GUEST COMMENT: Just don't expect a mad rush out of London
As a global financial centre, the UK is shooting itself in the foot one toe at a time. First there was the non dom charge, then there were the changes to corporate taxation, the increase in the higher rate of income tax, the bonus tax, and the general hostility to the financial services industry and the political controversy over bonuses.
In the UK, as indeed on the other side of the Channel and the other side of the Atlantic, bankers have become everyone's favourite whipping boys and girls. In the long term, this can only be bad news for the City.
In many ways, London has comparatively little going for it. A recent study ranked the UK below many former East European countries for quality of life. London is crowded, it's dirty, and the infrastructure is breaking down.
This doesn't mean, however, that the financial services industry will suddenly disappear from London. Nor does it mean that if that disappearance doesn't happen soon, it won't happen at all.
Hedge funds may be mobile, but when it comes to large financial organisations, the City (and Canary Wharf) have inertia in their favour. They can count on the fact that it's difficult to move an established business - there are leases, IT contracts, and accountancy arrangements to be renegotiated. Relationships with regulators also count for something - who's to say that regulators in Geneva would relish the arrival of a large financial institution which will quintuple their workload and force them to stay in the office at weekends?
As a result, there will be no wholesale exodus of major financial institutions from London. Instead, there will be erosion at the margins. As financial services become a smaller part of the global economic pie, organisations will retrench some of their activities to their countries of origin. We have already seen this with Commerzbank and Germany, for example.
Equally, when organisations look to set up new businesses, London will no longer be their location of choice. The process will be gradual. It will not be dramatic: anyone who thinks UK financial services can pack up quickly and move en-masse is wrong; but long term, the effects will be clear.
Andrew Hilton is a director of independent think tank CSFI. Dr Hilton is a former World Bank economist and editor-in-chief of the International Reports group in New York. He also runs a small economic consulting firm in London.
