London falling off financial throne
London was at one point the financial center of the world, but other cities are gearing up to steal the title. Stephen Beard explores why London is experiencing a loss in financial confidence.
An aerial shot of the financial district of London (Mike Hewitt/Getty Images)
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TEXT OF STORY
Bill Radke: The world's top two financial centers are London and New York. Some say London is bigger with its enormous currency market. But the British capital's dominant position is under attack. Stephen Beard reports from London.
Stephen Beard: The mood in London's dealing rooms is muted, and not just because of the recession. There's been a certain loss of confidence in the future of the city. And that's a big change.
Tim Hames: It wasn't that long ago that London was feeling really rather pleased with itself.
Tim Hames of the British Venture Capital Association says that only two years ago, London was triumphant, pulling ahead of New York as the world's top financial center.
Hames: It seems to me that there are plenty of people in New York who might have been feeling miserable two years ago who have reason to feel a little bit chirpier now.
The main reason, he says, is the recent U.K. budget that hit high earners hard. The government raised the top level of income tax from 40 [percent] to 50 percent in order to plug the huge hole in its finances.
David Buik: All it has done is instill wrath and indignation.
David Buik, a moneybroker, says it won't raise much extra revenue -- it's just made London less competitive.
Buik: There are plenty of other countries throughout the world which are in a position to offer a more favorable level of taxation.
So far, only one top private equity boss has relocated as a result. But dozens of others are still threatening to take their business elsewhere.
And now there could be another incentive to do so. Economist Ruth Lea says the European Union is itching to tighten regulation in London.
Ruth Lea: There's a huge envy towards the City of London. They're absolutely dying to get their hands on the control of London.
She says in the wake of the crisis, the French, the Germans and the bureaucrats in Brussels have cooked up a plan to curb the activities of European hedge funds. Most of them are based in Britain. Lea says many will be driven out.
Lea: It's not so much that London will shrink to absolutely nothing, but it will lose business to centers like Zurich, places like Singapore and Hong Kong.
New York may also lose business to foreign centres like these, but Lea says London will be more vulnerable with its higher tax rates and more onerous regulation.
In London, this is Stephen Beard for Marketplace.
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