June 20, 2008 | posted by Michael Baxter in London | comments (0) |

Six out of ten business leaders in London fear the city’s competitiveness is under threat – double the number of a year ago – or so a survey from CBI/KPMG out yesterday revealed.

Business leaders were less than impressed at reforms to non-dom taxation. Eight out of ten executives said the announcement of the £30,000 fee and the way the proposals were chopped and changed had tarnished the UK’s reputation.

The credit crunch is also afflicting companies in the capital, with four in ten respondents saying it has become harder to raise money – and many expect it will get more difficult.  Worryingly, almost one-third (31 per cent) of executives fear they will have trouble raising finance over the next six months, up from 9 per cent a year ago.

There are some positives though: despite fears over competitiveness, 90 per cent still view London as a favourable place to do business, though only 37% of respondents describe it as ‘very good’, compared to 46 per cent  a year ago.

The tube was cited as the top priority for transport investment. And nine out of ten respondents said the poor state of public transport was affecting their business.

Two-thirds (64 per cent) also said London’s roads are getting more congested, with roadworks and changes to traffic light phasings blamed as the main causes.

Seventy-two per cent of executives complained that they are currently unable to fill some skilled job vacancies – but they are hopeful the new migrant points system will help.  And though the number of employers expecting skill shortages to cause them problems before the end of the year is lower than a year ago (81 per cent), 61 per cent still fear it will happen.

Richard Reid, London Chairman of KPMG Europe LLP, said: “While huge investment is being made to modernise the tube, other programmes such as Crossrail require a definite timetable to become a reality, and further investment is required for surface rail. Transport is key to attracting and retaining staff and maintaining London’s world class status.

“Tackling skills shortages will be helped by education authorities equipping students with basic and employability skills that businesses need, not just paper qualifications.”

But, just for once, let’s finish on a positive note.  Mr Reid said: “It is worth noting that as many of London businesses are optimistic as pessimistic about the next six months.”

March 31, 2008 | posted by Michael Baxter in London | comments (0) |

Credit crunch, what crunch?     While the City moans, the rest of the British economy seems to be doing all right.        This has led some to claims that the banks have become too pre-occupied with their own problems and can’t see that beyond their own narrow existence, things are pretty good.

Well, there is one snag with that analysis.  There are time lags involved. Mainstream business will feel the heat – just give it time.

The latest Financial Services Survey from the CBI and PricewaterhouseCoopers LLP revealed that lending to industrial and commercial companies continued to increase in January.

But it’s the futures where the prognosis is not so good.  “A balance of 8 per cent expect lending to these customers to contract in the next three months,” the survey found.

Furthermore, 90 per cent of financial services firms questioned believe the credit squeeze will last longer than six months, compared with 70 per cent last quarter, despite firms being a further three months into its effects. Nearly all businesses (97 per cent) believe that credit conditions will get worse in the next six months – 35 per cent  said it was a ‘high’ likelihood and 62 per cent saying it was ‘medium’.

The growing impact of the credit squeeze is also evident in the proportion of firms saying their ability to raise funds will be a constraint on business growth in the coming 12 months. Forty per cent of firms saying this would be the case, up from 24 per cent last quarter, is the second-consecutive record figure reported.

More to the point, a net 25 per cent of respondents said they had cut jobs over the past three months, which is the highest rate since March 2003, and against expectations that numbers employed would increase marginally.

It seems likely that US banks operating in the UK are especially likely to shed jobs, which will clearly have a knock-on effect elsewhere.

Ian McCafferty, CBI Chief Economic Adviser, said: “It is clear that the credit crunch has worsened over the first three months of this year. The interbank markets have become more gummed up, with banks even more unwilling to lend, and credit spreads have widened.

“While liquidity injections and interest rate cuts by the Bank of England will help shore up the system, neither will solve the fundamental problem of restoring trust within the markets. Credit markets are unlikely to return to anything like normality for some time to come.

