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Wake up, Gordon, our success is under threat
Michael Snyder, Evening Standard25 Feb 2008
London is one of the two fully global business cities in the world - the other is New York - and this brings immense economic and cultural vitality to the capital and to those who live here.
But now some fear that London's lead is in danger. And research that the City of London Corporation is publishing will give some support to the doom-mongers, indicating that our lead over New York in financial services has dropped significantly, a sudden reversal of previous trends.
That situation, and how London can stay ahead, is what Mayor Ken Livingstone will be debating with several leading commentators tonight at the Evening Standard's debate on London's future.
London is a European jobs magnet, with all kinds of employment on offer for the eager and hard-working, irrespective of passport.
For the rest of the UK this prosperity and economic activity means that London is able to subsidise the other UK regions to the tune of about £20 billion a year. The financial services industry alone - with its heart in the City of London - contributes a massive 25 per cent of the Treasury's corporate tax take.
A reversal of this success is a grim thought, not just for them, but for anybody who - like me - lived through the 1970s and remembers the tired, grey, economically feeble London of those days.
Today more and more City leaders are worried about threats to the four factors that support London's business success - a sensible tax regime, appropriate regulation, strong infrastructure and a deep pool of top skills.
For the City's global lead today is fragile. This powerhouse industry is very mobile and the fear is that it might move elsewhere if conditions are not right - taking a huge swathe of jobs and economic activity with it.
On tax, the City is, says our research, pretty aggrieved with politicians of all colours, especially over the move to tax - on their overseas income - those well-off foreigners who live here as nondomiciles.
For years it was tacitly recognised by the main parties that it was in the UK's interest to attract those with the wealth and the skills we need and allow them to live here, taxed only on their UK income but on exactly the same basis as UK residents.
Last autumn politicians of all parties decided it was not a case they could make to their own supporters and the wider public and that "non-doms" will now probably have to pay a large annual fee to keep the right to have their overseas earnings untaxed in the UK.
Obviously this is less of a problem for the independently mega-rich than for those international knowledge workers on whom the financial City depends.
But to stop these prized individuals taking their talent to Geneva and elsewhere - a process which today's Standard report suggests may already be starting - we need major changes to the current proposals. The Government's concession on non-doms providing information on offshore assets is welcome, but we also want a much improved re-framing of the measures which, for example, would prevent the levy being applied several times in one family, would protect overseas trusts, ensure that US citizens can offset the levy against US taxes and establish a minimum UK income level under which the levy does not apply.
Before consultation closes later this week the City will still be lobbying hard to achieve these and other changes.
Equally disappointing but separate plans for capital gains tax have now been amended into something more workable, with a simplified regime and sensible relief for entrepreneurs - although many will still rue the changes.
Regulation has been no less controversial over the past six months, largely due to the impact of global factors and the credit crunch - especially on Northern Rock.
Feedback from expert observers around the world shows that many were very surprised to see the UK supervisory system underperforming as this one retail bank's unusual business plan fell apart. The response from ministers that will sustain the City's reputation is to avoid the urge to create new laws that amount to a cure worse than the sickness.
Fortunately, leaving aside the political sniping over Northern Rock, a measured response seems to be exactly what we are getting, with the Financial Services Authority beefing up its team and new procedures in place for faster decisionmaking. We are getting nothing like the over-reaction that created such big problems for the US when it saddled itself with its over-detailed Sarbanes-Oxley investor-protection legislation.
UK politicians of all colours in 2007 and 2008 could learn a lot from politicians in the Scandinavian countries during that region's banking crisis in the 1990s. There, politicians of all parties got on with fixing things together rather than arguing - and the details of such matters as shareholdings in rescued banks were left, by and large, to the technocrats. This allowed swift decisions and a rapid rescue of financial reputations.
On infrastructure, politicians including all the main candidates for London Mayor can be congratulated for their support for Crossrail. This consensus is vital: the Mayor's role in transport has an important impact on the economic future of London.
But even though Crossrail is now on its way (with some financial help from the City Corporation and big firms) politicians and City leaders still need to stand together to defend the project against any further delays. Crossrail is essential for London's future prosperity and nothing must be allowed to hold it up.
Skills, too, need to match the global standards we are measured by and Londoners - whatever their passport - must continue to have the right globallyprized skills, energy and imagination to keep the Square Mile and wider London ahead. This means remaining open to world competition in jobs and allowing the very best to study and work here.
The threats are real. And while most politicians at least pay lip service to the City's role, what worries me is that some have still to grasp the full significance of the financial sector to London and the UK's prosperity.
Moves like the tax on non-doms, as well as offering a direct disincentive to international business in London, also risk fuelling a broader climate where the City's needs get sidelined. Make no mistake: no politician - of whatever hue - can afford to do this.
We must now work together to ensure that business, and in particular the City's financial sector, has the tax policies, the regulation and the infrastructure it needs to succeed - or else risk London losing the international lead that has made it the boomtown it is today.
• Michael Snyder is policy and resources chairman of the City of London Corporation.
