Will Brexit end London's reign as financial capital of Europe? Probably not

The Canary Wharf financial district, as sen from Greenwich Park. Image: Getty.

Following the Brexit vote, the race to succeed London as Europe’s financial capital is on. “We know that groups based in the City are planning to leave for Dublin, Amsterdam, Frankfurt and Paris,” the French prime minister, Manuel Valls, told journalists soon after the UK’s referendum. Other countries in the European Union are also intent on stealing financial services jobs from the UK. Even the economy minister of Bulgaria, the EU’s poorest country, invited City of London escapees.

In reality, however, London will remain Europe’s main financial centre.

There are three reasons for this continued dominance over European financial services:

  • The pre-eminence of the British court system in upholding the rule of law, including the protection of creditor and shareholder rights.
  • The superiority of the UK’s university education in economics and finance over its continental counterparts.
  • The UK’s tax and employment regulation that is conducive to the industry’s health and profits.

Protecting the interests of creditors and shareholders from the rapacious behaviour of competitors or the state is obviously important for attracting financial services. On this score, the UK is ahead of the rest of Europe. The World Bank’s Doing Business project ranks the UK fourth in the world in shareholder protection, behind only Hong Kong, New Zealand and Singapore.

In the balance. Image: Lonpicman/wikimedia Commons.

France is in 29th place when it comes to the strength of laws protecting shareholders; Germany is 49th. In terms of protecting creditor rights, the UK ranks 19th in the world, France 79th, and Germany 28th.

Of course, the rule of law can improve in Europe so that financial investors feel equally well protected in Paris or Frankfurt. But this process will take years, perhaps decades.

In terms of education, markets increasingly require a sophisticated understanding of economics and finance, as well as in-depth knowledge of the legal architecture underlying financial services. Here, too, British universities lead Europe in offering quality education. In the latest Shanghai global ranking on economics education, there are six UK universities among the top 50 and only three continental European universities (one in the Netherlands and two in France). Four of the top five masters of finance programs in Europe are based in London (the only exception being INSEAD near Paris).

And in terms of tax and employment regulation, the financial services sector in the UK benefits from lower corporate tax rates and more flexible employment laws than Germany and France. In the World Bank’s Doing Business ranking on paying taxes, the UK is ranked 15th in the world, well ahead of Germany (ranked 72nd) and France (ranked 87th). The UK’s lead is even wider in terms of flexible labour regulation. The latter is especially important in the highly cyclical financial sector that annually hires and fires tens of thousands of white-collar professionals.

Looming large: Paris’s La Défense financial district. Image: Hofi0006/Wikimedia Commons.

Vulnerable areas

The finance industry has many fields within it, however, and some parts are viewed as more vulnerable to Brexit. One candidate is foreign exchange trading in the euro – a $2trn-a-day market. Currently, more than 70 per cent of euro trading takes place in London, compared with 11 per cent in Paris and 7 per cent in Frankfurt, according to Bank for International Settlements data. The European Central Bank has already tried banning clearing houses outside the eurozone from trading the euro.


But in 2015, the EU’s highest court disagreed. Hence London’s vulnerability may be overplayed: Brexit does not alter the status quo as the UK has never been a member of the eurozone.

Insurance is another sector that’s European activity is highly concentrated in London and where Brexit may hurt. But the UK’s main competitors are in Asia (Singapore and Tokyo) and the US. The access that London has to European money is based on proximity and historic relationships, not on being part of the EU. In short, even in insurance markets it is hard to see a rapid shift away from the City of London.

But Brexit may have a negative effect on London’s position as the world’s best-regulated financial centre. Following the uncertainty around its EU exit, Asian and American markets could take some business away from the City of London. The government’s knee-jerk reaction to this development may be to erode some of the UK’s financial regulation in an effort to attract more investment. The Conversation

Such a response would be unfortunate as London has attracted a lot of talent because it is a place for clean business practice. This possibility notwithstanding, London is unlikely to lose its crown as a global financial centre.

Simeon Djankov is executive director of the Financial Markets Group at the London School of Economics and Political Science.

This article was originally published on The Conversation. Read the original article.

 

 
 
 
 

Does it matter that TfL are renaming White Hart Lane station Tottenham Hotspur?

New White Hart Lane. Image: Getty.

Pretend for a moment that you’re travelling in the London of 1932. You’re taking the Piccadilly Line northbound and alight at Gillespie Road station. The name should be obvious: it’s inscribed in bespoke brown tiling on the platform.

But that 31 October, following an intense campaign by the eponymous football club, the London County Council changed the station’s name to Arsenal (Highbury Hill). The area’s growing association with the name “Arsenal” ended in a lengthy negotiation that changed maps, signs and train tickets alike. Football had acquired so much power that it changed the name of not just a Tube station but an entire suburb, even before the era of Wenger or the Emirates.

Now the spectre of name changes is on the horizon once again. As Tottenham Hotspur FC inches closer to completing its new stadium, the club is clamouring for a renamed Overground station. Despite the fact the new stadium is located on almost exactly the same site as the old just off White Hart Lane, and fans have long been calling the scaffolding-laden mess “New White Hart Lane”, the club’s executive director is adamant that the station’s existing name cannot stand. White Hart Lane station, on the Overground line leaving Liverpool Street, is set to be renamed “Tottenham Hotspur”, at a cost to the club of £14.7m.

Little has been made of the fact that this peculiar PR kerfuffle is tied to Spurs’ failure to convince Nike to sponsor the venue. Some sources have even claimed that the sponsorship is yet to be finalised because it is somehow contingent on the renaming of the Overground station; beyond the ridiculous Johnson-era vanity project that was the Emirates Air Line, it seems improbable that TfL will allow any more corporate-flavoured information pollution. There will be no “Nike Stadium” station on the way to Enfield, much as there is no “Emirates” on the way to Cockfosters, especially if public consultation gets a look in.

The scene of the crime. Image: TfL.

But there’s a problem with the new name, all the same. “White Hart Lane” already means “football stadium”, in the same way Loftus Road or Stamford Bridge do. Changing it to “Tottenham Hotspur” risks opening the floodgates to an “O2 North Greenwich” or a “Virgin Euston” at some point in future, names as banal as there are dystopian. The Greater London Authority has promised to spend the £14.7m fee on community programmes in the local area – but that’s not much money to set the precedent that a private company can mess about with the Tube map.


What’s more, as CityMetric has often observed, there are plenty of station names across London that could do with a tidy up. Picking one that’s perfect already and asking for £14.7m to change it is adding insult to injury. How much would it cost a community group if they asked to change the name of Goodge Street to Fitzrovia? Why does a vast corporate entity backed by international sponsors and thousands of season ticket holders get to set the standard?

Back in Arsenal’s day, changing names on the Tube must have been easy; changes could be accommodated gradually without bothering the every day traveller. But in our world of online information, maps and apps, name changes are rather more complicated.

The question is – if TfL can bring itself to balefully accept this particular proposition, why can’t it accept ours? Why sort out a single non-issue on the Tube Map when you can catch lots of real ones in one go? A day’s pandemonium might just be a price worth paying to fix the Bethnal Greens problem once and for all.