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27 October 2016

Sooner or later, John McDonnell must defend the bankers he hates

The shadow chancellor's message is too complicated to be clear. 

By Julia Rampen

“Like me, you will have friends who voted Conservative,” John McDonnell told an audience of mechanical engineers, Labour faithful and journalists. “They don’t want a bankers’ breakfast – Brexit – any more than I do.”

If the shadow chancellor would subconsciously prefer to talk about fry ups, it might be because the government’s strategy on Brexit has put him in a bind. The man known as a true follower of Marx is increasingly finding himself on the same side as the capitalists. 

In the run up to the EU referendum vote, the Tory Brexiteers leading the Leave campaign talked up a business-friendly, free trading Britain, a Singapore on the North Atlantic, as McDonnell put it in his speech. Labour’s Remain campaigners warned of attacks on workers’ rights.

But then came Brexit, and the economic liberals’ fall from grace. Britain’s new Prime Minister, Theresa May, has steered away from the cosy reassurances once offered to UK Plc and towards the world of the “just managings”. Her Brexit minister, David Davis, hasn’t revealed much about the negotiations, but he has said this: “This Conservative government will not roll back those rights in the workplace.” 

The Tory PM’s focus on controlling immigration and economic fairness will delight many traditional Labour voters. But her apparent complacency about the single market is unnerving economic liberals, and businesses. The most obvious critique of the Prime Minister is that she is willing to risk all-important access to the single market, in order to win on a populist point. 

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McDonnell has clearly spotted his. And yet, forced to mount an attack from a free trade position, he sounds conflicted. In his speech on Thursday, he attacked Tory backbenchers who tried to intervene in the Bank of England’s independent monetary policy, and declared: “The economic benefits of free trade are well-known throughout this country.” 

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Financial services access is a “red line” in Labour’s negotiation stance. He is prepared to make “a robust economic case” for the benefits of free trade “over the perceived costs of migration”.

Nevertheless, McDonnell’s suspicion of the financial services industry is never far away. His speech was peppered with references to “special deals for bankers”, the “elite” and a “few jobs in the Square Mile”. 

“We have reached the end of the line for the old economic model, with financial services at its centre,” he declared. Instead of a trickle down of wealth, he said, the public had seen “a grotesque trickle up”. 

McDonnell may be bang on in his analysis that economic inequality drove Brexit. He may be right that the economy needs to rebalance towards manufacturing. But that is not what the Brexit negotiations are about. The next two-and-a-half years are about trying to preserve and haggle – and shout the loudest about what the government’s priorities should be. And the financial services are central to this. 

Like it or not, we live in a country where services account for nearly 80 per cent of the UK economy, according to the Office for National Statistics, and generate 11.6 per cent of tax receipts. In Scotland, financial services employ nearly 100,000 people. 

The financial services industry is also one of those most jeopardised by Brexit, because it is not a straightforward case of negotiating tariffs. Without passporting rights, UK firms serving the EU are expected to have to establish a subsidiary in the EU. The Institute for Fiscal Studies concluded: “It is clear that the financial services sector is disproportionately affected.”

In other words, the uncertain fate of the financial services industry represents the cold, hard reality of Brexit. The public need to know exactly what the stakes are. McDonnell could be the one to spell this out, and he shouldn’t be ashamed by the fact – any more than his Labour predecessors should be for bailing out the banks. But doing so requires mustering up at least a little enthusiasm for financial services. Perhaps he’d better ask his Conservative friends for advice.