In his Budget the Chancellor of the Exchequer, George Osborne, referred to the importance of maintaining London as a world centre of financial and business services. So we know that this is recognised at the highest level within the national government.
Of course there is more to this than a mention in one of the most important economic speeches. We need to know that it is possible to deliver. Here there are some valuable straws in the wind. Firstly, it is worth noting that most of the indicators of financial activity are back up to pre-crisis levels. Whether we are talking about foreign exchange trading, derivatives, or share offerings, London is open for business as usual. The world continues to beat a path to our door.
There is much talk of investors considering, or even moving to, such locations as Geneva or Frankfurt. There will be specialist activities which do move, and indeed such moves have happened at lots of different periods. This is a minority taste however. The Chancellor has made clear that the 50 per cent tax rate is only temporary, and corporation tax rates are being reduced. There is no intention to drive business of whatever kind away and indeed some, such as WPP, have already announced their intention to return to British shores.
There remains some disquiet about the regulatory framework which applies to banking. Britain has a large international banking sector and the concern is the extent to which the British taxpayer has to underwrite this. There are clearly some countries where international ambition has over-reached the ability of the taxpayer to rescue failures, and moreover a concern that the attempt to do so creates the willingness on the part of bankers to take risks which have no justification.
The interim report of the Independent Banking Commission which has just come out recognises all these risks but also the value of the sector to the UK. It may well be the case that in the end the taxpayer makes a profit on its bailout of the UK banks, but nonetheless it should not be the case that the taxpayer is put in the position of taking risks it does not control.
The proposal being made is that UK retail activities should be ring-fenced, so that the UK taxpayer cannot be held responsible for international activities by its banks. A small amount of complaint at publication has been followed by very little noise.
It may be that the analysis is being digested. More likely is it that banks have realised that this constraint is entirely reasonable and does not prevent them pursuing good business. It does mean that international risks will be looked at more carefully and this in turn means that the UK is a good place to do international business.
Chief Economic Adviser