The City of London, with New York one of the two greatest financial centres of the world, is under a greater threat to its primacy than at any time in its 20th and 21st century history. How it manages that threat will be central not just to the British economy, but also to the island’s constitutional and social wellbeing.
The City has been a huge strategic and financial asset to the UK for almost 200 years. But Brexit has put it in some danger, and, even as it is under attack from abroad, the City can’t count on much popular support at home.
French president Emmanuel Macron makes no secret of his wish for Paris to profit from Britain’s exit from the EU, a desire he voiced in London itself after talks with prime minister Theresa May. In a memo leaked to the Daily Mail on Sunday
, Jeremy Browne, the City’s special representative to the EU, wrote that officials in the French economic ministry and Banque de France and politicians in the senate “are crystal clear about their underlying objective: The weakening of Britain, the ongoing degradation of the City of London.”
Paris is not alone. Frankfurt, home of German finance, has recognised that German labour law would deter the hire-and-fire culture of the City, and offered some exemptions from legislation protecting workers to “risk takers” willing to relocate, in the German city.
Milan also wants to be a “financial citadel”. Bepi Pezzulli, head of Select Milano, which has backing from Italy’s finance ministry, says his city would create “a legal and judicial ecosystem similar to the City of London” to enable the seamless relocation of “financial markets which for legal and regulatory reasons can no longer be housed in the City” — an ambitious claim, but apparently a serious one.
Dublin, Amsterdam, and Stockholm are all competing to draw business from London, and the Irish-born head of Morgan Stanley, Colm Kelleher, has predicted that some jobs could gravitate back to New York.
Yet, while the foreigners threaten their capital, most Brits don’t feel like developing a patriotic defence. London isn’t loved, and literature has much to do with that. Brits have been suspicious and resentful of the City, at least since Charles Dickens. More than a century and a half later, John Lanchester’s Capital (2012) takes the same moral stance. Lanchester writes that part of his inspiration was a realisation that “the British, looking at their capital city, increasingly struggle to see a resemblance with themselves”. London’s lack of resemblance with the rest of the UK is in large part because of the wealth the City bestows on its workers. Median earnings in the City are £958 a week, compared with £671 in the rest of London, £539 in the UK as a whole, and £391 in the lowest-paying area, in England’s north-west.
The City’s earnings are boosted by the vast sums taken home by the highest paid. Figures for 2015, for example, show that investment bank Goldman Sachs UK paid 512 key staff in London an average of £1.9m per head. These figures cause serious envy. For Londoners whose average earnings have remained stagnant, the resentment can amount to hate.
Yet the usually unacknowledged fact of the City, and of London, is that it props up the rest of the country. London as a whole, with 13% of the UK population (8.8m of 65.64m) contributes 30% of all tax income to the British exchequer — a figure which has increased since the 2008 financial crash, and is equal to the tax gathered from the next largest 37 UK cities combined. Overpaid the City folk may be, but as one of only three UK regions where citizens pay more in taxes than they receive in public spending, they also subsidise less affluent areas of the country.
Thus while non-London Brits may struggle to see “a resemblance to themselves” in the capital, their standard of living — especially if they receive income from the state — depends significantly on the City’s financial health.
That’s particularly true in Scotland, where the decline in the oil price means its citizens run a “tax-income deficit” of £2,824 ($3,660) a head. Were the City to falter, and the UK be forced to make cuts to the regional subsidies, the Scottish National Party may be able to bolster its case for independence by arguing that continued union would no longer protect Scots’ living standards.
Within the UK, a weaker City could be an opportunity as well as a loss. Successive governments have called for a “rebalancing” of Britain’s economy away from its heavy dependence on finance and services to industry, especially advanced electronics and biotech. Yet though there are some small signs of a shift towards manufacturing, the larger structural problems — a lack of investment in particular — hampers real growth. Most depressingly, a report last year from the University of Sheffield claims that manufacturing in Britain has entered a new and dangerous phase of decline.
Much of the report’s forecast woe has yet to happen, and may not. A 2016 report from Price Waterhouse Cooper claimed that London would remain dominant in most of its present markets after Brexit because it “is resilient, agile, and great at adapting”, according to PwC partner David Snell.
The unsatisfactory conclusion — as for most Brexit forecasting — is that no one knows what Brexit will mean for London’s economy. The uncertainties in the contemporary world are larger than they have been for decades. Most of us still live in the hangover of the financial crash, which produces febrile economic and political movements. The Brexit negotiations continue. The City is still rich, still semi-detached from the rest of the UK — but it’s running a little scared.