The well-worn phrase, ‘a week is a long time in politics’, would be a ludicrous understatement when describing the week that saw the appointment of the UK’s second female Prime Minister, Theresa May. For the second time in less than three weeks, the financial and fintech industries were caught completely off guard by political developments. But there is a cautious optimism that this will prove a more welcome surprise than the Brexit vote.
The most immediate effect of May’s premiership has been stability. A smooth and swift change of government within weeks, rather than months, of David Cameron’s resignation has ended uncertainty about future British leadership. May, Britain’s longest-serving Home Secretary in over 60 years, is also recognised as being an experienced hand and enjoys the support of a majority of the parliamentary Conservative Party. The markets responded positively to the announcement of the new prime minister, with the FTSE100 ending that day up 1.4pc and continuing to climb to its highest level in 11 months. City A.M.’s Lynsey Barber has written that the tech industry welcomes May’s appointment, which brings ‘more clarity to a post-Brexit no-man's land’. Further uncertainty has been avoided by May’s refusal to call an early general election.
Now that a semblance of short-term stability has been secured, what the financial and fintech industries need to know is what policy direction a Theresa May government will take and what her EU exit strategy will be.
Although she has given little detail in terms of concrete policy direction, May’s previous experience in finance, as well as her position alongside Cameron on the liberal wing of the party, suggest that her government will continue to pursue a low tax, low regulation approach that has helped London consolidate its position as a global financial centre. Many commentators deem it unlikely that London will lose its status as a financial capital, due to its attractive financial and legal ecosystem and an estimated relocation cost of £50,000 per employee. The Cameron administration also provided excellent support for the UK tech industry, with policies such as the 2015 Tech Nation Visa Scheme, facilitating global recruitment, and the 2012 Seed Enterprise Investment Scheme (SEIS), which offers tax relief for investors in tech startups. Speaking to bobsguide, Russ Shaw, Founder of Tech London Advocates, believes that government backing will continue. ‘Fintech is the jewel in the crown of London’s technology economy, and we expect that the new government will recognise this and continue to give it their utmost support’.
There might be concern that the often anti-corporate, populist tone of the Leave campaign appears to have influenced the new Prime Minister’s policy vision. At her official campaign launch, May proposed some radical corporate governance reforms, including: workers on boards; curbing executive pay; and making shareholder voting on pay binding, rather than advisory. But whilst the old beasts of the City might be wary of deviation from the post-Thatcher orthodoxy, fintech, which has always prided itself on reform and innovation, is likely to be more welcoming of such changes.
The issue that will almost certainly dominate May’s tenure at Number 10 is that of Brexit. Although she has said that she does not intend to trigger Article 50 before the end of 2016, the swift ascension of this pragmatic Remain supporter will kindle hopes that the groundwork for an amicable divorce will be laid quickly, restoring further investor confidence. Her new chancellor, Philip Hammond, has stated that a clear plan for EU withdrawal will be put forward later this year. Until then however, what Brexit will actually mean remains unclear. During May’s first foreign visits, to Berlin and Paris, Angela Merkel and Francois Hollande maintained that the UK must trigger Article 50 before any negotiations on a Brexit settlement can take place. A potential obstacle to cordial negotiations with these key European players are the 2017 national elections in Germany and France. Merkel and Hollande will be wary that a favourable deal for the UK might embolden the growing Eurosceptic movements within their own countries.
May has firmly stated that ‘Brexit means Brexit’ and backed this up with the appointment of prominent Leave campaigners, David Davis, Boris Johnson and Liam Fox as Brexit Minister, Foreign Secretary and International Trade Secretary respectively. Writing for ConservativeHome, before his appointment, Davis set out a plan for a low regulation post-Brexit economy, with fewer tariffs and suggested a further cut in Corporation Tax to 15%. Such changes would be warmly received by the financial and fintech sectors, but as mentioned above, there are political considerations at play in Brexit negotiations, not just economic self-interest.
Furthermore, a recent survey of the tech sector, by Tech City UK, has revealed greater concerns. 70% of respondents want a clear message about the rights of EU citizens to work in the UK and they will be alarmed to hear Davis talk of the UK economy’s unhealthy dependence on ‘uncontrolled mass migration’. May has also signalled that freedom of movement in its current form must end. To make matters worse, if freedom of movement becomes a red line in Brexit negotiations, it could jeopardise the UK’s access to the Single Market, which is seen as vital by 85% of survey respondents. However, a seven year “emergency break” on free movement has been floated by European politicians as a possible means of keeping the UK inside the single market. There might also be cause optimism on the issue of making it easier for talented non-EU citizens to obtain visas, important to 79% of those polled. Russ Shaw revealed that, ‘The Tech London Advocates working group on Immigration, along with Penningtons Manches, have developed initial thoughts around a 'Tier 5’ visa initiative if Freedom of Movement is restricted.’
The breakneck speed of developments in Westminster have provided a degree of stability and clarity in the post-referendum turmoil, but anxiety over the UK’s relationship with the EU is likely to remain for months, or even years, to come.
By Edward Swales, Contributing Blogger, bobsguide.