Brexit, the City and the Contingent Power of Finance

ABSTRACT

Brexit poses a profound challenge to the economic fortunes of the financial services sector in the United Kingdom (UK) because it threatens to sever access to the single market in the European Union (EU). Recognising this, the City of London’s largest financial firms and main representative bodies supported a Remain vote in the June 2016 referendum, and subsequently lobbied for a ‘soft’ Brexit policy to preserve the City’s lucrative passporting rights. Despite this, the government led by Theresa May pursued a ‘hard’ Brexit policy which threatened to leave the UK outside the single market. How can we explain the City’s apparent failure to influence the UK’s Brexit policy? We argue that whilst the UK financial sector wielded formidable latent structural power, its capacity to translate this into instrumental influence in the policy process was constrained by three factors: the political statecraft of Brexit, leading the government to downgrade the concerns of the financial industry; the reconfiguration of institutional structures, which undermined the City’s voice within government; and constraints on business organisation, caused by collective action problems and heterogeneous preferences. These three factors constitute important scope conditions which highlight the contingent power of finance in liberal market economies.

KEYWORDS:

• Brexit
• the city of London
• financial services
• business power
• statecraft

Acknowledgements

The research for this article was conducted while Scott James held a visiting position at the Blavatnik School of Government, University of Oxford. This paper was partly written while Lucia Quaglia was a research fellow at the BIGSSS (University of Bremen) and the Hanse-Wissenschaftskolleg (HWK) and subsequently research fellow at the Scuola Normale Superiore, Florence. We are grateful to the reviewers, the editors and the participants to the PSA conference for their constructive comments on earlier drafts of this piece.

Disclosure statement

No potential conflict of interest was reported by the authors.

Notes on contributors

Scott James is Senior Lecturer in the Department of Political Economy, King's College London.

Lucia Quaglia is Professor in the Department of Political Science, University of Bologna.

ORCID

Scott James http://orcid.org/0000-0002-4632-9288

Notes

1. Interview, UK bank, 12 June 2017.

2. See The Guardian (2016). JP Morgan backs campaign to keep Britain in the EU.

3. Reuters (2017), Bank planning to move 9000 jobs from Britain because of Brexit.

4. Interview, UK bank, 14 June 2017.

5. Financial Times. City of London lobbying group drops demand for EU ‘passport’. See also HM Government (2017).

6. Interview, trade association, 12 July 2017.

7. Interview, trade association, 19 June 2017. See also Financial Times (2017) ‘City of London delegation to press Brussels for free-trade deal’, 3 July 2017.

8. Interview, trade association, 19 June 2017.

9. Interview, US bank, 26 July 2017.

10. Interview, UK bank, 10 July 2017. See also Huffington. Theresa may has just promoted the man who could have destroyed her.

11. Interview, UK bank, 18 July 2017.

12. Interview, UK bank, 14 June 2017.

13. Interview, trade association, 19 June 2017.

14. Interview, UK bank, 18 July 2017.

15. Interview, trade association, 18 July 2017.

16. Interview, UK bank, 14 June 2017.

17. Interview, UK bank, 14 June 2017.

18. Interview, trade association 19 June 2017; and private conversation with City lobbyist, 6 September 2017.

19. For example, the Treasury (2016) predicted up to 500,000 job losses and a reduction in GDP by 3.6% a year. See also The Guardian (2016) ‘Mark Carney fears Brexit would leave UK relying on “kindness of strangers”’, 26 January 2016 and.

20. Interview, UK bank, 14 June 2017. See also Financial Times (2017) ‘Theresa May ensures only Brexit key allows entry to No.10’, 12 April 2017.

21. Interview, trade association, 19 June 2017.

22. Financial Times (2017) ‘Theresa May ensures only Brexit key allows entry to No.10’, 12 April 2017.

23. Interview, UK bank, 18 July 2017.

24. Interview, US bank, 17 July 2017.

25. Interview, UK bank, 18 July 2017.

26. Interview, UK bank, 10 July 2017.

27. Interview, UK bank, 10 July 2017.

28. Interview, trade association, 18 July 2017.

29. Financial Times (2017) ‘Ministers set up business advisory group with Brexit focus’, 27 June 2017.

30. Interview, UK bank, 14 June 2017.

31. Interview, trade association, 16 June 2017.

32. Interview, US bank, 17 July 2017.

33. Interview, UK bank, 18 July 2017.

34. Reuters, ‘Britain’s financial sector at odds over Brexit lobbying’, 20 September 2016.

35. Interview, US bank, 17 July 2017.

36. Interview, trade association, 18 July 2017.

37. Interview, US bank, 26 July 2017.

38. Interview, UK bank, 10 July 2017.