Some good news in a gloomy world

Allister Heath
BRITAIN is losing market share in global investment banking, retail banking and private equity – and has been hammered especially badly in hedge funds and energy trading, where firms and people have upped sticks to Switzerland. But it is not all grim for the City. Two areas that are still doing well are foreign exchange trading and legal services, according to research from CityUK.

So far at least, these sectors have successfully resisted decline, despite the sweeping increases in tax and regulation, restrictions on non-EU migrants and the general anti-business climate that are slowly throttling large parts of the private sector.

Forex trading – loathed by proponents of the destructive Tobin tax – is one of the few bright spots in the City. London increased its share of global forex trading to 37.2 per cent in October 2010, from 36.7 per cent six months earlier. We are up from 31 per cent at the start of the decade. The US is on 17.2 per cent, Japan 6.2 per cent and Singapore 5.9 per cent. The UK’s daily trading averaged $1.821 trillion in October 2010, up 8 per cent on April 2010 and a quarter higher than a year earlier. Twice as many dollars are traded on the foreign exchange market in the UK than in the US; more than twice as many euros are traded in the UK than in the Eurozone. Foreign owned institutions account for around 70 per cent of foreign exchange trading in London, confirming the need to retain global firms and their staff in London. The industry is a great success story, paying tax and employing staff. It would be a total disaster were left-wing activists to get their wish and Britain to slap a transactions tax on currency trading.

Law is another successful yet under-appreciated part of the economy. Exports from the UK of β€ˆlaw firms totalled £3.2bn in 2009, up nearly three times over the past decade. Two of the top five global 100 firms, based on gross revenue, are from the UK. Overall, London firms generated an astonishing 14 per cent of the global 100 gross revenue (against 54 per cent for the US and 19 per cent for the whole of Europe ex-UK). The real danger is the growth of Asia (already at 10 per cent) and the fact that some of the business being conducted there could have been done here. So far, there has been no decline in UK market share: in 2009-10, the downturn triggered a 6 per cent reduction in fee revenue of law firms globally to $74.6bn – but UK law firms’ fee revenue outperformed, dropping by 4 per cent to £13.7bn. English law is, like the English language, commonly used in international commerce, international dispute resolution and arbitration: the number of disputes involving international parties resolved in London rose 59 per cent to 5,297 between 2007 and 2009.

It is not David Cameron or George Osborne’s job to pick winning economic sectors. It makes no sense for the coalition to pontificate about those areas of the economy it claims to know will do well and create jobs – and promptly humiliate itself when one of the key ones, pharmaceuticals, actually turns out to be in long-term crisis, as demonstrated by Pfizer’s cuts to its R&D division in Kent.

But equally the coalition should stop deliberately downplaying and hammering unfashionable industries in which we evidently have a comparative advantage. London still excels in many areas; the private sector should be given the freedom to continue to do what it does best.
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