London 2013. Somehow it doesn’t have quite the same ring to it that London 2012 did. Perhaps it’s just because it’s January, and it’s a little bit dark and wet outside and we’re all getting used to our mornings being stuffed full of signal failures and sneezing again, instead of Christmas cake and chocolate.
This time last year it was obvious what lay ahead for London. You couldn’t move around town for giant billboards of Jessica Ennis and Usain Bolt. The world was on its way to London, and not just for the Olympics but for dear old Liz’s 60th Jubilee too, with millions surging into the capital for both events. Twelve months on, the cultural calendar looks a little quieter, though let’s not underestimate the Canalway Cavalcade 2013 or May’s appearance of the former wrestling champion Mick Foley on the London comedy circuit.
The economic impact of the ‘greatest show on earth’ and the Queen’s diamond celebrations have already been well charted, argued over, and charted again. More important and potentially much more worrying for our long term prosperity than an extra Bank Holiday and a one off sporting event, were the debates about London’s standing as a financial centre. We know the world isn’t bringing its athletes to London this year, but is it bringing its international business?
Looking at a selection of recent reports on the subject, you’d be forgiven for being a little confused on London’s prospects. September 2012’s Global Financial Centres Index saw London extend its lead over some of its key emerging rivals like Hong Kong and Singapore, remaining the survey’s most competitive financial centre, while a report from the CEBR just a few weeks later brought the news that London had ‘lost its crown’ to New York and would soon be overtaken by Hong Kong too. Of course the differences are in the detail and the measures and methodology used to calculate different reports, so let’s look at some of the facts.
In the year to 31 March 2012, the most recent statistics available from the City of London, the financial services sector paid an estimated amount of tax of around £63 billion. That’s nearly 12% of the total UK government tax receipts for the year. The sector also employed 1.1 million people, or 3.8% of the UK workforce. Looking at those figures, you don’t have to be an economist to work out why British business leaders are so keen that Britain should not cede any regulatory control over financial services to Europe that might end-up damaging London’s competitiveness. Put simply, it’s worth looking after.
But while Brussels might be a perceived as a potentially inhibiting regulatory burden, Europe, in its purest geographical sense, is not where London’s real challengers lie. France and Germany might boast large economies, but both Paris and Frankfurt are distinctly deuxième classe when it comes to ranking the world’s leading financial clusters. London is far and away Europe’s biggest banking centre.
Along with the ever-present behemoth of New York, London’s real competitors lie to the East, in cities like Shanghai, Hong Kong and Singapore. On a recent trip to Malaysia I saw first-hand the dynamism and hunger of an economy on the move. Rising Asian wealth and the continent’s thirst for advancement, coupled with the financial crisis in the West, have all created a potentially potent cocktail for change. But running down the Union Jack right now seems slightly premature. For now, at least, Dickens was wrong – it’s not a Tale of Two Cities. Just one.
London remains a world beater by scores of measures. It is far and away the world’s biggest centre for foreign exchange trading, with nearly 40% of all global FX trading taking place in the City. The London Stock Exchange lists more international companies on its markets than any other bourse and London is also the world’s pre-eminent centre for OTC interest rate derivatives trading too. And that’s all before you start taking into account soft factors, like how London’s time-zone perfectly overlaps business days in the US and Asia and the city’s cosmopolitan open culture.
And, holding China’s hand, there’s no reason why London can’t benefit too from the growing economy out East. Much has been written on China’s tentative first steps to internationalise its currency – the so called ‘Rise of the Renminbi’ – and London is working hard to ensure that it becomes an offshore centre for RMB trading. Figures from SWIFT, the global financial services messaging provider, show that London is moving in the right direction, overtaking Singapore to become the world’s largest offshore RMB centre behind Hong Kong. Chinese growth is not a zero sum game.
It’s impossible to predict exactly what the world economy will look like decades from now, and precisely what role London will have to play. But it will certainly have a role, and a crucial one at that, one founded on centuries of conducting international business – experience and expertise that won’t vanish overnight. The US statesman Dean Acheson described how 'prestige is the shadow cast by power'. By Acheson's logic and my reckoning, London will be trading heavily on its own stock, as much as trading stock, for decades to come.