How London can remain in the top league
What are the lessons of Big Bang, the deregulation of the London Stock Exchange that happened 20 years ago? Competition was the cause of it. Competition will remain the theme. Protectionism does not pay. Trade and the national economy thrive where barriers to competition are dismantled. You cannot compete if there are rules that tie your hands when your competitors in the US or Europe or Asia are not shackled in the same way. It is no good, now that wealth creation depends on being internationally competitive, trying to stop foreigners from buying into national enterprises. It is better to welcome their capital investment in the UK economy.
London has done well from Big Bang because barriers to competition were dismantled and London attracted a large concentration of competitive talent and capital from all over the world. Of course there are other things about London that have attracted people. People there, in the words of a recent commentator, “think globally”. London has a reputation for probity based on sound regulation. It is a centre where you can trust that your business will be done quickly, honestly and reliably. It is an important hub for international transport. Personal tax rates have come down from the absurd levels of the 1970s. London is a stimulating place, with a rich cultural life. It is a great place to live.
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Can London keep its place at the top? To do so, we must remember the lessons that Big Bang and its aftermath have taught us. The competitive challenge will grow stronger. It is not enough to rely lazily on London’s -obvious advantages, such as its time zone and the English language, now the international language of finance. Other financial centres envy London’s success and would like to emulate it.
Which government with an eye to increasing local prosperity, which mayor of a city with a financial business, would not want to? The competitive response of stock exchanges in Europe to the Big Bang reforms shows that we cannot relax.
So we have to remain on our toes. Government and its agencies must, wherever they have the power, keep the barriers to competition low and the attractions of London high. Tax rates for both companies and individuals must be competitive. Knowledge, skill and imagination can emigrate. So can headquarters. So too can business, as was shown by the US’s interest equalisation tax, which exported the eurobond market to London in the 1960s. There are already signs that some businesses are thinking of relocating to less highly taxed countries. While I am on the subject of tax, stamp duty and the unbelievably complex rules on capital gains tax both do their bit to reduce the depth and liquidity of the London market. Stamp duty on shares should be abolished and capital gains tax should be simplified to a flat rate on short-term gains.
Regulation must be as light as is compatible with nurturing trust. Over-zealous and risk-averse regulators are prone to the laws of unintended consequences. Continuous assessment of the value of regulations is essential to make sure that they are not driving business away or reducing competition or damping innovation. Regulators must be prepared for coping with serious risks that might damage London’s reputation. Systemic risk is more unpredictable today than it was when business was concentrated in fewer hands and sophisticated instruments for laying off risk had not been invented. Competition law and practice must keep up with the fast-changing scene. A large share in the UK market often looks small in relation to the global market.
Security must remain a high priority. Every effort should be made to improve the quality of education and lifelong learning. The learning of other languages should be encouraged. Cultural excellence must be encouraged
