30 June 2016
Post-Brexit, London’s rivals are looking to steal its business, their prospects are weak
Many have been concerned about the effect of Brexit on the City of London. While banker bashing is merited, the City has been effectively put under the thumb of the Bank of England’s regulators, and like it or not, the London’s financial services industry accounts for 12 percent of the UK’s GDP. So it matters the City decides to relocate to Paris or Frankfurt as we’re led to believe is a real possibility. If that possibility seems highly unlikely, that’s because it is.
Corporation tax in France is set at 33 percent, in the UK it is just 20%. Any large financial corporations considering a move to Paris will be looking at this and having to seriously consider the benefit of an EU base when the amount of tax they will be paying will be so much higher. And while France’s current government under François Hollande is trying its best to make life easier for France’s overburdened businesses, fear within the country’s financial community that the next government will be far less kind are rampant.
As for Frankfurt, the main issue here lies with its infrastructure. For a start, its population is under 700,000, smaller than Leeds and less than a tenth of the size of London. The City of London and Canary Wharf alone employ 550,00 people – this is more than the entire working population of Frankfurt. Secondly, the London Underground is responsible for more than 10 million journeys each day, many of these serving the city of London. Frankfurt simply does not have the transport infrastructure or workforce to serve the demands of a global financial center.
Whatismore, Bankers and the like have chosen to live in London, partly because London is one of the world’s great cities. Only Paris rivals London for restaurants, bars, theaters and opera houses, and art galleries, but that does not do much to mitigate France’s aforementioned inhospitable business environment. Those employed in financial services do enjoy spending money, but their priority is making it in the first place.
A tale of more than two cities?
Two other options for an alternative to London in the EU are Dublin and Luxembourg. Whilst both are attractive from a tax point of view and are English speaking – Luxemburgers are a multilingual bunch – they both suffer from the Frankfurt problem, they are simply not big enough to cope with significantly higher demands on infrastructure.
Notwithstanding the above issues, the cost of moving operations abroad is highly prohibitive. Implementing new regulatory requirements, transferring services, re-housing your workforce, and hiring and training new staff would be eye-watering.
London may be the big cheese on the side of the Atlantic, but that is not say that its free from financial rivals. One city with a strong Financial Services sector stands out, Zurich is Europe’s second financial center. But, guess what? Switzerland is not in the EU!