Full memo of David Davis meeting with the City

This is a memo taken by a City of London Corporation representative after meeting David Davis, the minister for Brexit, on 15 November 2016. It was circulated within the City and leaked to the Financial Times.

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Overview

David Davis is bullish and not receptive to negative special pleading. He sees Brexit as a positive opportunity. But he is not close-minded. Well-constructed, factual solutions to problems can be made to him and he will be receptive. He is enjoying his role and appears to have a decent relationship with the Prime Minister. If anything he sees himself as a more flexible-minded problem solver than her. We can engage him but it needs to be in a way that he responds to positively.

Meeting Notes —

Impact on the City — Stated his desire for “facts and evidence” — would like to have clear, supported statistics and research about the impact on jobs and organisations as a result of not having access or adequate arrangements for different forms of trading or financial services activity.

With such evidence he plans to gauge how negotiations can be pitched and what negatives or positive effects would result from trade-offs being made or certain models being adopted. Viewed the City, in part, as not yet having moved on from the Referendum and accepting the outcome.

Relocation of banks — Commented that financial services PR firms are the most vocal groups warning of extreme negative consequences for financial services. Also queried whether the employees of US banks warning of relocating in Europe would actually relocate, given the unattractiveness of Frankfurt and other cities in the EU, in comparison with London. As a result, jobs will go back to New York not Europe.

Possible Transitional arrangements — Stated that he was “not really interested” in the discussion around the arrangements, did not foresee any benefits and could be perceived as a delay to the process that is not something the Government can abide.

However, expressed concern that there is an argument that the stability of the EU could be compromised by the UK’s “sudden” departure from the EU — the regulatory upheaval and potential for systemic risk could result in serious negative consequences for the whole of the EU. Davis emphasised the PM’s conference speech, in which it was stated that the UK Government wants a strong UK and a strong EU. He went on to say that if the EU, rather than UK stakeholders, want to have transitional arrangements he would be “more in favour. I will be kind”.

Trump — Recognised the fear in the EU Member States that a “wave of nationalism” would sweep across Europe.

Negotiations — Speculating on the positioning of certain countries, he thought that Spain would not, ultimately, pose a problem in the negotiations, neither would Germany but believed France would be the most hostile and difficult to compromise with.

Querying what might happen if there is a desire for a punishing or hard negotiation and settlement for the UK, Davis said they would then need to switch to his “alternative strategy” that the UK Government will have to take a position of competing with other EU Member States for business — lower tax, softer regulation and other strong business incentives.

Opined that the EU Member States, such as France had “no faith” in their economic models and ability to compete with an “Anglo-Saxon approach”.

Immigration — Emphatic that UK will “take back control of its borders” but in the national interest. Speculated that a bespoke solution of permits and points style system would be used to determine entry to the UK.

Very much understood that the UK would not benefit from a labour shortage. Emphasised that new apprenticeships, vocational and training programmes would be implemented “in step” with immigration changes, to ensure that domestic workers are best placed to fill UK vacancies and there is not an unnecessary skills shortage.

Appreciated that the “up and coming” entrepreneur with little capital and poorly paid young scientific researcher would pose an issue in ensuring rising talent got through immigration control — did not currently have an answer but were looking at solutions.

Access to the Single Market — In light of the position on immigration and the EU’s inflexible approach to the ‘four freedoms’, it is unlikely that the UK will achieve access. However, stated that if a trade deal such as CETA could be agreed, it would be unlikely to pose a significant problem as “most advantages” would be gained.

A deal of this nature and the ‘Great Repeal Bill’ would actually mean that a lot of common standards would already be in place to trade.

Equivalence — Addressing fears that the French would “pull out the rug”, Davis understood concerns but indicated a mechanism “to stop that happening quickly” could be found. More widely on regulation, speculated that the US is about to liberalise their regulation and this would make it much tougher to penalise the UK for not having appropriate regulation — as they would then also need to penalise trading partners such as the US.

Passporting — Does not believe that business leaders actually understand when Passporting is actually required and is not as vital as many suggest.

Exports — Did not see logic for pharmaceuticals to relocate. Believed it can be more beneficial to be outside and trading in to the EU.

Trading models — Big spectrum of models, looking at somewhere in the middle of the models for Turkey, Switzerland and Norway.

Clearing — Referencing the ECJ decision on clearing, commented that US reserves the right for it to step in if an issue in trading arises, UK may have to allow EU to do the same in euro-clearing.

Article 50 — Liked the fact it acts as a deadline and requires a resolution to be found. Court case means it will likely now be triggered in very late March. Will use an expedited process and allow five days for the Bill to pass. Hinted that he would allow longer than necessary to proceed through Parliament, as “they would run out of speakers” to oppose the Bill and the Lords would start to “tie itself up” and not make a coherent argument. Will trigger Article 50 with an opening approach of open access on all services and goods without tariffs in the UK.

[ECJ — PM emphatic that ECJ must not have a say in UK affairs.]