At a party this week, I bumped into a senior banker whose bank did not need bailing out, and is doing well. I asked him how many people he had hired last year.
“Seven thousand,” came the answer.
How many of those did he hire to work in the UK?
“About ten,” he said, looking rueful.
Seven thousand to ten is a shocking ratio. When the drug company Pfizer pulled out of England last month, it left a hole in the economic landscape of Kent where once 2,000 permanent jobs in R&D had been. The drip-drip of finance jobs away from Britain is less visible, but potentially more damaging — and it could turn into a flood.
Advertisement
At the top of government, the view is that threats by overpaid bankers to leave London are a childish kind of foot-stamping that will come to very little. They believe that banks won’t move their headquarters — citing as evidence HSBC’s muttering about decamping last year, which came to nothing.
Ministers are right that the brass plaques are not suddenly going to disappear from City doors, not least because London offers the huge geographical advantage of being able to phone China and America at the same time. But they seem blind to two dangers: first, that so many new executive jobs are being created outside Britain, which are bound to be followed by jobs in law, personnel and IT; second, that some of the people who are officially listed as still working in London have already left.
One British friend who works for a City bank says that more than half his team is now based abroad. Many of them are people who brought their families to London over the past decade, basing themselves here and spending the odd weekend back in Madrid, Warsaw or Milan. They have now returned home and are flying to London for the weekly meeting. Their names are still on the company payroll, but they and their families are no longer living here, paying taxes here, eating out here or renting property. Tax, the high cost of living in London and the very public loathing of anyone who works in finance — the distinct feeling that they are not welcome — have all taken their toll.
If you tax Atlas at 50 per cent of what he earns, Atlas shrugs and moves to Switzerland. It’s simple psychology. People who work very hard to earn very good money bitterly resent having to give so much of it to the State. The Institute for Fiscal Studies has questioned whether the 50 per cent tax rate will earn the Treasury anything at all: it was a populist measure to assuage public fury with bankers and other successful people.
Of course, bankers, who can easily move, are not the people who will suffer. They have discovered that incredible though it might seem, marginal tax rates are now lower in Germany and France than in the UK. No, it will hurt the rest of us, who will suffer from the collateral damage done to our economic prospects.
Advertisement
I hold no candle for the get-rich- quick, sell-short culture and its monstrous pay packages. But I am equally infuriated by the kind of self-defeating, financially illiterate populism that — in its latest form — equates Bob Diamond’s bonus with 200 social workers. The only way Mr Diamond’s bonus will help social workers is through the tax system.
HM Revenue & Customs predicts that this year 1 per cent of Britain’s population will earn 12 per cent of all income and pay a quarter of all income tax, and that 5 per cent of the population will pay almost half of all income tax. If those people leave, I don’t particularly want to pick up their tab for our schools, hospitals, and social workers. Do you?
Personal tax is only part of the equation. The Chancellor has reduced corporation tax, which has sent a positive signal to business. But under the bank levy, a bank such as HSBC is now paying more in tax than it makes in profit on its UK business. If the European Commission succeeds in imposing a financial activities tax on top of that, HSBC shareholders will have a duty to ask why a company that makes most of its money abroad is still based in London.
The company has already moved its CEO’s office to Hong Kong, because that is where the action is. It would not be surprising if it eventually moved its domicile for tax purposes. This would have no immediate impact on existing jobs. But it would accelerate the gradual shift in where decisions are made.
Britain’s future does not lie in manufacturing cars or exporting textiles. So we must take the opportunity provided by our open economy, time zone and language to be a base for international companies. London is currently the centre for emerging market finance, a position that Zurich and Frankfurt jealously covet. But the next time an American bank decides where to put a growing team lending to Asia or Africa, is it likely to choose the financial centre with the highest rate of personal tax, and a bank levy charged on every single dollar it lends? I doubt it.
Advertisement
It is ironic that the City that flourished as a financial centre under a Labour government is now under threat from a Conservative-dominated administration that talks non-stop about enterprise.
A 30-year-old trader may not hang around to see whether the top rate of tax comes down. However much we try to shame him out of it, he equates money with status. If he goes to Singapore he can earn 30 per cent more and cost his company 30 per cent less. That’s tough to compete with. But it does seem odd that we have given away an historic advantage, which brought talent flooding to this country, for the sake of a headline.
Policymakers can’t alter the world’s shift to Asia. Nor can they end bank shareholders’ obsession with quarterly returns, which makes “long-term value investing” look more like a series of one-night stands.
But they need to take a long hard look at the regulations and taxes they are imposing on a sector that can move very fast and unpredictably. They need to realise that a brass plaque creates a false sense of security if there’s nothing left behind the front door.