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HSBC announcement should serve as a warning to London

HSBC’s recent announcement that it is considering relocating its global headquarters to Asia should serve as a warning to London. The capital is going to have to work hard to retain its title as the top city in the world for foreign subsidiary headquarters.

London’s attractiveness is in large part driven by its deep talent pool and a distinctive combination of attributes:

  • Stable, business-friendly regulation;
  • global openness to trade;
  • investment and migration.

However, for some sectors, the combined burden of increasing regulatory costs and uncertain and unstable taxes could threaten its global hub status.

HSBC has identified the UK bank levy as one of the driving factors in its decision-making. This tax places an additional burden on the UK’s banking sector – a globally mobile industry which contributes significant revenues to the Exchequer and supports jobs and supply chains throughout the UK.

On top of the direct burden of the bank levy is the cost of the uncertainty inherent in the levy’s structure. The levy is set at a rate that targets a total revenue each year, but since the bank levy was first introduced in 2011 the rate at which it is charged has changed multiple times in order to meet this target. This uncertainty introduces inefficiencies in the banking sector, which impair its ability to set budgets and plan investment in a rational manner.

Removing the unpredictability of the tax rate would reduce its burden and should be the first step towards the removal of the tax altogether, on competitiveness grounds, once the deficit has been brought into balance.

Contact: David Lutton, dlutton@londonfirst.co.uk

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