EDITORIAL COMMENT: UK's Wealth Center Status Vulnerable To Brexit Turmoil

Tom Burroughes Group Editor New York City September 25, 2019

EDITORIAL COMMENT: UK's Wealth Center Status Vulnerable To Brexit Turmoil

Successful wealth management centers require political and legal stability, regarding property rights and other things. The UK's legal and political struggles over Brexit raise questions about the country's standing as a financial hub unless reforms are made.

This publication has studiously avoided taking direct sides in the UK’s anguished attempts to leave the European Union, for the very good reason that we know that many readers are not all of one view. (Even the most ardent pro-Remainers, in this writer’s experience, have hard things to say about the EU bloc. And Brexiteers have their worries too.) But the latest twist in the story means that it is now more necessary than ever to figure out what wealth managers will be confronted with in the near future, and further ahead.

The UK’s Supreme Court – a relatively recent (2005) innovation from the Labour government of Tony Blair (1997-2007) voted 11-0 against Prime Minister Boris Johnson’s request, approved by the Queen, to prorogue Parliament for five weeks.  A group of campaigners, many of them linked to the City and other professions, who oppose Brexit, brought a lawsuit against prorogation. Critics say this represents an unacceptable intrusion into what should be a matter for government and the sovereign. There is talk that the UK is heading for more US-style “rule by lawyers” rather than legislators.

While Johnson claimed prorogation was necessary to prepare lawmakers for the Queen’s Speech outlining legislative proposals – there hasn’t been such a speech since 2017 and it is arguably long overdue – opponents suspected another motive. They suspected that Johnson wanted to shrink parliamentary time available between prorogation and October 31 when the UK is, assuming nothing else changes, due to leave the EU. Of course, this is the time of year when political parties have their annual conferences – the Labour Party conference has been taking place in Brighton, and the Liberal Democrats, who are pledged to reverse Brexit and stay in the EU, held their conference a week before. The Tories are due to have their conference in a few days’ time. It is worth noting that during the past three years, MPs have voted against a no-deal Brexit, against a proposed withdrawal agreement, and against revoking Article 50 taking the UK out of the EU. So it might seem a bit rich to complain about losing a few working days of parliamentary time right now.

Fixed-term limbo
The root of the problem is that during the 2010-2015 coalition government led by David Cameron and Nick Clegg the government secured an act that means an administration cannot automatically ask the monarch to dissolve parliament and hold a general election if it loses a vote of confidence or a vote so important to its business that this amounts to the same thing. This is what happened in 1979, leading to an election and the election of the Tories under Margaret Thatcher. Instead, a government must now get 2/3rds approval from MPs to hold a general election. Labour leader Jeremy Corbyn, leader of the official opposition, has repeatedly called for a national poll for the past two years but has decided – some would say dishonestly – not to support it now, fearing that if it went ahead his party would lose. (Labour, for those not following this issue closely, is divided on Brexit with a significant number of its traditional supporters hostile to the EU.)

So parliament is in limbo. The government lacks a working majority; MPs refuse to let the government wield the threat in EU negotiations of leaving with no deal – hence turning the heat up on Brussels – and MPs also refuse to hold an election at least this side of October 31, if not even beyond that time. There are fears that Johnson will, despite his promises otherwise, have to seek an extension to the leave timetable. It is the political version of Groundhog Day, without the nice ending.

Inevitably, the Supreme Court ruling has prompted people to call for Johnson to resign, but that would surely mean a shift to some sort of “caretaker” government of a very different political makeup. Such a government would, without an election, lack any democratic credibility. And Johnson, who campaigned for Brexit, probably knows that if he goes after a few weeks in office it could be a fatal blow to the whole Brexit process. The UK will have to either reverse the process, or go along with a withdrawal agreement that involves the UK becoming what some fear is a “vassal” state – the UK has to accept EU laws and governance, stay in the Customs Union, and lack an easy means of getting out and doing free trade deals with nations such as the US.

Beyond all this, the controversy raises serious questions about the traditional balances and checks of the legislature, executive and judiciary. The Supreme Court, as noted, is a relatively recent innovation. Its members are chosen on recommendation of the government – they are not subject to confirmation hearings, as is the case with Supreme Court justices in the US. There will be angry claims – they are coming out already – that the judges are politically biased and have exceeded their brief. Defenders say it is high time that there were objective legal standards for an action such as prorogation. There is also a worry that legal involvement in political processes is a double-edged sword – what can be done to frustrate Brexit, for example, could be done to frustrate other campaigns in the future. The genie is out of the bottle. And finally, it also raises questions about the role of the Monarch in UK public life. The Queen has been drawn into one of the greatest constitutional clashes in recent history.

There are also questions about the role of the Speaker of the House of Commons (its current office-holder, John Bercow, is a controversial figure, to put it mildly). Then there is the question, if referendums are now to be part of the UK political process (as they are in Switzerland and some US states with their ballot initiatives), of whether their results will be properly honoured.

A broad problem is that because of the way in which MPs are elected and chosen, and because of their views and the inertia of the parliamentary process, they are at odds with the majority of the public who are in favor of leaving the EU. This sort of mismatch has happened on other issues, such as capital punishment, where majority views in opinion polls were ignored by MPs. There has to be a way of reaching some kind of balance. It is not enough, I think, for MPs to use the old dictum of Edmund Burke, an 18th century politician, who said that MPs were chosen for their judgment, even if that meant ignoring voters' direct requests. (Burke, who told his Bristol constituents that was his view, was promptly kicked out of his seat.)

It may be that the UK does move toward a more American and legalistic political order in time. If that happens, I hold the rather naïve hope that people with the wisdom of a Madison, Jefferson and an Adams would be writing the source code, rather than the present sorry lot in the UK. At the every least, if the UK is to go through major changes in the balance of its constitution, this must be done in plain view, since otherwise there is a great danger that recent events will encourage political extremism.

And that brings me back to wealth management. Recent events have put the case for political stability and legal certainty in the limelight. Countries such as Switzerland, for example, will point this out. As will the US. If the UK wants to thrive as a wealth management center in future, these issues need to be resolved - and soon.

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