Can London keep its top spot?

A report by The Financial Services Global Competitiveness Group has outlined how important the financial services industry is and that it plays a vital role in the UK economy. It points out that more than one million people work in it, and that the industry as a whole contributes about 14% of the tax collected, and finances much needed public services.

It reinforced the importance of maintaining a stable, sustainable and competitive tax system. But when financial services secretary Paul Myners was asked about the exodus of some notable insurers from London to the Netherlands and Ireland he insisted that London was still the place to be. “There is not an institution in the world that does not have an office presence in London. You cannot be attractive on tax and tax alone; there are other things that draw financial services companies to London such as skills and innovation,” he said.

So what can London offer to retain institutions? Can it rely solely on its reputation as a leading financial hub? The report insists London can offer a lot and that the UK industry is a global leader in many categories of business, such as:

• London is the global centre for international bank funding and has a significant share of the business of raising debt funding through wholesale markets
• UK trading floors account for a major share of foreign exchange, equity, bond and commodities trading
• The UK is a major insurance hub with Lloyd’s of London, with investment expertise in London, Edinburgh and insurance support services in Cardiff, Glasgow and other regional cities.
• Sovereign wealth funds and fund managers from other financial centres choose UK based firms to manage their assets.
• London has acted as a centre for development of products in the wider international system.

But London may still lose some appeal. The report does promise is an increase in regulation. In the past this is what has prompted some financial institutions to set up shop elsewhere. “We must not be complacent, regulation is very important and we need a high standard,” said Sir Win Bischoff, co-chairman of the Financial Services Competitiveness Group. “Turner has come up with some good thoughts there are others that came in from the G20 and there needs to be a global view of regulation.”

With an increase in regulation and a tax system that is still criticised by some financial institutions only time will tell if London will keep its top spot. What’s certain is that other hubs are keen to step in its shoes. Sir Bischoff however insisted that London’s role would not be diminished but added: “With other financial centres growing our proportion will reduce. No financial centre can offer it all.”