As the Mayor's Economic Advisor, I believe it's absolutely crucial to maintain London as the centre of world banking...
Hands off, Mayor Bloomberg: Barclays is ours. And so is HSBC. The feverish media speculation even has Nicholas Sarkozy in on the act, trying to lure the headquarters of banks over the Channel. London obviously has no God-given right to be the banking headquarters rather than New York or Hong Kong or Paris; we have to earn it by being a better place to do business.
We are a better place to live, and we have the time zone, language and workforce. It is tax and regulation – the deciding factor for banks – that are in play.
It is very welcome that the chancellor has said that he wants the UK to be the best country in the world to do business, with the most competitive tax regime. The politics of banking remain hostile, but unlike many other politicians (including some coalition ministers) the chancellor recognises the importance of London remaining a global financial centre, and is not frightened of saying so.
But possibly the biggest test so far will be today, with the publication of the ICB’s interim report. I don’t want to wade into the debate on narrow-versus-universal banking other than to point out that despite the wishes of banker-bashers, narrow banking is no panacea. From Fannie Mae to Northern Rock to Lehman Brothers, more focused financial institutions are not immune to failure. Meanwhile, universal banks like HSBC needed no government support.
But the fundamental point for London’s future is whether or not we end up with regulation that makes life easier for those queuing up to lure our financial institutions away.
London’s rivals will trumpet with glee anything that puts us at a disadvantage.
The ICB are, thankfully, aware of the risks of damaging London’s competitiveness, but we are still the only financial services centre in the world actively discussing whether we should break up the banks that operate here.
It is now a dead issue in the US, and was never a live issue elsewhere. We are at present the only banking centre with a special banking tax, and unlike our rivals, we have the regular plop plop of European legislation, which usually makes us less competitive rather than more.
But it is just an interim report, and plenty of lobbying will follow it. Even after the final report is published, the government will have to decide whether to adopt the recommendations.
It will have to think very carefully to make sure it gets that right – nothing less than London’s future could be at stake.
This article by the Mayor's Economic Advisororiginally appeared in City AM, London's free daily newspaper on 11 April 2011.