Not so fast!
By Thomas Levene
The City of London is the goose that laid the golden egg. Not even the left in the UK want to kill it. Ken Livingstone, a great hero of the left and the former leader of the GLC, advocated for The Square Mile because he knew that, realistically, the fortunes of all Londoners are tied to the success and influence of the City. The City provides the UK with £75.5 billion in tax revenue every year. Although, the need for greater financial regulation seems imperative to humane socialists, at the same time it would be a disaster if financial companies migrated in numbers out of London. Thomas Levene discusses the prospect of that migration happening, now that Brexit is a reality.
One of the biggest arguments for staying in the EU was the fear that if we left it, there would be catastrophic financial implications for the UK. Will the city of London, post Brexit, be able to keep its seat as the financial hub of Europe? Will it keep its status as one of the three main financial hubs of the world, alongside New York and Shanghai? There are serious fears that The City of London, or ‘The Square Mile’, as it is affectionately called, will lose its position. After all, why stay if London is no longer the gateway to the rest of Europe?
Since Brexit, what exactly has happened? In a recent survey, since Brexit, around 400 UK – based financial service firms have moved all, or some part of their business to somewhere in the EU. 10,000 financial jobs have already left the city and Some say the total number could rise to around 70,000. Amsterdam has now become the center for share dealing in Europe–taking a whopping 80% of the revenue from London’s control and costing the City of London an estimated £10 Billion in a year.
The financial sector is the biggest taxpayer in the UK, so the flight of large financial corporations is disastrous for the country. According to the Corporation of London, the City paid £75.5 billion in tax for the financial year 2019 to 2020.
Amsterdam has now become the center for share dealing in Europe–taking a whopping 80% of the revenue from London’s control and costing an estimated £10 Billion in a year…
To make matters worse, London may lose more financial business in the future because EU countries want a piece of the pie, and are aggressively incentivising financial companies, brokers and investors to relocate. For example, President Macron of France has given a huge 70% tax break to those entities who may wish to move from London to Paris. Italy and Spain are offering similar deals. These are not the actions of enlightened European social democrats eager to make corporations pay their way, they are the actions of cut-throat neoliberal competitors.
EU countries want a piece of the pie
This situation has been further exacerbated because the EU has not given ‘equivalence free’ financial ‘passporting’ rights between the UK and EU to sell their financial products across the 28 member states.
Right now the UK allows EU companies to operate within their shores, but not vica versa. The trade is not on equal regulatory terms. And in yet another ruthless effort to squeeze even more business away from London, the EU has decreed that all EU–listed equity exchanges must take place solely in EU regulated exchanges.
So, is London finished as a leading financial hub? Not so fast. Daniel Hodson, former head of the London futures exchange says: ‘Yes, you have good financial centres like Paris, Frankfurt and Milan, but they are not, and never will be, the size of the City of London.’
‘Yes, you have good financial centres like Paris, Frankfurt and Milan, but they are not, and never will be, the size of the City of London.’
Daniel Hodson continues: ‘The City is too big, too liquid to fail. The EU needs London’s vast pools of capital.’ It’s logical to make the observation that, if the EU insists on barricading itself its own system, then companies and investors outside the EU may want to keep their Euros outside the EU and look for cheaper, more established, alternatives. ‘This is where London can facilitate and offer cheaper options’. Of course, additionally, London offers a great agglomeration of services to financial institutions that are not available anywhere else in the EU.
‘The City is too big, too liquid to fail. The EU needs London’s vast pools of capital.’
London has always been a buccaneering innovator. The City has been willing to adapt and capitalise on financial opportunities and change. After all, that’s how The Square Mile came to prominence as a key financial center in the first place in the 1960s. During that period the US created similar financial walls to the ones the EU seem to be intent on erecting right now. All that happened is that people eventually looked for cheaper, better alternatives for places where they conduct business. In the 1960s, that place was the City of London.
London has always been a buccaneering innovator. The City has been willing to adapt and capitalise on financial opportunities and change.
When it comes to regulation and taxation, London should be careful. However strong the cachet is for a company that locates in the City of London, no place is immune. Rash measures could result in financial businesses relocating to countries inside the EU, or even moving online altogether – especially in the time of a pandemic. Even The NY Stock Exchange, after the election of Joe Biden to the US presidency, has recently threatened to leave New York in the face of a proposed Stock transfer tax and increased regulations.
If [to the resigned despair of the left in Britain] London goes the opposite way, and, strategically reduces taxes and if it makes regulatory hurdles even lower, then it is likely that money will flow to where it gets treated best. In this case, London will continue to thrive as the dominant financial hub, not just of Europe, but of the whole world,
… it becomes clear that London is still in the driving seat
The financial landscape is changing faster than it ever has. With the rise of Bitcoin and decentralised finance parallel industries, now worth $2 trillion and rising, there are more attractive, emerging opportunities for businesses and companies who operate in the financial sector, for those finance based businesses nimble enough and open-minded enough to capitalise on these opportunities, and for those financial hubs which willing to innovate.
Luckily, according to one report, London is the premier location in in Europe for local ‘sandboxes’ and innovation hubs. The City of London is a place that encourages innovation and Fintech startups. €2.1 billion in the UK vs €1.5 billion for the continent have been invested in Fintech startups in the City. Couple this with the fact that the current UK government has expressed a strong intention to back innovation; the huge talent pool from top universities in London that the Square Mile can draw on; the fact that The City is the leader in cyber security and green technology startups, and it becomes clear that London is still in the driving seat of Finance; at least for Europe.
In a recent PWC survey, post Brexit, The UK – and so London – was ranked ‘4th most attractive place to do business’ by CEO’s worldwide, despite Brexit. Surprisingly, investor confidence in the UK and in the Square Mile is, cautiously, high.
Thomas Levene, has been a long-time teacher, and in the last few years, been a passionate expert and investor in Bitcoin and Blockchain technology. He has completed, a ‘Blockchain Applications’ course with distinction, from Oxford University Said School of Business in 2018.
Thomas has given presentations on Bitcoin and Blockchain, internationally to young entrepreneurs on the digital Nomad Cruise in Greece and the DNX Digital Nomad Festival in Lisbon. He currently lives in Taiwan.