Don’t write off post-Brexit London just yet

John Lloyd

The City of London, with New York one of the two greatest financial centers of the world, is under a greater threat to its primacy than at any time in its 20th and 21st-century history.

The City, shorthand for the square mile synonymous with London’s financial district, has been a huge strategic and financial asset to the UK for almost 200 years. But Brexit has put it in some danger.

In a memo leaked to the Daily Mail on Sunday, Jeremy Browne, the City’s special representative to the EU,  wrote that officials in the French Economic Ministry and the Banque de France and politicians in the Senate “are crystal clear about their underlying objective: the weakening of Britain, the on-going degradation of the City of London.” 

Frankfurt has recognized that German labor law would deter the hire-and-fire culture of the City, and has offered some exemptions from legislation protecting workers to “risk takers” willing to re-locate, in the German city. Milan also wants to be a “financial citadel.” 
 
Yet while the foreigners threaten their capital, most Brits don’t feel like developing a patriotic defense. Brits have been suspicious and resentful of the City.

London’s lack of resemblance with the rest of the UK is in large part because of the wealth the City bestows on its workers. Median earnings in the City are GBP958 ($1242) a week, compared with GBP671 ($869) in the rest of London.

Yet the usually-unacknowledged fact of the City, and of London, is that it props up the rest of the UK. London as a whole, with 13 percent of the UK population contributes 30 percent of all tax income to the British exchequer - a figure equal to the tax gathered from the next largest 37 UK cities combined. 

Thus while non-London Brits may struggle to see “a resemblance to themselves,” in the capital, their standard of living - especially if they receive income from the state - depends significantly on the City’s financial health.

Within the UK, a weaker City could be an opportunity as well as a loss. Successive governments have called for a “rebalancing” of Britain’s economy away from its heavy dependence on finance and services to industry, especially advanced electronics and biotech. Yet though there are some small signs of a shift towards manufacturing, the larger structural problems - a lack of investment in particular - hampers real growth. 

A 2016 report from Price Waterhouse Cooper claimed that London would remain dominant in most of its present markets after Brexit because it “is resilient, agile and great at adapting.” 

The unsatisfactory conclusion is that no one knows what Brexit will mean for London’s economy. The uncertainties in the contemporary world are larger than they have been for decades. Most of us still live in the hangover of the financial crash, which produces febrile economic and political movements. The Brexit negotiations continue. The City is still rich, still semi-detached from the rest of the UK - but it’s running a little scared.

*This abriged article is taken from Reuters