“And even when they do, we will not see a return to the very favourable lending conditions that existed before August. We can expect further tough times in the financial sector, as this feeds through into the wider economy, will inevitably be felt through slower economic growth this year and next.”
 

February 29, 2008 | posted by Michael Baxter in London | comments (0) |

Not so long ago, the headline of one tabloid newspaper proclaimed – London; capital of the world. Whether you believe London deserves that accolade, one thing is for sure, the city brings in a huge amount of readies to the UK. It also brings in a huge array of talent from abroad – just stand by Liverpool Street Station and observe the Armani suits and hear the foreign accents.

But of late, the shiny veneer of London has suffered a couple of nasty blotches. First there was Northern Rock, when the UK suffered its first run on a bank since Queen Victoria was on the throne; then there was Alistair Darling’s decision to impose a £30,000 tax charge on the non-domiciled residents of these shores.

Do either of those things matter? Yesterday, the latest Global Financial Centres Index, was published. The good news, London is still number one; the bad news, it’s lost marks, and London’s lead over New York has narrowed over the last 12 months.

Is this just a temporary slide? Who is to blame? But in the long-term, is the success enjoyed by London a good, or a bad thing?

The Global Financial Centres Index is produced after taking into account performance in five key areas: people, business environment, market access, infrastructure and general competitiveness. And maybe the champagne bars of London should be busy, as revellers celebrate the news that the UK’s capital tops all five categories across the world.

But, drill down a little, and look at sub-sectors, and the first blot is revealed. New York has overtaken London in the Banking Sub-Index.

In fact, overall, London amassed a score of 795 points. Okay, that doesn’t mean much. But to put this score into perspective, last year it rattled up 806 points, so it lost a little ground. Its lead over New York narrowed slightly, with the Big Apple seeing its score fall by one point to 786. So actually, London’s lead has fallen from 19 to 9 points. So, really, the two cities are pretty close.

But there is a big gap between number two and number three on the list. Hong Kong scored 100 points less than London. The rest of the top ten was made up of Singapore, Zurich, Frankfurt, Geneva, Chicago, Tokyo and Sidney, in order. Just 60 points separated the third and tenth cities on the list.

Okay, we have written about Northern Rock until we were blue in our face – although other publications have given over far more space – so presumably, faces at, say, the BBC are a good deal more blue. But there’s not much that can be done about that particular bank. We are stuck with it.

But, as for the chancellor’s plan to levy a £30,000 charge on non-doms, now that can be changed.

Non-doms are, of course, easy victims. It is so easy to tax them – and let’s face it, for the likes of Roman Abramovich it’s small beer. Or as Vince Cable put it, “Not much more than a round of drinks at half time at Stamford Bridge.” But that is really not the point.

As always with these things, the key really lies with those on the margin. For the majority of non-doms, a £30,000 charge really is a big deal, and could make the difference between them living in London, or somewhere else.

According to a recent Treasury paper, “Non-domiciled residents contribute some £12 billion to GDP and £4 billion to income tax alone.” So, there’s a danger that if too many non-doms leave the UK, we may actually see tax revenue fall. Bear in mind that the Treasury reckons the tax change will bring in around £350m next year. So that’s not much return for a potentially heavy loss.

Yesterday, the CBI said it feared, “The UK will see foreign talent and capital head home or to more attractive countries along with much goodwill towards the country. “

CBI director general Richard Lambert said, “The rushed and confused approach to this legislation, which appears to be driven by political and fiscal needs rather than policy principles, has been greatly damaging.

“Confidence in the UK as a country which does not spring nasty surprises has been undermined, while the rushed approach has forced those affected to make decisions on the basis of confused proposals.

“The draft proposals have been bedevilled by problems and despite attempts to clarify some aspects there are still a plethora of outstanding issues which need to be resolved before any changes become law.“

It all seems to boil down to that week, soon after Gordon became PM, when the Government did a wobble. First it was going to apparently call an election, then it changed its mind, and then it appeared to try and steal Tory policy. The opinion polls said we were not impressed.

