Coffee House

The great City of London exodus gathers pace

12 November 2012

Why not tax the bejesus out of the City and tighten regulation? Yes, the bankers will moan — but it’s not as if they will go abroad. The tax rate may be low in Zug, but do our pinstriped friends want to actually live there? The City’s elite have their kids in British schools, the time zone is right for business and the global phenomenon of Planet London has attractions that outweigh marginal tax rates. So let bankers moan: they’ll stay. This is, more or less, the argument that you hear from MPs on all benches as they take a carving knife to the golden goose that is the City of London. But a report from the CEBR today shows that the exodus has already started. Here are their projections of City jobs:

Given that these people will include Britain’s biggest taxpayers, George Osborne ought to be terrified at the above graph. In an era where countries have to compete for people, Britain is losing out. It was never a question of, say, Barclays upping sticks and moving to Hong Kong. It’s a question of where these banks choose to expand, and where they choose to make savings. The CEBR report shows that New York has already pulled ahead of London in the number of jobs in ‘City type financial institutions’ but many of Wall St jobs are about domestic banking. London still wears the crown of global finance. But the CEBR forecasts that the rot has set in and that Hong Kong will overtake London in 2015 (it had less than half London’s number in 2007) while Singapore is ‘fast catching up’.

The report says:

  • ‘Many of the Asian markets have gained critical mass, enabling them to take on functions and services previously carried out only in the West.
  • Onerous regulation and taxation in the UK have also contributed.
  • New York has declined by less than London because of the greater strength of the US economy over the European economy, which has caused financial transactions in the US to weaken by less than in Europe.
  • But the main reason for the shift to the East is the more dynamic growth of the Asian economies, which has created a booming demand for financial services.’

Even without the new taxes and regulation, the shift of economic power from West to East would have challenged London’s dominance – and the graph shows it was losing ground before the crash. But rather than help the City compete with the Asian rivals, there’s a risk that the government’s policies (and the constant ‘bash-the-rich’ mood music) is accelerating decline. Given how much tax the City generates, this will only retard the recovery and prolong the economic misery for everyone else.

UPDATE A friend of mine who runs a City firm disagrees with my above analysis and emails his own problem list:-

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1.       Reputation of London – safe haven for crooks/place where dodgy conduct thrives – allowing NYC to take huge amount of business back off London and whitewash their role in crisis.

2.       Brand image – 60% of banking system going bust didn’t enhance UK reputation for financial genius

3.       Tax – now punitive

4.       FSA – been on holiday for Olympics and now before BoE merger. Timescale to get anything done has more than doubled. This has largely prevented any new firms opening in second half of this year.

5.       Banking – banks are only 20% of City but they have been 99% of problems/scandals. The problems of the banking sector are hugely impacting the rest of the City.

6.       Investor returns – most pension savers have lost fortune last decade. Performance of City as a whole for their customers has been terrible.

7.       Trust – people won’t give their savings to people they don’t trust are acting in their interests.

8.       Costs – the bailed out banks have been using their taxpayer subsidies to drive up wage levels significantly – 200-300% – this has pushed industry costs up across the board.

9.       Europe – Eurozone is City’s biggest customer. Creating the perception that the City is enjoying the troubles of it’s biggest customer/source of revenue is idiotic for business.


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Show comments
  • John Maloney

    I do not care if the City of London collapses taking the government with it.
    The sooner society is rid of the psychopaths at the top of the tree, the sooner we can get back to a country of which we can be proud.

  • Rockin Ron

    For goodness sake, Fraser – get a grip. These are projections. Unless you have a crystal ball, there is no certainty they are correct. Also, you should not attribute what could be a trend (only could, mind) just to policy measures. This is simplistic because businesses and people relocate for many reasons, not just because of the tax regime.

    Can I ask that you try to do some thinking before promoting a dubious press release? At least show that you have some ideas and don’t confuse passing information on as insight. It isn’t.

  • Rory Sutherland

    Sorry, this belongs not in the realm of economics but of basic game theory. They deceived us and cheated us, so we should punish them, even if to do so is costly to us in the short term.

    Every functioning social species obeys this tit for tat principle. A naive economist would indulge bankers through expediency. A game theorist or a Darwinist would confiscate their homes.

