Banking Sector Relying on Election Results in Britain
The recent general election in Britain has had an impact on the economy. The pound has been particularly strong against the US dollar and euro in the past couple of months, and the FTSE 250 rallied.
The Conservative win has been seen as good for economic growth, but it remains to be seen whether all sectors will benefit. The election could have a major impact on Britain’s banking sector.
In a recent article by Philip Augar, a non-executive director at TSB, he said a huge number of American bankers based themselves in the UK in 2006. They found it easier to conduct business in Britain than in the USA. London was the place to be for financial institutions.
However, after the banking crisis, which is still being felt today, many of them returned to America. London was no longer seen as a ‘soft touch’, and new regulations for banks meant many of the benefits of being based in the UK were lost.
Fears That Banks Could Move from London
Previous measures such as a tax on bankers’ bonuses, tax-relief cuts and a bank levy have been very unpopular with the big financial corporations with headquarters in London. Some have already talked about getting out.
A report in the Telegraph says several investors have asked Standard Chartered to think about moving abroad. If banks decide this is the right option for them, not only does London lose its position as a financial powerhouse, but the UK will lose hundreds of millions of pounds in tax each year. HSBC is another major player looking at moving its domicile from London.
Others will be waiting to see the outcome of the UK’s referendum on Europe, with many financial institutions, such as Goldman Sachs, reportedly saying they will move their European headquarters out of London if Britain votes to pull out of the EU.
Ireland could be one alternative, as it is in the Eurozone, is English speaking and has favourable tax rates for businesses. One drawback is that Dublin may not have the capacity to accommodate the banks.
Britain Needs to Keep Top Financial Institutions
Britain cannot afford to lose the considerable amount of tax paid by the corporate institutions as well as by their employees. Lobby group TheCityUK claims there were 143,500 banking professionals in London at the end of 2014, so that is a considerable amount of money and tax they are spending within the country.
One step could be to review the banking levy. There is no point having a stringent levy to raise money if there are fewer financial companies left in the UK to pay it. The government also needs to lobby hard to make sure it remains part of Europe.
Despite this, there are advantages to having a London HQ. Historically, London has been the centre of finance, and its long-established reputation as a business hub still stands it in good stead. English is also the international language of commerce, and its time zone makes it favourable to the Asian market. The London Stock Exchange is one of the largest and oldest in the world, and bankers love the buzz of living in the capital city. The question is whether these are good enough reasons to stay.