London leads the global battle for financial supremacy – and the right policies can keep it ahead post-Brexit

London leads the global battle for financial supremacy – and the right policies can keep it ahead post-Brexit

The past is not always an exact guide to the future, but there are often important parallels. During the heated debate about whether we should ditch the pound and join the euro, one of the areas of focus was the future of the City of London. Then, we were warned that if we did not join the euro, London would be replaced as Europe’s financial capital by Paris, Frankfurt or Amsterdam. At that time, all three were in the running to host the planned European Central Bank.

In fact, when the Single Market was introduced, many City firms moved trading desks to Frankfurt, partially under pressure from the authorities and also because it was what their peers were doing. Within a couple of years, the vast bulk were back in London.

Now, two decades later, it is worth reflecting on how things stand. Every six months Z/Yen produce the closely-watched index of global financial centres. In the latest one this March, Amsterdam, which we were told to once fear, had fallen to 50th place. To put this in context, Jersey was 39th and Edinburgh ranked 43rd. Meanwhile, Paris was up a couple of places to 24th and Frankfurt was 20th.

Ultimately, the success of a financial centre depends upon many things, particularly where clients want to do business, as well as upon the regulatory environment. Currently many issues from the previous euro debate have reared their head again, because of Brexit. No-one should be complacent. In finance, as elsewhere, businesses do not like uncertainty. That is why a transition deal, allowing people time to make plans, made sense. It also helps explain why some firms have contingency plans for servicing EU-based clients. Yet, as the financial consultants Parker Fitzgerald have said, many of London’s features are “Brexit-proof”: the role of English Law, time zone and language. Plus, of course, there is the bedrock of skills, knowledge and infrastructure that London possesses and which is hard to replicate.

But there is a big challenge ahead, and it is from New York. In that latest Z/Yen survey, London was again number one. But its lead over New York in second place was razor thin. London scored 794 points, New York 793. Six months earlier the gap had been 24 points. These numbers have moved about in recent years, and in March last year it was only 2 points. But now there is, in my view, a strong possibility of New York stealing top spot from London. The main reason for this is the deregulation agenda that is being talked about in Washington. Indeed, many of the ideas that were once being planned under Treasury Secretary Henry Paulson ahead of the 2007–08 financial crisis and were then put on ice, have resurfaced – spearheaded by the current incumbent, Steven Mnuchin. This is good news for New York.

It is also a warning shot for London. I focused on this in a research paper earlier this year for the Institute of Economic Affairs, London’s global reach and the half a trillion dollars equity prize. That same paper also provided guidance as to how the UK should position itself now. The good news is TheCityUK, supported by the Treasury and others, has made a good case to ensure London is well positioned post-Brexit. Also, ensuring the certainty of EU citizens here, and allowing firms based in London to attract skilled labour, is important for future success. But there are also other things we can do now.

Take the current focus on Unilever’s listing. This was one of seven major firms at the start of this year that had a dual listing, in London and on another exchange. Others include RELX, which decided a few months ago to switch its listing to London.

The combined market capitalisation of these seven in the FTSE100 is about a quarter of a trillion dollars and their non-UK listed corporate structures are worth about the same. The prize for London was therefore to retain the present listings and capture all of the non-UK listings and the financial eco-system of advisory, corporate, legal, accounting and communications advice, not to mention the corporate debt market too that goes with it.

Unilever has decided to relocate to Rotterdam, with minimal job losses here. Some on the Remain side have portrayed this as a Brexit effect. It is not, although uncertainty associated with it may not have helped. As the media has indicated, the move will provide Unilever with the benefits of no Dutch dividend tax and tighter takeover laws. Unilever appears to want the protectionist corporatist status quo found in the EU.

There is though, a pro-Brexit alternative, even if Unilever moves its base to the Netherlands. The FTSE Russell, who are the UK authorities that oversee the FTSE100, have the ability to allow Unilever to retain its listing on the major stock exchange index in London.

This would help the capitalisation of the London exchange, help those index funds who track the major stocks and also send a clear message that – as we prepare for Brexit – the City of London is positioning itself well.

The flexibility to do this already exists in the FTSE Russell’s current remit and it has happened before. Previous examples include British Airways, when it became the Madrid-based IAG and likewise with TUI, when it moved to Germany. Both retained their London listing, remaining part of the wider City financial eco-system.

The clear message is that it is not just Brexit, but what we can do after Brexit that matters. In the future, the City needs to be aware of increased competition from New York – and indeed from financial centres across Asia. We must be free to compete with these. Likewise, we should ensure we use tools at our disposal to cement London’s strong position now. The current focus on Unilever gives an insight into how much flexibility and room for manoeuvre is still at our own disposal.