Why Boris is right to fight for the City
WHENEVER there is a crisis, certain sections of the British establishment revert to type. Rather than vowing to fight back and rebuild our shattered economy, many senior figures have evidently decided that the best we can hope for is to manage decline, post-war style. In a dynamic, forward-looking, optimistic nation, we would be debating how to reform the City, the powerhouse of our economy, to make it more resilient and to allow it to start growing again and creating jobs – albeit more sustainably this time. The last thing we would be doing is plotting to destroy it – or to use the latest euphemism, to “cut it down to size”.
Business services, led by wholesale finance, are one of the few industries at which we excel; the last thing we should be doing is plotting to tax or regulate it out of existence. Of course, unviable activities (such as sub-prime lending) should be shut down, but that has happened already. Germany is not giving up on car-making, even though its reliance on manufacturing exports is the reason its recession was so painful; France is not discussing how to close its largest industries; as usual, only Britain is contemplating national economic suicide.
Here is another way of looking at it: the UK economy resembles a wounded survivor from a car crash caused by drunk driving. What we should be doing is nursing the patient back to health while making sure that we stamp out alcoholism on the roads. But some, it seems, would prefer to kill off the patient and even ban cars altogether. This is madness. If the big banks are neutered and hedge funds quit London, law firms, insurance companies, consultancies and the big corporates will be next. Hundreds of thousands of people would lose their jobs; tax receipts would collapse; house prices would tumble; and Britain would be plunged into a vicious spiral of doom.
There will be nothing to take the City’s place: manufacturing’s gradual slide will not be reversed; no developed post-industrial country has ever increased its manufacturing output as a share of GDP for any prolonged period of time. Green energy will employ some in the years ahead; education, health and tourism might fill a few more jobs; but that’s about it. Unlike the US, we have no tech industry of note; the health of our cultural and creative industries is closely connected to that of the City; and we can’t all work in retail. A gradual shrinkage in the private sector (which pays the tax) will mean the public sector will also be forced to cut back savagely to avoid national bankruptcy.
A successful, sustainable financial services industry that can outsmart not only New York but also Shanghai and Singapore is thus the only practical way to ensure Britain’s prosperity. This is why Boris Johnson’s decision to come out fighting for the City is to be applauded. The Mayor’s vision for London is optimistic, cosmopolitan and pro-growth; he is turning out to be more of a Ronald Reagan than a traditional British Tory, at least in terms of inclination. He is right to oppose the 50p tax rate, formal limits on bonuses and the EU’s vicious attack on hedge funds; his courage in defending such unpopular positions marks him out as an unusual politician. It is a shame that he has no real power over financial regulation; but let us hope he can charm some of the anti-City crowd into seeing some sense.