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City of London executives have expressed anxiety that the turmoil rocking the UK government may delay or derail post-Brexit reforms aimed at boosting competition and growth.
The resignations of Chancellor Rishi Sunak and John Glen, economic secretary to the Treasury, sent shock-waves across financial firms, while the escalation of ministerial departures on Wednesday triggered questions about how long new appointments including Nadhim Zahawi as chancellor would stay in their posts.
“Is Sunak’s vision the same as Zahawi’s for financial services? That remains to be seen,” said Miles Celic, chief executive officer of TheCityUK, which represents financial and professional services firms. “If the PM goes we will need a government that has a clear economic vision for the UK post-Brexit and post-pandemic, of how you get the finances back in shape and how you address the problematic relationship with our nearest trading partner.”
The departures of Sunak and Glen threaten to delay several efforts by the UK to reshape financial regulation now it is outside the European Union. The government has planned reforms of insurance solvency rules and said it would open up small investor access to private equity. Prime Minster Boris Johnson, who has defied his own ministers’ calls this week to resign, has also recently promised a review of mortgage rules.
(Editor’s note: Johnson on July 7 announced he is resigning as head of the parliamentary Conservative Party after a succession of scandals led to the mass resignation of members of his government. It was confirmed on July 11 that he will stay in place as prime minister until Sept. 6 after a new leader is elected).
Industry lobbying groups have wasted no time in crafting communications to new cabinet members, including Zahawi, laying out key policies they hope aren’t lost among the political chaos. Meanwhile, the exodus from government continued on Thursday, with the resignations of Northern Ireland Secretary Brandon Lewis and Treasury Minister Helen Whately.
The financial industry has long quietly complained that its voice has been unimportant to Johnson as they grappled with the complexities of Brexit. Johnson has argued the City of London will prosper outside the EU, noting job losses and disruption to capital flows have been lower than feared.
“We do need a business friendly government, but haven’t had one for a long time,” said Philip Hampton, former chairman of J Sainsbury Plc, GlaxoSmithKline and Natwest Bank. “A new chancellor won’t change that starting point. The only solution is for the UK to increase productivity and growth pretty much everywhere.”
Some reacted positively to the appointment of Zahawi, who said Wednesday in media interviews there was “nothing off the table” on the question of potential tax cuts. Barney Reynolds, global head of financial services at law firm Shearman & Sterling and author of a new book on the future of post-Brexit regulation, said: “If the rumors are true that Nadhim Zahawi is considering cutting taxes, that would indicate reforming the law and regulations might also be on the agenda. We can grow our way to success.”
The departure of Glen stirred concern among financial firms as he has been a key figure in creating new financial services law that is due to be unveiled later this month. Glen was appointed to his role in January 2018 and has been seen by many in the city as a welcome point of continuity amid other changes in government.
“John Glen is held in extremely high regard in the industry. Sunak largely left Glen to lead on financial services, he led the reviews and consultations. He was an expert, involved and engaged,” said Celic.
Among the industry groups watching closely for how the government upheaval will affect post-Brexit reforms is the Association of British Insurers, whose members are awaiting details of the government’s reforms to the Solvency II capital regime.
“We will continue to work closely with government on areas of mutual interest,” an ABI spokesperson said.
Amid the rapid changes of senior political figures, Alasdair Haynes, chief executive officer and founder of stock platform Acquis Exchange Ltd., questioned whether Zahawi would be in post for long. “The key for the City is much more to do with getting the Finance Services and Markets Bill through Parliament,” Haynes said. “It’s John Glen the economic secretary who can do that and everyone will be watching what he does or whether he is reshuffled.”
Glen quit his role shortly afterwards.
Photograph: A dragon statue, a symbol of the City of London, in view of skyscrapers in the square mile financial district of the City of London, U.K., on Friday, Jan. 1, 2021. The U.K. completed its divorce from the European Union, leaving the bloc’s single market and customs regime more than four years after the country voted for Brexit. Photo credit: Hollie Adams/Bloomberg.