City lines up to buy ticket out of Europe

Two years later, business leaders appear less certain. The migrant crisis has hardened public attitudes to the EU and the City’s big hitters are reluctant to give the common market their unqualified support. David Cameron has promised an in-out EU referendum before the end of 2017.

The latest YouGov poll puts the “out” campaign ahead for the first time since November last year.

The Eurosceptics are grow–ing in confidence and can count on the support of some powerful names in banking, asset management, accountancy and law. Business for Britain, the sceptic organisation that forms part of the Vote Leave campaign launched a fortnight ago, has quietly amassed more than 1,400 signatories from what it calls the “silent” majority of Britain’s business community.

They include City grandees such as Michel de Carvalho, chairman of Citi Private Bank in Europe, Middle East and Africa; Paul Killik, founder of Killik and Co; and Peter Stormonth Darling, chairman of Mercury Asset Management between 1979 and 1992. The aristocratic investment firm run by relatives of James Bond author Ian Fleming, also features on the list. Adam Fleming, the billionaire former chairman of Fleming Family & Partners, is a signatory, as is Mark Davies, former group chief executive.

The bosses of many leading City asset managers are supporters of Business for Britain, including Gavin Rochussen, chief executive of JO Hambro Capital Management, which manages nearly £20bn of assets, and Mark Tyndall, co-founder and partner of Artemis Investment Management.

Britain’s asset managers have been hit hard by what they see as “unnecessary” EU legislation in recent years. This may have persuaded many that Britain would be better off outside the EU.

“It has been an unprecedented time in terms of the total amount of regulation that has hit our sector, much of it from Europe, but also from America and the UK,” said Ian Sayers, director-general of the Association of Investment Companies.

“Much of this regulation has been in response to the financial crisis, which our members did not cause.”

Yet many supporters of Business for Britain are uncomfortable that it has become an affiliate of Vote Leave, despite being set up as an “independent, non-partisan” organisation to campaign for EU reform.

Matthew Elliott, chief executive of Business for Britain, defended the decision to join the “out” campaign, saying it was taken in June when it became clear that the EU would not change treaties until after November 2019, limiting reform options.

“Only a handful” of supporters had since left the signatory list.

Central to Elliott’s case is the argument that the EU is in terminal decline and it is not in Britain’s interests to hitch itself to a flawed project. The EU may account for more than 40% of British exports currently, but this is set to decline to nearer 30% by 2028, when it will have been overtaken by our exports to the rest of the world.

He dismisses the argument that Britain, as the biggest destination for foreign direct investment in Europe, could lose billions by leaving the single market, pointing out that US investors in Britain say they are more likely to increase than decrease their investment ahead of a referendum in 2017.

Earlier this month Jeff Immelt, chairman and chief executive of the £180bn US conglomerate GE, said Britain’s relationships with the rest of the world mattered more than its place within the EU. The American giant is one of the biggest overseas investors in the UK and employs more than 18,000 people here.

Ranged against Vote Leave is the Britain Stronger in Europe campaign, launched last week with Lord Rose, the former M&S chairman, at its helm. The campaign draws heavily on research by the CBI, the business organisation that found the benefits of membership outweighed the costs by 10-1.

Wanting out: Michel de Carvalho, with his wife, Charlene (Desmond O’Neill)

The UK’s net annual contribution to the EU costs the average household about £340 a year, it said, compared with benefits of about £3,000.

The CBI has so far stayed away from the in-out debate, but says most of its members support continued membership of the EU — as long as there is reform.

“Members see a huge advantage in having a home market of 500m consumers to sell to,” said Andy Bagnall, CBI campaigns director. “Similarly, the sheer size of the EU single market is a big prize to put on the table when negotiating trade agreements with other parts of the world.”

He dismissed the argument that Britain would be able to renegotiate these trade deals successfully on its own. “We recognise that when negotiating as one of a club of 28, we may have been less fleet of foot than we might have been on our own, but there is a trade-off between the speed of negotiating trade deals and their quality — getting a deal at any cost is easy, the point is to get reciprocal access.”

Switzerland, which is outside the EU, has negotiated bilateral trade agreements with countries in the single market and around the world. China’s free trade pact with the Swiss in 2013 was its first with a continental European economy — but it was weighted in China’s favour. All Swiss tariffs on Chinese products were removed immediately, but only 85% of Chinese tariffs were removed under the deal, over a period of up to 15 years. “We are not saying we can’t survive outside the EU, but would we thrive?” said Bagnall.

As the arguments rage, City analysts are starting to get nervous. They fear investors are underestimating the uncertainty that would ensue from close polls, as happened with the Scottish referendum.

David Tinsley, economist at UBS, the investment bank, has estimated that “Brexit” would knock £54bn off the value of the UK economy over five years, or half a percentage point a year off growth, if the UK failed to renegotiate trade deals and suffered a drop in migration — as looks likely.

“We believe an EU exit will have material consequences for sterling and most likely would lead to a de-rating of the currency,” he said.

Citi economist Michael Saunders recently raised his estimate of the chances of Brexit from up to 20% to up to 30%.

“The UK’s EU referendum is one of the key global political wild cards for 2016-17,” he said. “If it [Brexit] happens, it would probably be a major negative for the UK’s economic and political stability.”