    Besides, this way I might get to afford a decent house. Nominal wealth and material well-being are not the same thing.

  • Sarah

    If you guys want immigration slowed, halted or reversed, then this is how it’s done.

  • Sarah

    Expect a credit crunch in an Eastern market fairly soon then.

  • Mike and Walter

    Live in Singapore. The place is awash with British bankers. The British school here has a two year waiting list and more British schools are being built to cope with demand.

    The headhunters simply phone up a London banker and ask how he would like to reduce his tax to 18% (the Singapore Government has just reduced it again). HK tax is 15%. The Singapore Government is relatively open about targeting over taxed London financial hub tax payers. I remain amazed the UK government seems to want to help.

    More frightening are the rich turning up here from London on spec or moving here to start companies. Easy to do and able to keep more of the earned rewards.

    Basically, in a highly mobile knowledge based economy where the means of production is in your head, you will have to chose between 25% of something or 50% of nothing.

  • Goldenboy

    I run a financial services company in the city, employ 10 people and can’t wait to sell up and get out of the industry. The Fsa is doing a fantastic job in over regulation and not knowing anything about what it supposedly regulates. My regulatory fees have shot up by 50% each year for the last 3. If you factor in tax, employment law and overall personal risk then it becomes a no brainier to exit ASAP.

    • Daniel Maris

      Off you go then. Go live behind the razor wire in Johannesburg or some such place.

  • Mike Waller

    What the graph actually shows is that naive governments trusted the City to do the right thing and the bloody bankers blew it. Even worse, tonight’s news suggests that the energy industry has spawned its own tribe of Libor-like clowns. Although I have always had profound doubts as to,whether people can be taught to behave better, I really think we ought to try. The kind of white-wash attempted above really does not help. The shift East is inexorable; but a myriad bankers behaving badly most certainly helped it along.

  • Davyyy12

    We want OUR country back. The only way sadly is to make us poorer. That should help stop the pull factor and help make OUR politicians think about us. Anything the Tories do the left will simply undo anyway. They will also call the Tories nasty people for only helping the rich.

    Leave the taxes as is.

    Cut all aid and non-essential funding. Use the savings to increase tax thresholds.

    Start creating a manufacturing economy and start creating jobs for OUR young.

  • TomTom

    Those poor UBS Traders – will they be moving to Switzerland now the Swiss Government has told UBS to reduce risk or face bankruptcy ? I feel I have made enough charity donations to support FIRE Sector incomes, I hope they enjoy living in Shanghai…but they must take their liabilities with them. Pity Barclays won’t go to Hong Kong, but Qatar and Abu Dhabi probably object. I think these Crime Families should move to Cyprus

    • the viceroy’s gin

      Vegas might be the most appropriate choice.

  • Kevin

    A better response to “banker bashing” would be to remind people of the good work that the City does (not just listing the good jobs people have).

    Thanks to negative publicity, false or otherwise, people have the impression that the City imposes rapacious penalty clauses on Turkish fish-and-chip shop owners, puts companies into unnecessary administration to get the fees, mis-sells insurance, pays little or no interest on bank accounts, and so on.

    There is a mercantilist flavour to the criticism: the City gets rich by taking money from other people. There is a further implication that if the Government just taxed the fish-and-chip shop owner directly it might get even more revenue (with less pain) as he is less likely to have a sophisticated tax avoidance scheme.

    Much of this criticism is undoubtedly naive, if not completely wrong. It should be easy to respond to it (though the response should be more edifying than remarking that the City also gets rich by taking money from foreigners). The Romney campaign, for example, worked hard to present the venture capital business in a positive light.

    Who is going to be the City’s PR agent?

    • TomTom

      Whereas The Corporation of the City of London keeps the world’s largest string of tax havens in business, helps Colombian narco bosses save for retirement, and helps Russian gangsters buy lovely yachts and fight libel cases in the giant brothel that London really is when viewed from offshore

    • the viceroy’s gin


      Or maybe Bloomberg?

      How about Michael Millken? Is he out of prison yet?

