Senior City figures have expressed growing fears that turmoil in Westminster is distracting the government from Brexit negotiations as the pressure mounts to secure an all-important transition deal.
Royal Bank of Scotland chairman Sir Howard Davies yesterday warned the government has taken its “eye off the ball” when it comes to Brexit amid continued in-fighting in Prime Minister Theresa May's government.
Echoing his sentiment, one FTSE 250 chief executive told City A.M. there were “only downsides” to the conflict, while a FTSE 100 director said the last week had been a “disaster” for the government’s direction on Brexit, adding: “We’re heading in a very very bad direction… This is going much worse than any of us thought [it would]”.
The fifth round of Brexit negotiations on separation issues starts today in Brussels, but business leaders are concerned that "it's taking quite a long time to get to the nitty gritty of what a new trading relationship with the EU would be", Davies told Sky News.
Senior officials at the Bank of England, City lobby groups, and business leaders have all set Christmas as the deadline for a transitional deal to be outlined, before firms start implementing plans to move some jobs and operations out of the UK.
However, justice minister Dominic Raab yesterday confirmed the government is planning for a “no deal” outcome, which would force firms to trade under World Trade Organisation rules from midnight on 29 March 2019.
The move came as May tried to shore up support for her leadership, following a direct challenge at the end of last week from members of her own Conservative party. Former minister Grant Shapps claimed a group of 30 MPs wanted her to step aside after May’s nightmare speech last week to the Conservative party conference, in which a persistent cough, a prankster and a failing set combined to leave the Prime Minister in her weakest position since June’s General Election.
Bosses are becoming increasingly frustrated that the power struggle within the Conservative party could hamper efforts to agree temporary access for trade with the EU as the UK prepares to formally leave the bloc.
Colin Stanbridge, chief executive of London Chamber of Commerce and Industry, said: "Continued political infighting can be of no help to the economy when we have job that needs to be done. Indeed it only breeds uncertainty which we know is damaging for businesses.”
Catherine McGuinness, policy chair at the City of London Corporation, said: “One does get this feeling from time to time that it is two steps forward and one step back, or sometimes one step forward and two steps back.
“We need legal agreement on a transitional deal by the end of the year or we’re going to see contingency plans activated.”
Sir Michael Rake, chairman of FTSE 100 firms BT Group and Worldpay, told City A.M. the government must focus on securing a long transitional deal which is effectively the same as current arrangements.
He said: “It’s clear the focus should be on ensuring we have an adequate transition period.”
RBS’s Davies said Brexit will result in operations moving from the City, but noted the government should aim for a deal which keeps job losses to “a few thousand people, not tens of thousands”.
Labour’s shadow City minister, Jonathan Reynolds, said he is “frightened” the government will not be able to agree a transition deal by Christmas and firms will start moving jobs out of the UK.
“There’s just no progress being made,” he said. “Talks and the relationship [between the UK and EU] are getting generally worse.”
Liberal Democrat Brexit spokesperson Tom Brake described the refusal to rule out a “no deal” situation as “inexcusable”, saying it has “created a huge amount of uncertainty.”
A spokesperson for the government said they are “determined to maintain the City’s competitiveness now and in the future” by agreeing a transition deal “as early as possible”.
The spokesperson said: "As the Prime Minister set out in her Florence speech, we are proposing a strictly time-limited implementation period where we continue to have access to one another’s markets on current terms.
“Doing so is in the interests of businesses both in the UK and the EU."
Securing a transition deal is “vital” for the City, according to Iain Anderson, executive chairman of Cicero Group, but the Conservative party is sending mixed messages.
Anderson said: "The Prime Minister’s speech in Florence set out a very clear position on transition. There seemed to be cabinet agreement but the debate at the Tory party conference did nothing to support this.”