Why not tax the bejesus out of the City and tighten regulation? Yes, the bankers will moan — but it’s not as if they will go abroad. The tax rate may be low in Zug, but do our pinstriped friends want to actually live there? The City’s elite have their kids in British schools, the time zone is right for business and the global phenomenon of Planet London has attractions that outweigh marginal tax rates. So let bankers moan: they’ll stay. This is, more or less, the argument that you hear from MPs on all benches as they take a carving knife to the golden goose that is the City of London. But a report from the CEBR today shows that the exodus has already started. Here are their projections of City jobs:
Given that these people will include Britain’s biggest taxpayers, George Osborne ought to be terrified at the above graph. In an era where countries have to compete for people, Britain is losing out. It was never a question of, say, Barclays upping sticks and moving to Hong Kong. It’s a question of where these banks choose to expand, and where they choose to make savings. The CEBR report shows that New York has already pulled ahead of London in the number of jobs in ‘City type financial institutions’ but many of Wall St jobs are about domestic banking. London still wears the crown of global finance. But the CEBR forecasts that the rot has set in and that Hong Kong will overtake London in 2015 (it had less than half London’s number in 2007) while Singapore is ‘fast catching up’.
The report says:
- ‘Many of the Asian markets have gained critical mass, enabling them to take on functions and services previously carried out only in the West.
- Onerous regulation and taxation in the UK have also contributed.
- New York has declined by less than London because of the greater strength of the US economy over the European economy, which has caused financial transactions in the US to weaken by less than in Europe.
- But the main reason for the shift to the East is the more dynamic growth of the Asian economies, which has created a booming demand for financial services.’
Even without the new taxes and regulation, the shift of economic power from West to East would have challenged London’s dominance – and the graph shows it was losing ground before the crash. But rather than help the City compete with the Asian rivals, there’s a risk that the government’s policies (and the constant ‘bash-the-rich’ mood music) is accelerating decline. Given how much tax the City generates, this will only retard the recovery and prolong the economic misery for everyone else.
UPDATE A friend of mine who runs a City firm disagrees with my above analysis and emails his own problem list:-
1. Reputation of London – safe haven for crooks/place where dodgy conduct thrives – allowing NYC to take huge amount of business back off London and whitewash their role in crisis.
2. Brand image – 60% of banking system going bust didn’t enhance UK reputation for financial genius
3. Tax – now punitive
4. FSA – been on holiday for Olympics and now before BoE merger. Timescale to get anything done has more than doubled. This has largely prevented any new firms opening in second half of this year.
5. Banking – banks are only 20% of City but they have been 99% of problems/scandals. The problems of the banking sector are hugely impacting the rest of the City.
6. Investor returns – most pension savers have lost fortune last decade. Performance of City as a whole for their customers has been terrible.
7. Trust – people won’t give their savings to people they don’t trust are acting in their interests.
8. Costs – the bailed out banks have been using their taxpayer subsidies to drive up wage levels significantly – 200-300% – this has pushed industry costs up across the board.
9. Europe – Eurozone is City’s biggest customer. Creating the perception that the City is enjoying the troubles of it’s biggest customer/source of revenue is idiotic for business.