  • Spog

    The City will pay £30bn less tax this year alone than 2007/2008. The total cost of the bank bailouts probably won’t be more than £15bn, quite possibly less, a micro figure compared with the running total of historical and potential future taxes. It was the retail banks supported by regulator grandees who stuffed up and mis-sold by the shedload. The investmant banks have not been rescued and have kept paying tax, yet in this great age of incompetence the polyester men from the retail banks are being put in charge.
    The great thing for investors is that when there is stupidity there is also opportunity.

    • TomTom

      Where did you get £15 billion from ? Lloyds TSB Shareholders alone have lost more than that since 2007……you are a joker. Thev UK economy has lost hundreds of billions of lost GDP in addition to Lemon Socialism for Bankers

      • the viceroy’s gin

        Yes, the zombie economy is working wonders for us, isn’t it?

        I’m so glad we kept all these banksters afloat. It would have been absolutely horrific if we’d have let them fail and they had to reformulate themselves as viable institutions. This situation today is so much better.

  • HooksLaw

    Who is to say this would not happen anyway – the world is not set in aspic. The projection looks flat anyway.

    • 2trueblue

      It might, but only the village idiot would kill the golden goose, escpecially when we are in trouble.

      • Gary

        The taxpayer had to bail out this golden goose, so its not much of a golden goose, more of an incontinent pig on heroin.

        • Daniel Maris

          And it sucks in huge numbers of low paid people from abroad to clean offices, clean the homes of the rich, do their laundry, cook their food in restaurants etc. They then all become welfare dependents – on housing benefit and income support. After that you get the birth rate boom, with more taxpayer-funded welfare dependency. On top of that the industry forces up house prices for everyone else in London and the south east.

          Not a golden goose, a mange-ridden goose with a nasty bite to its beak.

  • Daniel Maris

    The rise of Singapore and Hong Kong as financial centres is to be expected. We shouldn’t try and compete.

    We should focus on building a manufacturing base in industries of the future such as robotics, automated shopping, driverless vehicles, renewable energy,. drone weaponry etc.

    • Archimedes

      Idiot. Financial services underpins half of the UK services sector, going well beyond finance itself. These are all highly paid jobs.

      If you think we can really compete with countries like China, that have low unit labour costs and large populations that are gaining manufacturing skills and production quality that is almost at parity with western countries, then you really are living in a dream world. What they haven’t got, and what they are not getting experience in, is services. That is the only area that we can compete with them for the foreseeable future: because we are still a long way ahead.

      If we kick finance out, we’ll find pretty soon that legal, accountancy and consultancy follow.

      • Ken Lorp

        An awful lot of legal, accounting and consulting jobs depend on the finance industry. If the business moves overseas, so too will the supporting jobs.

      • Daniel Maris

        If that’s the way you conduct analysis and debate perhaps you’re the idiotic.

        How do you think Germany – a highly successful manfucaturing country – competes with China in terms of manufacturing then? Haven’t you noticed we make rather a lot of cars here these days?

        I don’t think anyone is arguing for “kicking out” finance. It’s simply a question of priorities. I can see why if you are earning £150K plus in London’s financial sector you want the gravy train to continue…you like having your laundry done and your house cleaned cheaply by a recent immigrant…and you don’t much care that half your colleagues aren’t UK citizens…the fact a sizeable portion of your income goes into foreign holidays, foreign investments and foreign homes is good as far as you are concerned.

        I think the overblown financial sector stimulates mass immigration, creates unemployment and welfare dependency across much of the country and acts as a dead weight on our manufacturing industry.

        It’s time for real economics not fantasy economics.

        • Bill Rees

          And who will pay for the lost tax revenue? Remember top 1% of earners pay top 30% of tax revenue

          • the viceroy’s gin

            The people are already gone, with perhaps a few stragglers left to move on. So the loss, if there is any, is already booked. Your argument appears to be superseded by events, then.

          • Daniel Maris

            Top 1% earners is a misnomer. Most of them aren’t “earning” anything, in the sense of adding to the nation’s productivity. They are living off rents and share holdings, and other sources of wealth. Let’s get away from the absurd idea they are the entrepreneurs of the land.

        • Archimedes

          “It’s time for real economics not fantasy economics.”

