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OPINION

The City needs a saviour

The City needs a saviour
November 16, 2012
The City needs a saviour

Whatever you think of bankers, the speed at which the City is being whittled away is worrying. Financial services accounts for 10 per cent of the UK's gross value added - triple that if you then include a vast supporting cast of lawyers, accountants and other related industries. It’s a net contributor to the UK's balance of payments. And it pays a lot of tax, too, albeit a shrinking contribution - tax revenues from its firms have already fallen from £70bn to £40bn in just five years, as City employment has contracted by almost a third and bonuses shrivelled. That’s a tab someone else will need to pick up.

In three more years, says the Centre for Economics and Business Research, Hong Kong will overtake London in terms of employment. New financial hubs are also emerging that will further jeopardise London’s status as a leading financial centre – Malaysian capital Kuala Lumpur, for example, is trying to establish itself as a major commodities trading hub, and offering huge tax breaks to companies wishing to set up shop there.

So while there may be strong historical reasons for London’s emergence as the leading international financial centre, they will hold little sway in a new globalised, technology-enabled economy. It is, after all, just as easy to trade oil in Malaysia as it is on Moorgate. And the lure of tax-free trading is hard to resist for trading firms where every basis point of margin counts.

Meanwhile, the reputation for financial probity that helped the City fend off such competition for decades is in tatters – the irony, of course, being that it was precisely a lack of regulatory stringency that meant many international banks chose to locate the riskier ends of their operations in the UK. And the repercussions of recent Libor and PPI scandals mean regulation is only likely to grow tighter, creating more bureaucracy international financial services companies will be keen to avoid. The reasons for staying put are dwindling.

If the City is dying, at least there is hope on the City fringes. Old Street’s Silicon Roundabout is already attracting tech companies small and large alike, including Google’s startup friendly Campus. That shift underpins the Greater London Authority's expectation that employment in the East End of London will climb by 31 per cent in the next two decades, driven by the so-called ‘flat-white economy’ of media, internet and creative businesses.

As Rosie Carr explains this week, the new ‘crowdfunding’ phenomenon means that you’ll be able to gain exposure to this vibrant startup culture. And, who knows. A burgeoning tech community on its doorstep could one day breathe new life into the City, too.