AT A time when the City’s value is being questioned, both in the UK and in Europe, it is more important than ever that we highlight the huge contribution it continues to make – even in this extremely challenging economic environment.
It was timely therefore that last week a new City of London Corporation report showed that the UK financial services sector actually increased the amount of tax it paid to the Exchequer in 2010/11 – a period heavily affected by the European sovereign debt crisis.
A total of 43 financial services companies – responsible for employing 41.6 per cent of employees in the sector – provided data to the study. The extrapolated total was £63.0bn (or 12.1 per cent) of UK government taxes during the year to March 2011, up from £53.4bn (11.2 per cent) previously, and it showed that the City continues to be resilient, despite the economic storms it has encountered.
However, we cannot afford to be complacent given the challenges ahead.
In light of recent political events, it should be remembered that London is not just Britain’s, but Europe’s leading international financial centre, and the success of UK-based financial services is integral to the success of our counterparts across the Channel as well. Key to this is maintaining a vibrant single market that fosters jobs and growth across Europe.
That is why we must be wary of crossing a tipping point when it comes to taxation – both domestically and in Europe.
A stable and sustainable tax regime is essential to ensuring the perception of our international competitiveness is not damaged.
The government clearly had a very difficult negotiating position to uphold our key national interests at the European Summit and their continued firm support for the UK financial services industry is positive.
The European Commission’s own impact assessment on a financial transaction tax highlighted that between 70 and 90 per cent of all derivatives trading could move outside of the EU. We must continue to make the case that such moves would hurt the City, the wider UK economy and Europe.
Protectionism is not the answer. The ECB’s proposal to require clearing houses to be based in the Eurozone if they hold more than five per cent of any euro-denominated market is a case in point. With the UK responsible for 40 per cent of all over-the-counter derivatives trading, the impact of such a rule upon the City could be significant in the long term.
This is precisely why they will continue to take full part in all discussions to maintain and enhance the single market in financial services. Angela Merkel’s public reaffirmation that the UK remains a strong EU partner last week was a welcome change in tone.
The City remains the primary gateway into Europe for international businesses and we must strive to ensure that politicians across all 27 EU member countries understand the benefits this brings to the continent as a whole.
Stuart Fraser is policy chairman of the City of London Corporation.