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Britain has overtaken the United States in a survey of the world's leading financial centres — but in part because the financial sector here is so large relative to the rest of the economy.
The analysis, carried out by the World Economic Forum, organiser of the Davos conference, ranks nations by size and diversity of capital markets, institutional arrangements and financial stability.
Despite ranking below Nigeria for financial stability, the UK's other advantages are so great that it tops the league — for now.
After the spectacular collapse of the world's 15-year long credit boom and the rescue of many banks by their governments, these are not normal times.
But the critical mass of London's advantages — the English language, an effective legal system, time zone, the cluster of skills — may be all the more important under such conditions.
Leadership in areas such as foreign exchange, derivatives and insurance seems to have survived the shock.
That said, the poor performance in the area of financial stability is profoundly troubling.
After all, Britain's national debt has doubled, driving the pound down and raising a question mark over the Government's ability to fund its borrowing without a rise in interest rates.
Financial centres in Asia may soon have a better track record to boast about, given the developing world's relatively prompt recovery from the credit crunch.
And London faces serious threats from unfriendly Brussels‑driven regulation of hedge funds and private equity, along with a 50 per cent personal tax rate.
As we note below, the capital does have other emerging strengths, for example in higher education. But the country as a whole remains heavily dependent on the success of financial services.
The US economy, by contrast, has legions of internationally competitive industries as well as a vast domestic market.
There are two lessons. Firstly, tougher capital requirements for banks and restrictions on bonuses can be imposed only within a global framework that does not disadvantage London unfairly.
Secondly, the rest of the UK economy needs to take more of the strain. That means removing barriers to entrepreneurship, a bonfire of the red tape that has vastly expanded under Labour, and probably investment in high-speed rail links. Surveys like this one are backward looking. What matters is the future.
Strife for students
There is further evidence today of trouble in the student loan system, with reports that 16 per cent of students have not yet received their loans and grants.
Some universities are having to come up with emergency hand‑outs.
It is an unfortunate state of affairs in a week when London's University College outperformed Oxford in a league table of research achievement, with strong performances from Imperial, LSE and King's College.
London's higher education sector is a significant contributor to its economy.
The capital's great cultural institutions and diversity can enrich a student's life here immeasurably — and if the Student Loan Company is failing to deliver, the availability of part-time jobs could come in useful, too.
That said, plainly the delays in processing students' financial applications must be resolved. As term gets under way, David Lammy, Higher Education Minister, must show he is getting a grip.
Wheel of fortune
The London Eye has become the most successful tourist attraction on record. In less than 10 years it has clocked up 35 million visitors.
When the great white wheel appeared on the South Bank to lift onlookers up to survey the capital in all its variety, it symbolised London's innovative spirit as well as its ability to draw on its rich heritage. We wish the Eye well for its next decade.
Reader views (1)
The City will start to shrink rapidly as the Brron & Darling punitive taxes kick in. Hedge Funds do not have to be run from London. All London has in its favour is th time zone. The exodus is gathering pace and the really big earners are already packing their bags. You do not volountarily hand over some 60% of money earned taking risks over to a bust bottomless pit corrupt government. If Labor win the next election its all over. God help Britain.
- James Macleod Ritchie, Oyster Bay Cove, 09/10/2009 13:48
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