Brexit’s paradoxical consequence: the unloved colossus of the City matters more than ever

Ten years after Brexit, Britons must choke back an indigestible irony. Leaving the EU has been an unexpected success for those who voted against it: the prosperous Southeast, beneficiaries of the unloved colossus of London’s financial services. But it has been a disaster for those who voted for it, the left-behind of the neglected suburbs and provinces. 

Two reasons explain this paradox. First, the Brits let Barnier walk all over them on the backward-looking issues which dominated exit negotiations and regulate the rustbelt. Second, Brussels discovered that if it wanted to carry on its prodigal ways, it couldn’t do without London’s capital markets. 

So industry and the provinces have suffered, not helped by the local self-harm of eye-watering energy prices. The country’s business model has become even more lopsided. City employment is up by 100,000, output up by 20% in real terms, with the economy elsewhere treading water. The irrepressible animal spirits of the Square Mile (plus its offshoots in Canary Wharf and St James) continue to suck in talent from, and sell services to, the rest of the world. In doing so they fund the public and private services of the Southeast and shore up the rest of the country. 

This has come about because the banks have handily seen off attempts to rein them in. Not just from Brussels, but also from UK regulators. Restrictions on bonuses led to the ballooning of salaries and have now been rescinded. Crypto, once the mark of Cain, now finds friends in Threadneedle Street. And although the NonDom regime is not what once it was, banks have always been able to game the immigration rules. So the City is bigger, cleverer and more influential than ever, half a self-serving cosmopolitan cartel and half the very exemplar of Adam Smith, quietly keeping eyes away from its semi-independence. 

Much of this is worthwhile. Better capital allocation by markets than by government. And better for tomorrow’s pensioners to have a little pile of their own than be in the hands of tomorrow’s politicians. And of course it’s not all finance. London also has emerging clusters in tech and pharma, often propelled by City money 

Those directly involved are nicely insulated from national dilapidation. They have nothing to do with public healthcare, save to pay for it. So too, education, with the kids of the richest off to the Ivy League. By contrast, youngsters of the middling sort are obliged to compete with overseas students paying premium fees, hungry second-generation immigrants and teens from unfashionable postcodes, boosted by friendly admission policies.  

All too often, London’s middling kids end up with the humanities degrees which worked for their parents but no longer make magic with recruiters. They return economically unschooled, close to illiterate and innumerate, and prey to algorithmic diversion. They miss out on the plum jobs, instead becoming semi-educated latter-day helots, nursing their disappointment with fairy-tales of dystopia and the charlatans who push them - did someone say Zack Polanski?

Sadly, Whitehall and Westminster see few First Eleven picks these days. The smart kids got the email in the eighties. For a couple of generations, they’ve been making money and having fun, aiming well off public life. After all, who cares about Sunderland’s social workers, when you can make the future in Silicon Valley or the weather in the City?

London’s shouty Mayor devotes himself to cycle lanes and ads deploring hate crime, while the anonymous City Corporation soldiers on. The Labour Party is regressing into a tribute act for its own worst ideas: nationalisation, price-caps, proliferating welfare and reverence for Europe. The reinvented right is no better, with race-baiting tricked out as respect for the way things used to be. 

So what is the takeaway? Deregulation to revive the rustbelt? A century too late and anyhow never in the air. More restrictions, more taxes, on those wicked financiers? outright public intervention in capital allocation? Burnham’s pipe-dream, no doubt. But eventually someone will whisper in his ear about picking winners, golden geese, the Laffer curve and bond vigilantes. 

So, guess what. Nothing will happen. The prosperous will continue to bemoan Brexit, impervious to their windfall. The provinces will continue to struggle with their adverse legacy. And the City will sail on, making ridiculous sums of money, drawing in the best and the brightest, investing in the future, financing public incontinence, securing private pensions and by no means incidentally, stumping up for the invoices from its bewildered, run-down and unappreciative heartland.

Miles Saltiel