The fight raging in the heart of the British establishment over whether to Brexit properly

To describe the performance of the upper reaches of the British government right now on Brexit as “sub-optimal” would be an understatement. Let’s be frank. They are an absolute bloody shower.

The cabinet is split badly on Brexit. There is zero leadership from Theresa May. The Prime Minister has so little authority left that plans to make a major speech laying out the UK’s position on what exactly it wants a future deal to look like have had to be shelved. There are only a few weeks left until trade talks are supposed to begin. The senior mandarins in Number 10 are trying to forge a coherent position to avoid national embarrassment. The Treasury is for compromise with the EU to the point of surrender. The Bank of England is for being more assertive but not being listened to as much as it should be.

Team May’s approach is to say as little as possible, and hope it all goes away, which it won’t.

Last week this left May at Davos – the Swiss festival of economics, politics and chin-stroking elite self-regard – making a speech about Artificial Intelligence and robotics, a choice of subject that is almost beyond parody in the circumstances.

But something potentially very significant, and under-reported, did happen on the margins at Davos. One leading banker’s comments on Brexit provided a fleeting glimpse, a snapshot in the snow,  of the extraordinary battle that is being fought behind closed doors in the City and Whitehall over whether Britain should leave the European properly or instead like a pathetic supplicant sign up to follow all of the EU’s rules and perhaps even pay to do so.

Jes Staley, the American-born chief executive of Britain’s Barclays, was asked about Brexit and the impact of Donald Trump taking the US down a deregulatory path.

“I think the U.K. should negotiate a regulatory regime which is roughly equivalent to Europe to keep us having access to that single market,” Staley said. “Now that the United States has basically said we’re going to take a different regulatory tact, maintaining the regulatory flexibility in the U.K. to keep London competitive with New York is another dimension to this debate.”

In diplomatic banker-speak, Staley was saying that the UK needs to make its own decisions to stay competitive with a US that is deregulating and becoming more dynamic. The key phrases from Staley were “roughly equivalent” and “maintaining regulatory flexibility” so that the UK is not bound forever by the EU rulebook.

His comments follow accounts of a recent meeting between financial services CEOs and the UK government, at which Staley – it was reported – broke with other CEOs to say the UK should regulate its own financial services post-Brexit.  Good on him for doing this, but he and others need to say so more clearly, publicly, because amid the current shambles that is Theresa May’s administration, and with time short, the big messages about Brexit have to be spelled out clearly if the debate is to be shifted.

We Brits would be bananas to design policy for a critical part of our economy based on the flawed idea that we are so useless that we need the EU setting the rules. London is a global financial centre. The EU doesn’t even have another centre in in the global top ten. The UK has the Bank of England, a leading global institution, and the City provides most of the juice – the liquidity, the expertise – that powers the euro. The UK is perfectly capable of setting its own rules on financial services in line with global guidelines, with constructive cooperation with EU institutions. It doesn’t need the EU telling it what to do, and the eurozone needs access to London. Even the team in Paris tasked with wooing business say that the EU needs a thriving London.

I wrote about this subject in my last newsletter, so won’t rehash all the arguments, other than to note that the tide of opinion is moving as it dawns on more practitioners that being regulated by the EU is a silly idea. Why not instead be open for business and welcoming under the Bank of England when we are by far the strongest player in Europe?

Indeed, the Bank of England and the regulators in London think that the UK should regulate itself on financial services, but the Treasury – in search of maximum continuity – seems to disagree. Meanwhile, the rules emerging from the complex college of regulation in the EU are increasingly batty. And this is before the next phase of EU integration.

The large US banks want the UK’s finance sector to accept every EU rule, of course, for their own convenience. Lloyd “doing God’s work” Blankfein, the boss of Goldman Sachs has been particularly vocal in this regard.

Although the American banks are a significant part of the City, they are not the entire Square Mile. Far from it. Says an angry veteran British banker: “American investment banks? FFS. Why should we design our democracy and economic arrangements for them?”

He’s right, unless you think always doing what Goldman Sachs wants is the main lesson to take away from the events of the last twenty years or so? Er, no. That being the case: how long before someone in the British government has the balls to tell Mr Blankfein if he carries on burbling away we will happily buy him a first class ticket to Frankfurt, one way.

“They want us to be an aircraft carrier for them to access the EU,” says another banker.

Most of the politicians, squabbling like mad, seem not to have noticed the significance of this row. The fault-line on Brexit, the test case – are we properly out, or not? – runs though the City, which is responsible with financial services beyond London for as much as 11% of the nation’s tax take.

The gap in understanding underscores one of the most positive aspects of Brexit, incidentally. It presents an opportunity for national institutions to reassert themselves and to reconnect.

There used to be a great connection between the City and Parliament. Both sides took an intelligent interest in each other, and the personnel sometimes overlapped. Post-1945 revival, globalisation and Big Bang, meant that the City looked out to the world again. This was positive, in many respects, but by the time of the financial crisis it had tipped too far. When in 2016 British voters opted in the referendum for sovereignty – as practised by all manner of countries, including the US, Canada, Chile, Japan and New Zealand – the City was stunned. It had completely lost touch with the country it inhabits.

After Brexit, if the City and Britain are to prosper, there will need to be much more communication and dialogue between the two camps – City and Parliament, with Law in-between – that are only a taxi ride or a bracing walk apart.

A good first step would be a rapid, frank debate followed by a strong declaration by the Prime Minister that we must – within global guidelines – make our own rules and laws. Without it, what is the point of Brexit?

A resolution simply cannot happen, it appears, with the government in its current shambles. A broken Prime Minister is not in a position to make a decision on anything, so it is all put off. The cabinet, knowing it is a shambles, waits for someone, anyone, to do something. Some cabinet ministers are attempting to walk back the government’s policy (laid out in the Lancaster House speech and adopted as part of the manifesto) advocating being a member of the Customs Union. Hardline Brexiteers in the Tory parliamentary party are furious at this, wrongly blaming the civil service when the mandarins are doing their best and the politicians cannot agree a position.

The fault lies at root with the Conservative party in the Commons and its most senior MPs. May lost her majority in the election and her authority with it. She is hopelessly ill-suited to the job. The chairman of the 1922 Committee, Sir Graham Brady, should have made it clear she had to go then, and if not then several times since. It has been apparent since the moment that exit poll landed on election night showing she had failed. A few grow-ups in the Cabinet need to fix on a plan – a quick contest or a settlement. A new Prime Minister can then appoint an inner Brexit Cabinet, pick a direction, show some gumption and make it clear that any Tory MP – ultra-Remain or hardline Brexit – minded to vote it down brings down the government and resigns from the Tory party.

Personally, I think the situation requires a clean Brexit, and the thinking on the City in the Bank of England and elsewhere reinforces that. But almost any clear Brexit position argued for with verve and imagination would be better than this shambles.