The City has blasted the government's new blueprint for Brexit, after it was revealed the preferred model for financial services has been dropped.
The long-awaited Brexit white paper was published early this afternoon. Although much of the 100-page document dealt with matters that had been outlined following Chequers, the plan to drop mutual recognition as the UK's negotiating position for financial services has come as a shock to the industry.
Policy chairman of the City of London Corporation Catherine McGuinness was scathing.
“Todays Brexit white paper is a real blow for the UKs financial and related professional services sector," she said.
“With looser trade ties to Europe, the financial and related professional services sector will be less able to create jobs, generate tax and support growth across the wider economy. Its that simple.
“The sector has been clear since the referendum: Equivalence in its current form is not fit for purpose so any “enhancements” to this regime would have to be substantial.
“As the EUs gateway to capital, the UK is a significant trading partner for the bloc. Its in the interests of households and businesses on both sides of the Channel that an ambitious future trading relationship, covering services as well as goods, is secured.
“Failing to secure such a deal would put up unnecessary trade barriers and runs the risk of fragmentation of financial markets, increasing costs and reducing choice for consumers."
Miles Celic, chief executive of TheCityUK, echoed McGuinness' concerns, saying it was "regrettable and frustrating" that mutual recognition had been dropped "before even making it to the negotiating table".
He added: "In hundreds of discussions across the EU, the industry has never come across an unanswerable technical or commercial barrier to this approach. The EUs objections have always been political.
“Our priority now is to examine the proposals in the White Paper and engage with government on how this new approach can be made to work in the interests of our customers. We are reassured that the government continues to reject the current form of equivalence. It does not meet any of the requirements for success.
“Brexit was always going to result in access to the EU market being more difficult. Therefore, an effective and secure future regulatory relationship is vital. It is now urgent that we make rapid progress on the negotiations, both around the future relationship and on immediate issues for customers such as contract continuity.”
One source said: "City is unhappy but doesn't want to see Corbyn in Number 10, so will live with it. But it will make some more businesses move."
The source added Brexit secretary Dominic Raab – who was parachuted into the role on Monday afternoon after the resignation of his predecessor David Davis – was "out of his depth".
The Cabinet minister's statement was interrupted by MPs outraged that they had not had a chance to read the 100-page document in order to ask questions of Raab, before Speaker John Bercow criticised the handling of the publication and suspended the house.
But not everyone was totally dismissive.
Adam Marshall, director general of the British Chambers of Commerce (BCC), said: “This vision should not have taken two years and three weeks to emerge, but it is nevertheless a welcome starting point for businesses.
"Momentum and pace are now needed to translate ambition into answers to the real-world, practical questions that businesses face. Even with the welcome direction of travel in the White Paper, companies still don't know how they'll be paying VAT, how they can move people between offices, or whether goods will get across borders with a minimum of fuss. It is incumbent on the two sides to work pragmatically and productively on the nuts-and-bolts detail of the future relationship over the coming weeks, drawing on business experience and expertise.
"Time is short – and for businesses, it's results that count."
Stephen Martin, director general of the Institute of Directors, agreed it put "some vital meat on the bones of the Chequers plan".
“However, the Government has missed a trick by holding back on detail in several areas. Clarity about its approach to VAT arrangements, which are crucial to achieving its aim of frictionless trade with the EU, is in short supply. The paper also implies that businesses and individuals wont have access to any new dispute resolution mechanism relating to enforcement of the agreement. Given the unprecedentedly close economic arrangement the UK is hoping for with the EU as a third country, this should be in there.
"The government has provided more clarity on its approach to financial services, and we look forward to them doing the same for the rest of the services sector… EU negotiators now have specific details to build upon, and we strongly urge them to respond constructively to the White Paper so that progress can be made for the benefit of both sides.”