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usiness leaders tell some 26m Britons what to do at work. They cannot tell them what to do in the polling booths, as a slim victory for Leave in the EU referendum has underlined. The bosses of thousands of companies large and small had extolled the wisdom of a vote to stay in Europe. Britons shrugged.
Now, England will shake. Do not be deceived by Friday’s yo-yoing
FTSE 100 index, which ended the day only 3.5 per cent lower. The pro-Brexit outcome is a disaster for British business and the City of London. It will bring extended political uncertainty, market volatility and the possible break-up of the UK, since Scots want to stay within the EU.
The City, London’s two-millennia-old trading hub, has always faced eastward towards Europe. Large swaths of the country have turned their back on both. Some City executives wish they could return the compliment. If only, they muse, London could follow the Scots out of the door, leaving the North, Midlands and Wales to rub along without public spending subsidies paid for by taxes on well-off Londoners.
Lord Myners, the grandee and former City minister, said June 24 had been “the saddest day of my business career”. Old campaigners whose careers started in the Square Mile before Big Bang 30 years ago remember a stuffy, snobby milieu. Since then, business has burgeoned as investment has flowed, lured by tumbling barriers. Now those barriers are set to rise again. Lord Myners says: “The voices you hear objecting to the EU today are the same kinds of voices resisting Big Bang back then.”
The narrowness of Leave’s victory increases the scope for the UK to haggle concessions from the EU on the key issue of immigration and to mount a second referendum. But if this dog does not bark, thousands of City jobs could be lost. Banks and insurers would need to move parts of their operations to the continent to retain “passports” to do business across the EU. Clearing in euro-denominated securities would likely go the same way. Morgan Stanley could decamp to Dublin. HSBC may shift 1,000 jobs to France.
There are pro-Brexit bosses running FTSE 100 companies, though they keep a low profile. Their thesis is that Thursday’s vote has simply called time on a European project collapsing under the weight of its contradictions. But it is a brave gamble to wager that political chaos will create a Europe that still believes in a single market while dispensing with irksome social reform.
Lord Hill, the Briton installed after lobbying as European Commissioner for financial services, looks set to lose his job. His project for capital markets union would be completed by a continental substitute. The City, where three-quarters of Europe’s securities business is transacted at present, would no longer be part of it.
It would be wrong to suggest that all the consequences of the Brexit vote are bad for UK businesses. Private equity groups, which have made decent progress in whittling down portfolios since 2012, may find opportunities to buy as asset prices drop. Companies with hefty dollar sales will see profits rise, when they are reported in sterling. “The fall in the pound makes us a lot more competitive”, an industrialist points out. But he sees a slump in foreign direct investment into rustbelt Britain as a “significant” negative.
The failure of business leaders to inspire a Remain outcome shows their influence is limited outside the C-suite. Big beasts such as Sir Richard Branson, Sir Charles Dunstone and Dame Carolyn McCall lined up to warn of the consequences of a Brexit. The pro-Leave camp fielded a far scantier roster of Eurosceptics, which included Tim Martin of Wetherspoons and fund manager Howard Flight.
You tell us: voters chose to leave the EU. Now what?
A campaigner wearing a Vote Leave t-shirt and holding a British Union Flag, also known as a Union Jack, stands on a Westminster Bridge near the Houses of Parliament in London, U.K., Wednesday, June 15, 2016. The Brexit battle took to London’s River Thames as boats supporting the “Leave” and “Remain” campaigns jostled for space, while Irish rock star Bob Geldof harangued U.K. Independence Party leader Nigel Farage using a sound system. Photographer: Luke MacGregor/Bloomberg
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The structural problem with Remain’s dependence on business support was that it made the campaign sourly negative. Company bosses gave their honest opinion in predicting damage to the economy from a Brexit vote. The respected OECD recently backed them up by forecasting a 1.5 percentage point fall in UK output.
In contrast, Mr Martin and his ilk had a unique selling proposition “taking back control”. That captured voters’ imaginations despite the difficulties politicians such as Boris Johnson may have delivering the promise in practice.
It would have been better for pro-Remain business leaders to make free trade and tolerance of foreigners the positive central strands of its message. But this would have been too nakedly ideological for many of them. As it was, plenty of companies, such as J Sainsbury and Legal & General sat on the fence. They said national self-determination was for the people, not plutocrats, to decide. That was a respectable position, however much it irritated David Cameron. The poll result has proved them right.
Two tribes, it transpires went to war on polling day. Remainers, whose beliefs reflect economics, and Leavers, whose economics reflect their beliefs. Unless the first group can understand and win over the second, the prospects for both look equally grim.
Courtesy : ft.com