-third said the European Commission was  actively hostile to City interests.

 

Based on written answers from the respondents, researchers said City workers nevertheless supported EU membership out of their desire to preserve UK access to the Single Market, their fear that London would lose its place as an international centre, and their lack of confidence in an independent Britain’s ability to renegotiate trade arrangements with the EU.

 

 “In the end, the strong sense that comes out of the survey is one of resignation, rather than enthusiasm, coupled with confusion and contradiction in the responses,” the researchers concluded. “The City wants to remain in the EU. But it doesn’t like Brussels, it fears European regulation and it is worried about the political drift of the EU.” 

 

Beyond the Square Mile, British businesses of varying sizes and sectors broadly report similar sentiments.

 

The latest poll from the British Chambers of Commerce (BCC) found that while 59 per cent of members said Brexit would be bad for business, nearly just as many said they wanted specific powers transferred back from Brussels to Westminster. Fifty-seven per cent said the believed a Cameron-led renegotiation with the EU would have a positive impact on their business.

 

A similar survey from the Confederation of British Industry (CBI) found 78 per cent of CBI members would vote to stay in the EU, but the organisation is calling on the next government to enact a European reform agenda prioritising more trade deals.