Britain's bankers to put wallets first in 'nightmare' election

6 min read

(Reuters) - When it comes to politics, bankers tend to let their wallets guide their voting choices and next month’s British national election will likely be no exception.

Faced with the prospect of a Labour government that would hike the top rate of income tax to 50 percent and extract a levy from their bonuses, most financiers are rooting for the re-election of David Cameron’s Conservatives, even though that would mean a potentially damaging referendum on Britain’s membership of the European Union (EU) before the end of 2017.

The mere threat of Britain leaving the EU could seriously damage London’s standing as Europe’s financial hub, but many bankers would prefer to deal with the uncertainty and campaign for a “Yes” vote than see Labour’s Ed Miliband voted prime minister on May 7.

“Miliband would be worse (than Cameron) by far. If they bring in the bonus tax there won’t be any bankers left,” said one investment banker.

Elected to lead Labour with the backing of the unions, Miliband has reversed the pro-business mantra of Tony Blair, Labour’s most successful leader, who along with his finance minister Gordon Brown embarked on an offensive to build relations with boardrooms in the 1990s.

With voters still aggrieved at how the banks have snapped back from the financial crisis with bumper pay packets intact, the Conservatives have also targeted the sector, with Finance Minister George Osborne hiking an industry levy by one third in his annual budget this week.

The British Bankers Association has warned Osborne’s move could drive members out of London, but in private, bankers accept that the Conservatives, their usual party of choice, need to win votes and they remain a convenient cash-raising target.

Miliband’s plans, which target their personal wealth and the structure of the industry, are more contentious.

TRUMP CARD

To reassure the financial elite, Labour lawmakers privately play their trump card that a vote for them is a vote for certainty on Europe. But this is not gaining much traction in the skyscrapers of Canary Wharf, the east London estate which hosts institutions including Barclays and HSBC.

“Senior Labour figures, when you go to lunch with them, they are actively getting that message out there,” said an executive at one international bank. “Frankly you see a lot of fairly stoney faced people sitting around the room.”

None of the 23 senior bankers interviewed by Reuters for this story wanted to be identified because of the sensitivity of the topic.

State-backed banks such as RBS and Lloyds have the most to lose if Miliband follows through on a promise to limit the market share of any bank. Lloyds is the biggest player in personal current or checking accounts with a 25 percent share, while RBS has the same share of small business accounts.

Wading into a UK election would be playing with fire for any banker, local or international, so instead they are thinking about a vote they might be able to influence, a possible referendum on “Brexit”.

Chastened by last year’s vote on Scottish independence, when complacency in London helped the “Yes” camp nearly score a historic upset, financiers are preparing to come out early in support of Britain staying in the EU should Cameron be re-elected.

Some U.S. banks have already gone public on the issue, with JP Morgan supporting Britain’s membership of the EU in a submission to Britain’s finance ministry and Goldman Sachs President Gary Cohn telling the BBC that Britain being part of Europe was “the best thing for all of us”.

VITAL ELEMENT

Despite its unpopularity among some voters, the financial services industry remains vital to the British economy, employing more than 7 percent of the workforce, producing nearly 12 percent of total economic output and contributing 66 billion pounds in taxes, according to lobby group TheCityUK.

Conscious of how unpopular they are with ordinary voters, bankers are not going to appear en masse on British television to lobby for Europe.

Instead, they will work with chambers of commerce, like-minded politicians and industry groups such as the British Bankers Association, TheCityUK and the Association for Financial Markets in Europe to get their message across.

“Are we going to say more between now and an EU referendum? The answer is ‘yes’,” said the bank executive.

“If politicians tell us ‘don’t wait till the last minute’, its important that you speak up. But there is a danger, as one eurosceptic MP said to me last year, that the banks coming out in support of Europe could be the best thing the ‘Out’ campaign could imagine.”

International banks have already begun to look at moving operations overseas to access EU markets if Britain votes to leave the union. Dublin is a possible location although some bankers doubt they could persuade enough staff to uproot their families and move to Ireland.

Other options include Frankfurt and Paris, but the more restrictive labor laws in those countries are a hurdle.

“It’s a complete nightmare,” said one senior banker. “I think people are more nervous about this election that they’ve ever been.”

Cameron and Miliband