By Brooke Masters, Chief Regulation Correspondent
Published: March 12 2010 00:03
London has lost its crown as the pre-eminent home of banking and finance, as it tied for the first time with New York in the latest ranking of financial centres.
Fears about a regulatory backlash and new taxes drove down London’s score by 14 points to tie with New York at 775 points, in the Global Financial Centres Index compiled by Z/Yen for the City of London Corporation.
London was one of only four cities to lose points in the semi-annual ranking, which combines a survey of financial professionals with factors such as office rental rates, airport satisfaction and transport. New York’s score rose by only 1 point.
Asian cities continue to rise in the ranking of 75 global centres. Hong Kong and Singapore posted double-digit gains in third and fourth place and the gap between London and New York and the rest of the world is at its narrowest since the survey began in 2007.
“This research is a wake-up call for decision-makers,” said Stuart Fraser, policy chairman for the City of London Corporation, which promotes the UK financial services sector and provides local services. “You can’t take this route [of bashing banks and bankers] without endangering the competitiveness of London.”
New York fared better than London for business environment, availability of people and infrastructure, even though those participating in the survey agreed that New York had taken the bigger hit from the financial crisis.
The most recent rankings were based on surveys taken from July to December 2009, when discussion of tougher regulation and higher taxes in the UK was at fever pitch.
Not only had the UK just finished raising personal income tax rates to 50p in the pound, but the government announced plans for a one-off 50 per cent payroll tax on all bonuses over £25,000. While France followed with a similar tax, the US and Germany pointedly did not.
The UK Financial Services Authority was also the first big regulator to propose rules for bonuses and bank liquidity, and its leaders have been particularly vocal about their “more intrusive approach”. London’s reputation may also have been damaged by widespread discussion of planned European-wide rules for private equity and hedge funds. The proposal has been widely seen as an attack on both industries.
“This should be of concern not just in the City but throughout the business community. For London to retain its global position as a leading financial centre and fuel UK economic growth, we must have certainty and proportionality on regulation and tax policy. This report is a warning shot,” said Rob McIvor, spokesman for the Association for Financial Markets in Europe, which represents the securities industry.
London might do better in the next round. Since the surveys were carried out, global banking regulators have made liquidity proposals along the lines of the UK rules, while Barack Obama, US president, has proposed a tax on bank balance sheets and new limits on proprietary trading.
“We seem to be taking turns shooting ourselves in the foot,” Mr Fraser said. “When they did it [with the widely criticised Sarbanes-Oxley corporate reform law], business flowed to us. Now New York is taking advantage.”
But the surveys suggest that the long-term threat comes from Asia. Hong Kong was the favourite among insurance professionals, the first time a city other than New York or London topped a sector rating. The shift may already be having practical effects. The Prudential announced this week that it would seek a Hong Kong listing.
Peter Vipond, director of financial regulation for the Association of British Insurers, noted that his group had already warned on the issue with a report on competitiveness this year.
“The City’s role as a financial centre of choice will be under severe pressure if reforms to the financial system are not thought through properly,” he said. “Our members are also clear that a stable tax system, which does not penalise global businesses through taxation of foreign profits, would greatly enhance the UK as a place to do business.”
Copyright The Financial Times Limited 2010.
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