Prepare for a City surge in Ukip support

If Nigel Farage does as well as the pollsters predict in the
European elections this Thursday, expect some new and surprising names
from the City and across industry to open their purses to help the UK

Independence Party put up a serious fight at the general election. Until recently only a few backers such as Yorkshire tycoon Paul Sykes, IG’s Stuart Wheeler – now Ukip’s treasurer, economist Tim Congdon and Stephen Hillof Anglo-Sino Capital Partners have come out with guns blazing, backingthe party with money and words. Others are biding their time. That’s
about to change. Lord Hesketh, Ukip’s defence spokesman and fundraiser,
told me last week he has had “every intimation” from potential donors
that if Ukip, which now has nine MEPs, wins the biggest portion of the
72 MEP seats, their purses will open. With the opinion polls showing
Ukip on 32% of the vote, Labour with 25% and the Tories with 23%, he
might be right. Ukip raised £493,412 in the first quarter, still peanuts
compared with the £6.6 million given to the Conservatives, but almost
double what it raised in the final quarter of last year.
There are good business reasons why so many of Ukip’s putative backers have
stayed schtum, says Hesketh. Many are senior figures in the City and
industry who feared showing their eurosceptic hand, worried that they
would be shot down by the more outspoken pro-EU business lobby – the
“contract capitalists” as the former Conservative party treasurer calls
them. So what has changed? Why are the
money-men and women being lured to the “bloke in the pub” with his
Brexit rants and no policies? They are heavyweights too: Crispin Odey, who has in the past hedged his bets by giving money to Ukip and the Tories; Andrew Perloff of Panther Securities and Christopher Mills’ Harwood Capital are also donors; while Andy Brough of Schroders has signed up.

This is why – they are being persuaded that “the man
in the pub” is developing a carefully crafted secret weapon to the crude
In or Out stance. It is for the UK to stay within the EU’s Customs
Union by negotiating its own trade agreements. Under Article 50 of the Lisbon Treaty,
any country wanting to exit has two years in which to negotiate new
arrangements with the Customs Union. To date, Farage has only hinted at
joining a customs union. But Anglo-Sino’s Hill, who privately funds Tim Aker,
Ukip policymaker and an MEP candidate, reckons Farage could win this
election outright – and many seats at the next election – if he were to
reveal that more elegant solutions are under review other than the
emotive In-Out one. Customs Union

Such a move, says Hill, would counter much of the nonsensical scaremongering
from LibDems and Labour that pulling out would lead to the loss of
millions of jobs. He has a point: if the UK were to exit but negotiate
to stay in the Customs Union, UK plc would be allowed to vote on all
trade matters but on an intra-governmental basis, not supranational one. The
beauty of this approach is that by staying in the Customs Union –
rather than joining Efta for example – manufacturers can trade duty-free
within the Customs Union area: Turkey and Monaco
have Customs Union agreements. And the UK has a strong hand to play:
the EU exports twice as much in finished goods to the UK as we do to the
EU – mainly Germany’s car giants, BMW and Mercedes.

Yet if the EU were to agree on the UK joining a
customs area, wouldn’t Germany and France, always jealous of the City’s
top position, block access to our financial services industry? That’s
what worries the more cynical. Ironically,
most bankers and financiers would argue the UK has already lost out – by
staying in. None more so than Congdon – a generous Ukip donor and
runner-up in the party’s 2010 leadership contest – who points out it was
the City’s elite, together with the establishment, that allowed Britain
to hand over regulation of financial services to the EU. Now, he says,
we are seeing the disastrous effects of that decision with EU
intervention on bank bonuses, the threat of a financial transaction tax
and the latest European Court of Justice rulings on short selling. There’s
an astonishing paradox here that won’t be lost on Ukip supporters or
those worried by EU interference. If you accept Congdon’s view – which
most of the City does as, together with George Osborne,
the Chancellor, they are frantically trying to block the EU bonus cap –
then you could argue the UK has nothing to lose by a renegotiation. But
everything to win. No surprise, then, that more City folk want the
clock turned back to the EU’s original purpose. This still leaves one
big question – what would the UK do if it tried to join the Customs
Union but the EU refused to play ball? The answer is nuclear but
logical: tear up all treaties, stop all payments to Brussels, put up
taxes on luxury cars and other engineering imports from the EU – aka
Germany – and the machinery starts to break down. The
man who has the biggest purse – and perhaps the key – to what happens
after Thursday is as removed as you can be from City scraps over bonuses
but he shares the same concerns. Sykes is Ukip’s most generous
supporter, who also wants to win back the freedom to negotiate new trade
treaties – ones he claims will create more jobs, help small businesses
and open up new markets with the Commonwealth.

When Sykes is not saving forests around the world – he is a big conservationist – he is designing the posters with David Cameron wearing an EU gag, for which he paid £1.6 million. Over the past decade
Sykes has spent millions on eurosceptic campaigns, funded parties in
Denmark, Sweden and Ireland for their No campaigns and will do so again. Sykes warns
Ukip is not an oddball revolt – he hears similar laments from across the
continent: that people feel powerless against a federal Europe and its
lofty political elite. If the former Barnsley tyre-fitter likes the way the British vote goes this week, he will “spend what it takes” to put Ukip into a winning position at the next
election. His wealth is considerable – around £600 million. Not a
fortune or threat to take lightly.

Margareta Pagano is a freelance journalist and a founding editor of Financial News