As people from across the City brave the wintry conditions let us hope that policy makers can help provide a brighter forecast for the financial services industry over the coming year.
The past 12 months have seen the business environment in a state of almost constant flux. A series of measures – most notably the bonus supertax and 50p income tax top band – caused widespread discontent across the City.
Despite this London is still home to unrivalled pools of talent and capital, with around 250 overseas banks basing operations in the Square Mile. However, the ongoing uncertainty surrounding the UK is only benefiting our rivals as firms weigh up their options.
We are fast approaching a tipping point where further changes to regulation and taxation could begin to seriously undermine our competitiveness and ability to attract top talent.
Driving away the internationally mobile parts of the financial services industry would have a disastrous effect on the country as a whole. The sector’s importance to the wider economy is highlighted by how it generated 12.1 per cent of total tax revenues in 2008/09. Goldman Sachs alone paid £1.1bn in corporation tax last year, while its 5,000 London staff contributed hundreds of millions of pounds in income and indirect taxes.
This is money that can ill afford to be lost given the precarious state of the public finances.
We all acknowledge the real anger that exists as a result of the financial crisis, particularly when it comes to bankers’ remuneration. However, in most cases high levels of pay reflect the high levels of wealth generated by people working in the industry.
This is precisely why we must not damage the UK’s competitiveness by signalling that we do not welcome talented individuals and institutions from across the world. Only by retaining, and indeed building upon, the City’s reputation for being home to an unrivalled cluster of professional skills will
we be able to face up to the challenge from emerging and established centres.
In order to achieve this, however, we need a level playing field when it comes to regulation and taxation. If the UK instead continues to ignore the G20 principles by adopting a piecemeal, isolated approach the subsequent exodus of talent will slow any economic recovery.
The government could make a good start to restoring consistency, clarity and confidence to the business environment by making it clear that the bonus supertax will not be repeated again in future. This exceptional measure was described as a one-off and it must remain that way.
We cannot allow huge pay differentials to arise between staff working in London and other global financial centres. This makes transparency on pay all the more important as key industry players decide whether to commit their future to London and the UK.
As we move into 2010, let us hope that we can leave behind the pre-election political point scoring in favour of a more productive, balanced debate on the future of the industry. It is now time for policy makers to oblige.
Stuart Fraser is Chairman of the Policy and Resources Committee at the City of London Corporation.