A leading spokesman for the UK banking industry has warned that many of the UK’s banks are preparing to leave London. How serious a threat is this?
Anthony Browne, chief executive officer of the BBA – British Banking Association – has warned that banks are set to leave London because of fears over hard Brexit.
Writing in the Observer, Mr Browne said: “Hands are quivering over the relocate button . . . Many smaller banks plan to start relocations before Christmas; bigger banks are expected to start in the first quarter of next year.”
He warned: “Public and political debate at the moment is taking us in the wrong direction.”
Some react by saying that in order to entice banks to stay, the government needs to scrap its bankers levy, or cut the upper income tax rate.
But where will the banks go? Paris, Dublin, Frankfurt? Frankly, all three cities have got their work cut-out to persuade banks to relocate to enjoy their delights. And let’s face it, German and French governments have not exactly been making soothing noises about bankers pay.
Besides, the EU is due to introduce a financial transaction tax – hardly the stuff of a warm welcome to banks.
And London has many unique advantages. See Big bang approaches anniversary was it London’s saviour or destroyer?
Yet, there is another side to this.
Economist Paul Krugman has said that the UK suffers from what’s called the Dutch disease, so named after oil exports from Holland pushed the Dutch guilder so high, that the rest of Holland’s businesses lost competitiveness. In the UK, it is the City that has inflated sterling.
London and its culture is not so popular with other parts of the UK. Upon being told that Brexit may hit the City, no doubt many Brexit voters responded by saying “diddums!”
Oddly enough, this illustrates why, in a funny kind of way, the UK may benefit if London had its own currency.
London is so different from the rest of the UK, that is often feels like a different country. But hard Brexit, especially if this entails a backlash against immigration into London may change that.
London is a vital source of tax revenue to the UK exchequer, in terms of its contribution to the UK economy it punches way above its weight. If London lost its global financial pre-eminence, it would be a major blow to the exchequer – but who knows, maybe if this meant a cheaper pound it would boost those areas of the UK where the Brexit vote was much stronger.
Then again, calls to cut the taxes paid by wealthy bankers are not going to be popular with many people – other than the bankers themselves, and even then, some may see a tax cut as wrong.
London’s big threat comes from New York. And in a battle to woo the banks, taxes in both the UK and US may fall. But in an era where there is rising inequality, calls for lower taxes seem counter-intuitive.