1) CITY’S POSITION UNDER THREAT
Of course, the UK’s financial services industry was in urgent need of change. The crazed moral hazard and implicit guarantees of the previous, pre-2008 regime were a disaster and a new, firm but fair regulatory settlement was desperately required.
But the reforms haven’t all been sensible and some are now beginning to cause real damage. London is no longer the world’s highest-rated financial centre; New York is back in the lead, according to the Z/Yen Group. Proposals for 10-year bonus deferrals go too far. The EU’s bonus cap is encouraging higher base pay, which is less flexible. The Labour party wants to impose another bonus tax in a move which reeks of the policies of Francois Hollande.
2) PROPERTY PRICES OUT OF CONTROL
Far too few new homes are being built in and around London. Construction of residential properties needs to at least triple; at present, demand is outstripping supply and sending prices upwards. The combination of elevated residential and commercial rents have made London the world’s second most expensive city for firms to locate staff, Savills calculates. It costs $115,000 per employee per year to rent living and work space in London, up 18 per cent in five years and second only to Hong Kong.
3) COST OF LIVING AND QUALITY OF LIFE
The real victims are workers, spanning those on low, middle and even high incomes. Only the super-rich are fine. Homes are too small, the costs of everything are rising, healthcare isn’t as good as in many other global cities and far too many Londoners say that they would like to move elsewhere. It has always been thus, of course, and London’s population is still rocketing and on course to breach its 1939 record within the next couple of years. But the problem is getting worse.
4) THE THREAT OF A MANSION TAX
Taxing expensive homes would send a disastrous signal that London has fallen out of love with success while doing nothing to help address the housing shortage. It would make living in the UK far less attractive to global executives, entrepreneurs and investors. France’s wealth tax has triggered an exodus; a mansion tax would do the same for the UK.
5) POOR INFRASTRUCTURE
Trains and roads remain over-crowded, and there is an urgent need for additional airport capacity to enhance London’s connectivity with emerging markets. The politicians need to adopt Sir Howard Davies’ recommendations as soon as he reports after the election; and expansion needs to pushed through. While Crossrail will help commuters, more needs to be done: the case for Crossrail II is overwhelming.
6) RISK OF DEGLOBALISATION
London’s success relies on the free movement of people, goods and capital. Anything that threatens this is bad. The visa system has improved but still puts too much pressure on smaller firms. Some want to stop foreigners from buying homes, the first step into a descent into protectionism.
7) TAX AND RED TAPE
Tax rates are higher than in some other global cities, not least for middle earners with children. It remains too hard to turn start-ups into multi-billion pound giants, especially in technology. The labour market remains flexible but has become increasingly regulated. We desperately need a supply-side revolution focused on improving the incentives to work, save and invest.