Keeping our capital working for the UK

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How business-friendly is the Cameron Government? (7 Sept 2010)

A version of this commentary article appeared in the Evening Standard (7 September)

The Government has set out a confident position – “A genuine and long-lasting economic recovery must have its foundations in the private sector” ( Osborne); “this country is open for business” (Cameron) – applauded by London’s business leaders.

But, despite having the right instincts and adopting the right messaging, fears are rising among business that the Government isn’t matching good instincts, helpful intentions and supportive messaging with effective practical delivery. There is a genuine worry that, as a result, London is losing its competitive edge.

Ministers sensibly wish to ‘rebalance’ the economy, so that employment outside South East England is less directly dependent on the public sector. But they realise that the part of the UK most capable of generating the growth and the tax revenue to pay down the public deficit is London.

London is a truly world city, attracting investment capital and talented human capital from around the globe, making the UK the second highest exporter of professional services and a world leader in insurance, architecture and medical science.

However, since the election we have seen a raft of new policies and regulation, which could, with clumsy implementation, suppress business growth and inadvertently divert taxation to foreign treasuries.

First, a cap on immigration, devised to address genuine public concern about migration numbers, but targeting the 55,000 skilled immigrants needed to drive business growth in internationally competitive markets, rather than another 500,000 immigrants with less economic value. Yes, we should be building the skills and employability of British workers, but that takes time and 200 other UK jobs today might depend on the contract won by a ready-made Australian postgraduate engineer. UK nationals will always struggle to meet the need for a solicitor experienced in Japanese law.

Second – tough new regulation. Parts of the City may have blotted their copybooks during the crash of 2008, but most of London’s financial services sector was not to blame and remains a source of competitive advantage for the UK and a vital resource for business and consumers. Bashing of the bankers may have been inevitable pre-election, but four months on Government should be focusing on a fix, on regulation and levies that are comparable with those of our major competitor markets. If the UK gold-plates EU regulation or gets tougher, unilaterally, than its rivals, teams will choose somewhere else, other than London and pay non-UK taxes.

Third – tax. The Government has calculated a revenue-maximising rate for Capital Gains Tax, but it has yet to do the same for income tax. The 50% income tax rate served political purposes, but it could discourage new ambitious talent from building careers in the UK, That would neither contribute to growth nor to paying down the public deficit.

And lastly, a threat to transport. London depends on good transport links to support growth and future investment – both across the capital and to its many overseas business partners. For London to continue to succeed as a hub for global trade and talent requires a fully fit transport network – at Heathrow, across the city, and with links to the rest of the UK.

Taken in isolation, each and every one of these is a concern – but combined the impact is far worse. London is the UK’s economic powerhouse, its top dog – a Crufts champion – versus the best in the world. But, viewed from overseas, the suspicion is that its coat may be losing its sheen, its eyes lacking their previous sparkle. It’s time for the loyal pooch to receive a little love from this Government, before it’s too late.

Baroness Jo Valentine
Chief Executive of business group, London First

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