          Oh, is it Daniel – is it really? Well – good – let’s just pop the kettle on and we’ll have that one all spiffy in a jiffy.

          Stop talking about Germany as if it’s some kind of haven of irrepressible manufacturing. They depressed wages for a decade, and now they are going to have to increase them at an uncompetitive rate, that does not match their efficiency gains, and does not yield an edge on the quality of their production. Then, they allowed their services sector to languish whilst they frolicked about with a manufacturing industry beholden to indebted eurozone countries with a poorly balanced wage dynamic. Let’s not hold up Germany as some sort of messiah of economic models so early in the game.

          Yes, the UK has had a little success with it’s car industry – long may it continue – and yes we’ll have a few more of these niceties pop along over the coming decades, but we’re never seriously going to compete with China. Are you sure you want to sacrifice our entire economy to an industry dominated by China, with economic norms dictated to us by some communist eastern bloc that would rather like to have us all convert to their political persuasions lest we pose a threat to the stability of their own political establishment? We don’t have the resources to be a manufacturing giant, and we don’t have the conditions for it either.

          Incidentally, we are not Germany, and I imagine that the conditions that persuaded us to leave and settle in Britain, for the most part, still hold true today – so I doubt we’ll wake up to find ourselves German anytime soon.

        • 2trueblue

          Germany has had a very easy ride selling her wares at Greek prices. Had Germany ben trading at the full value of the mark her industry would not have been anywhere near as successful as she has been.

      • the viceroy’s gin

        Disagree. China’s costs are rising, for manufacturing as well. Some of those jobs will return. In fact, I’d expect the 100,000 bankster jobs to be replaced rather quickly.

        • Archimedes

          Yes, as is the quality of her production. The rising costs in China are predominantly related to rising commodity prices, not labour costs. If the west is going to compete with China on manufacturing in the mid-term, then it is going to have to learn to do it without people.

          • the viceroy’s gin

            Oh it’s not all due to commodities. They’ve held down wages much as you’re claiming Germany has. That can’t/won’t last. China is moving to what Mexico was 20 years back… no longer a low wage country, and having to raise its game in the new era. Some of the flood is now going to wash back home. It’s inevitable. Not across the board, but strategic manufacturing decisions will and are being made.

            Now yes, many of those strategic decisions will go North America’s way, but some will go elsewhere in the West.

    • eeore

      The Brave New World eh?

      You must love the millions killed in the recent wars achieving your dream.

  • toco10

    An excellent piece Fraser.Failure to support London as the number one financial centre causes delight throughout the EU,the quickly expanding Far East markets and New York.It is tantamount to saying ‘we have won so many times lets give someone else a turn’.I cannot see any of our competitors handing out such largesse although Labour’s political agenda has never majored on the creation of wealth.The losses in terms of employment,Corporation Tax,Income Tax,National Insurance and VAT revenues and the fallout within support services to the financial sector threatens the standard of living of everyone within the UK.

    • dalai guevara

      That is total and utter scaremongering. I have written the following on many US business websites for some time now:

      Britain has seen its Nine Eleven, culminating in the LIBOR fix and backed by PPI and swap fraud, legal loan sharkism and the inability to hold the perpetrators to account. As a result, we have seen confidence shaken, we will see business leave, the global financial capital will move to the East with irreversible effect.

      The only way to reinstate confidence is not by glossing over the facts, but by addressing the issues adequately and promptly. This cannot be done by effectively seeing external jurisdictions d i c t a t e to us what went wrong and how much fines to expect as a result.

      • BuBBleBus

        Britain’s biggest taxpayers are also among the biggest conmen. Course don’t expect Fraser to cotton on, he who equates Capitalism with a properly functioning market. The Banks have been charging massive interest rates on their loans and paying next to nothing to their depositors for years now, how are they not greasy conmen? We need Marlon Brandon to come back and throw the bunch of shysters into the river as per On the Waterfront.

        • the viceroy’s gin

          I think Pacino as Michael Corleone in The Godfather might be a better choice. “Today I settled all family business. Stracchi, Coonio, Moe Greene, Tattaglia and all those little twits down at Barclay’s… they all got whacked.”

