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Hammond, Carney fight for city of London as Brexit talks start
[LONDON] Chancellor of the Exchequer Philip Hammond and Bank of England Governor Mark Carney joined forces to fight against the fragmentation of financial services after Brexit as the government seeks to shift its focus away from controlling migration to safeguarding jobs.
The chief stewards of the UK economy, speaking in their delayed annual Mansion House addresses in London on Tuesday, said breaking up financial services such as derivatives and lending after Britain leaves the European Union would result in higher costs for companies.
"Fragmentation of financial services would result in poorer quality, higher-priced products for everyone concerned," Mr Hammond said.
"Avoiding fragmentation of financial services is a huge prize for the economies of Europe, and I believe we can do it."
Mr Carney called for a new system of cooperation over derivatives clearinghouses amid industry warnings that forcing the biggest firms to move would lead to skyrocketing costs and job losses.
Prime Minister Theresa May's failure to gain the majority she sought in the June 8 election has forced the government to rethink its focus both on Brexit and austerity.
The chancellor's speech, with its emphasis on spurring growth and productivity, marks a shift away from Mrs May's pre-election rhetoric, which touched little on the economy and instead focused on curbing migration.
By singling out financial services as a key driver of growth, Mr Hammond put the City of London at the centre of the Brexit talks, which kicked off in Brussels on Monday. The EU has proposed forcing the biggest foreign derivatives-clearing firms to set up shop in the bloc if they want to continue doing business there.
Oversight of derivatives clearinghouses has become a political football between the UK and the EU during Brexit negotiations, with several EU policy makers demanding control of clearing of euro-denominated contracts. The commission's proposal called for greater EU oversight of clearinghouses based in foreign jurisdictions and suggested the option of forcing the biggest ones to move clearing of EU derivatives inside the bloc.
Almost two-thirds of EU capital-markets activity is executed through the UK, while banks based in Britain lent more than £1.1 trillion (S$1.94 trillion) to the rest of the EU in 2015.
"Before long, we will all begin to find out the extent to which Brexit is a gentle stroll along a smooth path to a land of cake and consumption," Mr Carney said.
"Depending on whether and when any transition arrangement can be agreed, firms on either side of the channel may soon need to activate contingency plans."
Mr Hammond has long sought to promote a less abrupt break from the EU than advocated by some in the Conservative Party, stressing the need for transitional arrangements. Mrs May's disastrous election performance has strengthened his hand, allowing him to push for a more central role in helping coordinate the government's new tone on Brexit.
Major banks in London have warned the loss of so-called passporting arrangements, which allow them to operate across the EU from any member state, will probably lead them to relocate jobs and activities in European cities such as Frankfurt, Paris and Dublin. However, the prospect of a softer Brexit deal could result in lenders staying put.
HSBC Holdings Plc's investment bank chief Samir Assaf said last week a hard Brexit is now unlikely after the UK election, and that could mean more jobs staying in London after the bank said it could move about 1,000 roles to Paris.
A softer deal would be "very good news for us because it will be less hassle and we would be able to do much more things from London," he added.
Mr Hammond also made clear companies should still be able to attract global talent.
"While we seek to manage migration, we do not seek to shut it down," Hammond said.
"We must push for a new phase of globalisation to ensure that it delivers clear benefits for ordinary working people in developed economies."
While he maintained the Conservatives' pre-election pledge to eliminate the budget deficit by 2025, Mr Hammond acknowledged that voters had tired of budget cuts.
"Britain is weary after seven years of hard slog repairing the damage of the great recession," he said, adding that growth rather than higher taxes and borrowing is the only way to fund public services.
"We must make anew the case for a market economy and for sound money. The case for growth."