If someone doesn’t want London to remain a world leader, then concerns about regulatory overreaction damaging our competitiveness and banks moving overseas will be met with a shrug of the shoulders and a smirk. At the Institute for Public Policy Research London Policy Conference this week, at which I spoke, there was barely concealed relish at the thought of London turning into Toronto. The session asked “Game over for London’s financial services?”, to which the answer seemed to be “we hope so.”
There is no doubt that the City is shrinking, and that the earlier doom-laden predictions are being fulfilled. Massive job culls are almost daily news, as banks go into retreat and restructure. The Centre for Economic and Business Research predicts that the number of City jobs will next year drop to 237,000, down from 354,000 in 2007. Equity trading is down 20 per cent year on year, gilts trading down a third, mergers and acquisition activity down a third, derivatives are down a fifth. International league tables have already knocked London off the global top spot as a financial centre. Future regulation, such as the revised Markets in Financial Instruments directive (MIFID II), is also expected to curb growth, and uncertainties over the EU are dark clouds almost straight overhead. To those who believe financial services are parasitic, this will seem like good news.
But there is little appreciation that much of what London does is international – we are providing banking services for sophisticated corporations and governments across Europe, the Middle East and Asia. Companies from France to South Korea do their deals and raise their finance in London. The gleaming spires of Canary Wharf are an export industry with a bigger net trade surplus than the entire rest of the UK economy. That trade surplus means that British people can buy iPhones and Volkswagens without sending sterling into a tailspin. The industry allows us to productively invest the vast savings we have built up in pension funds, and make a return.
This export industry, and its employees, used to pay £65bn in tax – more than enough to pay for all the schools and universities and police – but that is shrinking fast. Bonuses are down, but simple arithmetic shows that the bigger loser is the general public. For every pound of bonus, 56p goes to the taxman. This is why the Treasury is so concerned – every £1bn less they get from the City, is £1bn of cuts to services or tax rises they have to impose elsewhere.
It would be typically suicidal of Britain to kill off the one industry in which it is a clear world leader. Excessive bank bashing might be fun for some, but we will all lose from it.
Anthony Browne is chief executive of the British Bankers’ Association.