          • telemachus

            Precisely so.
            We are better off without these parasites
            We have traded honour for profit once too often

            • Wilhelm

              ” The London exodus gathers apace.”

              Yes, we know, it’s called White Flight.

    • Gary

      A golden goose that has to be bailed out by the taxpayer and receives welfare handouts from the Bank of England is no golden goose.

      • toco10

        Firstly the bailout monies are being repaid according to plan and secondly taxpayers’ money is generated by taxes on the financial community and the benefits of the employment and supply services the City creates unlike welfare payments a large proportion of which are made to economic immigrants from the EU and the sub continent.

  • MichtyMe

    Let them go. We had an exodus of manufacturing industry, survived and prospered. We will get better service from the East.

  • AuldCurmudgeon

    If you thought Libor was bad, wait till the Asian-Pacific traders get their hands on your money.

    • the viceroy’s gin

      Yes, but once illegitimate bankster influence is truncated domestically, the Asian-Pacifics can be monitored dispassionately. Right now, the traders have a purely incestuous relationship, and they’re not fussy as to which part of the political family they incest with, Cameroonian or Millipedal or whichever.

      • ArtificialIntelligence

        You say that, but money talks…

        • the viceroy’s gin

          Well yes, but that was my point.

  • 2trueblue

    Banker bashing has been the cloak that has helped MPs and governments shift the blame for their sheer incompetence over the economy. In each country that has problems governments spent too much and so did the inhabitants. Money was cheap and you could borrow pretty much what you wanted. This created a lack real growth in the value of what we made and what we did. Property values rose and standards of living were subsidised by the notion that you were worth that amount and therefore could borrow even more.

    Commodities then became more expensive as the world grew larger and appetites grew. We now all want the same standard of living but everything costs more and we have less. We had 13yrs of so called growth but the net value of the UK did not actually grow. The US suffered the same phenomenon. In China they are getting there and will it improve the place. The bankers are an easy target but they were encouraged to lend and everybody was talking about their children not being able to buy a house a year after they left university. That is what was scary, expectation.

    For the MPs who have mostly not got any real commercial exposure, know nothing about the real issues, it is laughable that they think the City of London is unimportant. That scares the bejesus out of me. But then they scare me anyway for their lack of reality on the real issues that beset us every day.

  • 15peter20

    Don’t worry, I’m sure we’ll find other deserving members of society to bail out.

  • bloughmee

    Well done, lad.

    You serve well, and will be rewarded accordingly, I’m sure.

  • Swiss Bob

    All my ‘city’ type friends are looking east, even Switzerland is a bust now,

  • barbie

    I agree with Fraser, we need to protect the City, it’s as several enemies, the EU, and other outlets for financial dealings. We cannot keep on bashing the banks they give a large amount to the benefit of this nation, in billions not millions. The government for all its talk appears to be doing little. Its the EU I worry about mostly, they are intent on taxing all transactions, to pay their debts, and Frankfurt would love to be the one who gains. We should not let any of this take place. Our problem is will Mr O and Mr C do enough to protect the City?

    • an ex-tory voter

      Don’t hold your breath!

    • HooksLaw

      The city is an industry like any other and industrry should not be extortionately treated.
      But why should banks or any industry be allowed to coerce us? The list of companies taking the piss re. tax is growing. Internationally there are moves to stop them playing one country off against another.
      Companies (and individuals like Carr) who dodge taxes to a piss take degree merely make the rest of us poorer.

      On income tax the govt have started by lowering the top rate – where has that got it politically?

      • 2trueblue

        Income tax was lowered at the top end to where it was during the yrs. Liebore were in power.

        The banks that had problems in the crash were all connected with property, both commercial and housing. There is always talk about the value of property. I don’t think commercial property values have recoved even now to those heady levels.
        One thing that keeps housing up is in part a shortage (due to immigration) and the ‘Buy to let’ market. Both were created by Liebore who did not build enough and opened the borders. Councis use private landlords whilst there are empty properties that could be refurbished and then let, or sell on as projects. The “Buy to let market’ distorts the housing market at the first rung as it is easier to get such a mortgage and it can be ‘off set’ against income. This creates inequality in the market place.

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