Ironically, though, the tax change that has created all this criticism, is not dissimilar to the change the Tories proposed.

Even so, it still puts Alistair Darling in an awful light. He panicked, after the Government had enjoyed 10 years in office; he suddenly appeared to rush out ill-thought through plans to change tax, which have since come back to haunt him.

However, in criticising the City, it does seem that actually the Global Financial Centres Index, just like the men and women who make up the City, might be wrong in one important respect. It referred in a positive light to the response of the US in general to the global liquidity shock.

The Fed is of course cutting the interest rate at an extraordinary pace. This may help the US avoid recession, but in the longer-term, it seems difficult to believe that such huge cuts in interest rates at a time of rising inflation can do anything but huge harm.

The City may yet benefit from Mervyn King’s more circumspect approach to the credit crunch.

But maybe we should be asking a bigger question.

If London can maintain its position as the financial capital of the world, and at the same time the global economy maintains its growth, then London will bring in even more money for the UK. It will become even more important to the UK. That is a good thing, surely.

Well, yes it is, but there is a danger.

If the City’s success can continue while the global economy expands, so that London becomes the hub of a thriving and dynamic global financial market place, then this could in turn force up the value of sterling.

This could create what’s called the Dutch disease – so named after businesses in Holland found it harder to compete after North sea oil revenue pushed up the value of the guilder. The UK could become too reliant on the City.

Last week we told how there is evidence that the UK is suffering from a brain drain – with talent leaving the UK to live abroad. The scenario described above, in which the UK becomes more reliant on the City, could make this trend even more extreme. That may not matter if the City is pulling in even more talent, but the danger is this. We could be putting all our eggs in one basket.

And who is to say, that in an era in which presumably the Internet will become even more important, this could in turn mean the geographical location of London is less important. It may be less important for financial specialists to work and live near each other.

That is not so say the Internet will definitely cancel out London’s advantages. But it may be that even in the Internet era, the advantages of having a local pool of talent, eating, breathing and drinking near each other and then feeding off each other’s ideas and dynamism, could make a permanent advantage for London. But, it may not, and that’s why relying too much on the City is a risky strategy.

At the very least, the tax revenue should be invested, providing the UK with diversification, saved away for times when things might not be so good. This is of course the opposite of what is happening.

Yesterday, we told how PricewaterhouseCoopers reckons we squandered the billions from North Sea oil. That right now, we could be sitting on a sovereign wealth fund worth £450bn, bigger than the funds in Russia, Kuwait and Qatar combined.

Moving forward, we may have an even greater opportunity to build upon the City’s success and create an even larger sovereign wealth fund – we must not squander it – because, just like North Sea oil, London’s pavements of gold may run out.

February 13, 2008 | posted by Michael Baxter in London | comments (0) |

Next time you go down to Inner London, just check the pavements aren’t made of gold.

According to a report published by Eurostat yesterday, Inner London enjoys higher GDP per capita – and that is measured on a purchasing power parity basis – than any other region in the EU.

In fact, London’s GDP per capita is 303 per cent of the EU average.

In total, 42 regions in the EU enjoy more than 125 per cent of the average GDP per capita across the EU – five in the UK: Inner London; the region covering Berkshire, Buckinghamshire Oxfordshire; Gloucestershire, Wiltshire Bristol/Bath area; Cheshire; and Bedfordshire and Hertfordshire.

Across the EU, no less than one-in-four regions enjoyed GDP per capita, which is less than 75 per cent of the average, The fifteen lowest regions in the ranking were all in Bulgaria, Poland and Romania, but France has three regions with GDP per cent of less than 75 per cent of the average, Italy four, and even Germany has one region falling into this category. But here in Blighty there are no regions falling into this section.

The three leading regions in the ranking of regional GDP per inhabitant in 2005 were Inner London, the Grand Duchy of Luxembourg (264 per cent ) and Bruxelles/Brussels in Belgium (241 per cent. )

Berkshire, Buckinghamshire Oxfordshire were in eighth place.