NY and the City clash: London falling

Chris Wheal

Mar 12th 2010

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Filed under: Financial Crisis, Insurance, Banking

London and New York are level in the Global Financial Centres Index compiled by Z/Yen for the City of London Corporation for the first time because fears of "a regulatory backlash" and taxes cut London's score by 15 points.

"London has dropped 15 points in the ratings, from 790 to 775 points - the second largest drop in scores. New York has overtaken London in three of the subindices: Business Environment, People and Infrastructure," the report said. How worried should we be?

"London and New York still lead the field although the gap between them and the third placed centre has been steadily cut from 81 points a year ago and 45 points six months ago to just 36 points now," the City Corporation's report says.

Regulatory backlash

"The main concerns voiced about London's competitiveness are the fear of a regulatory backlash that limits the freedom of financial institutions and the levels of corporate and personal taxation that may drive high earners abroad," it says.

But is this just a few worried wealthy bankers using their anonymous online voting as a lobbying tool against higher rates of tax?

"New regulatory arrangements are also a concern in New York, and the loss of skilled personnel to the industry is a concern of respondents in all the leading centres," the report says.

Where will they all go?

Well all the leading centres cannot lose skilled staff because of higher taxes. They have to work somewhere and if all the centres have similar worries makes the playing field level. I think the tax worries are overplayed.

But New York and London are suffering most as a result of the current financial crisis, the report said.

London fallin

"London has fallen by 15 points in the ratings and although New York has seen a rating increase of 1 point, this is against an average increase of 23 points. Hong Kong received fewer than 20% of the mentions of New York while Singapore received fewer than 10 mentions overall," the report said

"One effect of London's relative decline in competitiveness is that other leading European financial centres are catching up with London. Frankfurt was 141 points behind London six months ago and is now 115 behind while Zurich was 114 points behind and is now just 98 below London.

"Similarly, London's lead over Paris and Geneva is less significant than it was six months ago.

Competitive environment

More competition is usually welcomed but I suspect the City will be haranguing the Chancellor that bankers need tax breaks to protect London's special role in global finance. I predict the bleating will start now.