A range of new taxes have been imposed in the wake of the financial crisis: the new 50p top rate, restrictions on pensions relief, the bank bonus tax, higher rates for Capital Gains Tax, the non doms levy, and plans for bank levies. A number of regulatory changes have been introduced or discussed: from the AIFM directive in Europe, to new capital and liquidity requirements, to proposals to separate banking activities. Several of these changes have prompted concern in the media.
Judging the scale of the threat is difficult. The City of London is essentially a labour market agglomeration. While the UK’s time zone is useful for some types of activity, various other locations share this advantage. London’s advantage is the depth of its markets and in particular the labour market for financial professionals. There is no good reason why this agglomeration should take place in the UK: indeed the modern revival of London was, amongst other factors, the product of a heavy handed regulatory regime in the US (one recent example being the Sarbanes-Oxley reforms) driving activity away. Such agglomerations are strongly self reinforcing: success sucks in ever more business, but a loss of momentum can quickly tip over into a rout as the agglomeration unravels.
Anecdotal evidence of departures abounds: firms which have either left, changed domicile, or moved activity out of the UK include: Amplitude Capital, Bluecrest Capital Management, Brevan Howard, Krom River, Henderson Group, Shore Capital, Tullett Prebon, HSBC, Brit Insurance, Kiln, Hiscox, Omega, Zurich Financial Services, Terra Firma, United Business Media, Wolseley, Ineos Capital, WPP, and Yahoo.
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