Transcript Document

“Can the City of London
flourish if the UK stays in the
European Union?“
Background material for presentation to
Freedom Association – 2nd March, 2011
How will Britain remain
prosperous and influential
in the 21st century?
• The question matters because we need to be able to
set the rules, insofar as they affect us.
• UK’s national output is worth about £1,400b. and is
roughly 3% - 4% of world output, although the
number depends on statistical conventions.
• UK growth of 2 ½% a year and EU growth of about
2% a year is less than global average (about 3 ½% a
year) over the last decade.
The UK's trade in international business services,
mostly located in London and the South-East
£m.
140000
120000
100000
80000
Exports
60000
Imports
40000
20000
0
19
91
19
92
19
93
19
94
19
95
19
96
19
97
19
98
19
99
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
20
08
UK exports of financial services,
excluding insurance
£m.
Chart is of four-quarter moving average
60000
50000
40000
30000
20000
10000
0
The compound annual
growth rate in the 21
years to the peak in Q4
2008 was 15.0%
UK exports of services in 2009
- in £b.
8.3
22.1
Transport
20.2
7.3
Travel
Communication
19.4
Construction
Insurance
4.9
1.6
45.7
7.6
Financial
Other business
Computer & information
Royalties, license fees
Cultural, recreational
44.2
Government
1. About 60,000 of the 240,000 people in the Square Mile in 2001
were in “international banking” and related activities (FX & derivatives).
2. These are the areas vulnerable to closure of international
inter-bank markets and regulatory increases in capital requirements.
Main "industrial" categories of financial employment
in the City of London, 1995 - 2001
International banking
Foreign exchange trading
Domestic banking
Securities trading etc. (UK)
Securities trading etc. (International)
Derivatives
Corporate finance
Fund management
Insurance
Professional services
Other activities
1995
2001
% change
16100
24300
26900
14400
13500
9000
8100
10400
24600
20000
27800
23000
20000
15000
15000
36000
16000
11000
13000
29000
28000
39100
43
-18
-44
4
167
78
36
25
18
40
41
195100
245100
26
Source : Lombard Street Research Ltd. Growth Prospects of City Industries
We know that these
activities – perhaps
20% - 25% of Citytype financial services
employment in
London – boomed
from mid-2002 to late
2007, and we must
expect that they are
now in medium-term
retreat.
These are rapidly growing,
high-value-added activities in
which Britain is/was a worldbeater, even though by early
st
21 century most of the
organizations were not
British.
Annual changes, %, in the UK's
exports of financial services
120
100
80
60
40
20
0
-20
-40
The change in the year to Q1 2010 was 19.6%,
the largest % fall in the history of this series.
How much do these activities
matter to the UK?
1. In 2009 the UK’s exports of services totalled over
£160b., about 11 ½ % of GDP.
2.Of these almost £100b. were ‘financial services’,
‘insurance’ and ‘other business’, where ‘other
business’ included many financial-related services.
3. Financial service exports as such were £44b., over
3% of GDP. (In 2008 they had been 3 ½% of GDP.)
The London economy 1.
• Roughly speaking, about 1.2 million people in
highly-paid service industries occupy about 225m.
sq. ft. of space in central London.
• Of the 1.2m., perhaps 500,000 – 600,00 are in
‘banking, insurance & finance’, with – say –
400,000 – 450,000 in high-value-added
international financial services.
• These people produce about £50b. - £55b. of
exported international financial services and
another £10b. of value added for domestic
financial services.
The London economy 2.
• The value added per person in international
financial services is probably in the £100,000 £150,000 per annum area, with pay running at
about £55,000 - £60,000 per person on average.
• The balance of the 1.2m. people (550,000 –
700,000 people) are in a range of service
industries, helping both international and UK
companies. Their output per head may be a bit
lower than in financial services, but is well ahead
of the UK average. They are responsible for
perhaps £50b. of service exports and another
£15b. or so of value added for UK companies.
The London economy 3.
• So office employment in central London
represents about 4% of total UK employment and
accounts for about 8% of UK output, with perhaps
75% - 80% of this output taking the form of
“international business service” exports.
• They occupy about 210m. – 240m. square feet of
office space, with the exact figure depending on
borough coverage, chartered surveyor estimates,
etc.
The UK approach
to financial regulation 1.
• Key question, “what is in our national
interest?”. Not “what is the global interest?
or the interests of Europe?”.
• We need to be able to set the rules of
international business service industries.
• We need to ensure that these rules are fair
and liberal, easy to integrate with and
accompany English law, etc.
The UK approach
to financial regulation 2.
• The English/British tradition has been ‘selfregulation under the law’, with the law itself
evolving by judge-made precedent (i.e., ‘the
common law’). This is acknowledged as
flexible and evolutionary.
• European legal traditions are very different.
In the financial sector the tradition is of
regulation by, in effect, an ‘external
agency’, i.e., by regulators who have their
own interests at heart.
Examples of
direct threat
• 1. Directive on alternative investment
vehicles – private equity funds and hedge
funds, and
• 2. Pressure for increases in banks’
capital/asset ratios, which is not a
specifically EU-related threat, but is to a
degree outside UK control and certainly
affects the City of London
• We must stop Brussels
interfering in economic
activities which are
important to our nation’s
prosperity.