THE CITY OF LONDON IN RETREAT: THE EU’S ATTACK ON BRITAIN’S MOST SUCCESSFUL INDUSTRY...
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Transcript of THE CITY OF LONDON IN RETREAT: THE EU’S ATTACK ON BRITAIN’S MOST SUCCESSFUL INDUSTRY...
THE CITY OF LONDON IN RETREAT: THE EU’S ATTACK ON BRITAIN’S MOST SUCCESSFUL INDUSTRY
Presentation to Bruges Group meeting 24th September 2014, by Professor Tim Congdon CBE
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UK share in world output, %Data taken from International Monetary Fund
database, as at May 2014
The UK share of world output was fairly stable at between 3 1/2% and 4% between the early 1980s and the Great Recession, but is now falling sharply.
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The UK's trade in international business services, mostly located in London and the South-East
Exports
Imports
£b.
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100
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The UK's trade in international business services, mostly located in London and the South-East, but with y-axis
on a logarithmic scale
Exports
Imports
£b.
Is the slowdown cyclical or structural?
International business services in the UK growth pattern, 1991 - 2013
1991 - 2008 2008 - 2013
Exports of international business services 12.7% 2.2%Imports of international business services 12.9% 1.8%
Total exports of goods and services 6.7% 3.3%Total imports of goods and services 7.2% 2.9%
Money GDP 5.3% 2.0%
Calculated from annual data; all numbers are in money terms, they are not in
constant prices. Source: Office for National Statistics
43.5%
34.6%
10.5%
5.6%1.8% 4.0%
Composition of the UK's exports of international business services in 2008
Financial servicesOther business services
Insurance
Computer/information services
Personal, cultural, etc.
Communications
Financial services dominant, with 43.5% of the total
The UK financial sector and the world economy
• Britain was the pioneer of modern industrialism, but – as an offshore island - it is not a natural centre for the location of manufacturing industry.
• High-value-added-per-person services are probably a better specialisation for the UK in the 21st century, and in the late 20th century the UK was the world leader in international financial services.
• However, the UK’s exports of such services are only about 0.1% of world output. Massive scope for growth continues.
The UK financial sector and the world economy
• In 2009 Lord Turner, then chairman of the Financial Services Authority, said that much financial service activity was “socially useless” and the sector was therefore too big. He argued that a contraction of finance could occur without loss to the economy.
• At that time exports of financial services were about 4% of GDP.
• It would be hard to imagine anyone in a position of public trust and responsibility saying anything more inept, inappropriate and destructive.
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Exports account for much of UK financial sector activity
- Figures in £b., current prices
Exports of financial services and insuranceGross value added of 'finance and insurance'
35.4%
42.3%
7.4%
7.3%
2.6%5.0%
Composition of the UK's exports of international business services in 2013
Financial services Other business services
Insurance Computer/information services
Personal, cultural, etc. Communications
A proposal from the European Commission
A proposal from the European Commission
The European Commission is proposing/advocating a change in regulation/tax which would lead to a drop of 75% in a certain kind of financial activity, mostly located in one member state, i.e., the UK.
Is this what the Eurozone’s architects and leaders want?
“…if the Eurozone has a collective interest in anything, it is to stop the City acting as its main financial centre.”
- quote from Wolfgang Munchau, a columnist in the Financial Times, 4th March, 2013
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93.3
79.7
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Regional output in the UK in 2012 All figures in £b.
London South East
North West East
Scotland South West
West Midlands Yorkshire & Humber
East Midlands Rest of the UK
National output just un-der £1,400 billion
8.1
13.8
25.2
12.9
35.3
60.035.4
16.4
29.8
11.9
14.3
16.0
24.2
The London economy in 2011 - GVA in £ billions
Manufacturing Construction
Wholesale & retail trade Transportation & storage
Information & communication Financial & insurance
Professional, scientific & technical Administrative & support services
Real estate activities Public administration
Education Health, social work
Other activities
London’s position in the UK economy
• London accounts for over 22% of the UK’s output.
• The proportion of UK output accounted for by London has been rising for many years, reflecting the UK’s specialization on international business services, esp. financial services, in a ‘globalizing’ world.
• Output per head in London is well above the UK average.
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Output per employed person, by UK region in 2012
UK average = 100
The dynamics of London’s economy• Output per person in London has been above
the national average for many decades, reflecting the location of senior executives and professional support staff in the capital city.
• International business services the UK’s most obvious specialization in the last 50 or so years.
• Logically, workers move to London from the rest of UK to benefit from higher productivity & incomes. That should over time cause regional equalization of incomes.
The London/UK differential Chart below taken from Lombard Street Research’s
1998 and 2003 reports for the City Corporation
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Output per head in London, with UK average = 100
London/UK differential has continued to widen - or at least it continued to widen until 2008.
The dynamics of London’s economy
• The rise in the output/income differential between London and the rest of the UK is unexpected, as equalization of incomes should be the result of labour mobility in a small nation like the UK.
• Various interpretations: strong underlying growth in demand for international business services so that the adjustment is still incomplete, widening gap in skill levels between workers in London & rest of the UK, planning shortages so that space cannot be provided for all the people who want to move to London, etc.
• How much does London depend on financial services? Some puzzles in its recent prosperity.
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Job growth in London, 1997 - 2013- % annual growth rates, quarterly data
London business service employment
Other London employment
Two major background debates
Should the UK economy be rebalanced from services, especially financial services, towards manufacturing? – The debate about rebalancing
If UK officialdom wants to de-emphasize financial services, how is London to adapt?
– The debate about the re-invention of London