Russian Bank VTB moves European HQ from London. If others follow, watch out

It's hardly a household name but there are a lot of banks like this in London, they emply a lot of people, who pay a lot of tax, and they will be gone if the Government opts for a hard Brexit

The City of London is a global banking centre. For now. (AFP/Getty)

Is October 11 the day London started to die as a global banking centre?

That might be exaggerating a bit. But let me explain. Russian bank VTB has ended the phoney war between the City and what’s shaping up to be the worst Government in a century by pulling the plug on London as the location for its European HQ in the wake of Brexit.

At this point the swivel eyed loons who frequently pop up on my Twitter feed will probably start sneering and saying “who” or "why should we care". VTB does, after all, rather lack the name recognition of a Goldman Sachs or a JP Morgan. But so do a lot of banks that base themselves in London and that’s the point.

A huge number of those banks have second homes in the City. They come from all over the world, and most of them quietly get on with what they do without troubling even the specialist financial press.

Collectively, however, they employ tens of thousands of people. Most of those people don’t earn the sort of mega bucks hauled in by the financial masters of the universe. Only a few people do. Most City workers earn salaries that are decent but not extreme.

Collectively, however, they pay a lot of tax and thus help to pay for things like schools and hospitals and regional development funds that a lot of the Brexiters in the North of England say they want. If others were to follow VTB’s lead, if there were to be a steady drip drip of business moving away from London, then the UK as a whole will suffer because it will lose that contribution. And a lot of people will lose their jobs.

Will that happen? Well, that’s not altogether clear. There are reasons for thinking VTB may be a special case. It’s part-owned by the Russian state, and has been subject to sanctions since 2014. These have prompted it to pivot away from the US and Europe towards Asia where it can more easily operate. David Cameron's Government was strongly in favour of those sanctions.

Other banks, their lobbyists and their trade bodies, have issued Brexit warnings, but the big ones seem to be keeping their power dry until they have a better idea of what Brexit will mean in practice. London continues to have formidable advantages over most of its would be continental rivals and they'd probably prefer to stay put if they could.

It would still be foolish to underestimate the impact of that dry powder. It means banks will be refraining from spending money, from hiring people, from expanding their presence. Businesses across the country, and not just those in the financial sector, are similarly sitting on their hands. This is bad news for the economy but it could be worse.

It will be worse for London, and the rest of the UK, if VTB’s move heralds the turning on of the taps. If a few more smaller, or similarly less well known outfits, decide that they need to start looking for pastures new it might not be too long before one of the big boys plants decides to follow suit. If that happens, watch out.

Of course, it might not happen. The Government might decide to opt for something other than a hard Brexit after all.

As London’s mayor Sadiq Kahn has said: “A Hard Brexit approach could never be defended as being done in the name of principle or ‘taking back control’, as the clear motivation would be political expediency in an attempt to turn an extremely complex argument into a simple one. An approach that would not only be deeply irresponsible, but could cause significant economic damage.”

There might be someone in Government with something resembling a brain who has the presence of mind to hear what he is saying, who sees the scary economic numbers being bandied about, like the Treasury's £66bn estimate for the cost of a hard Brexit, and realises that if the UK carries on down that road it will reach perdition quite quickly.

Ministers might start to listen to their traditional friends in business before those friends have torn all their hair out. Banks might retain their passport rights to sell services across Europe. Prime minister Theresa May might even sack home secretary Amber Rudd, she of the disgusting “forrenurs not welcome” speech at the Tory Party conference.

In the meantime, remember this day and keep an eye out for other announcements like that of VTB’s, unless and until they become so common they stop making the news. If that happens, would the last person to leave kindly turn out the lights?