London's financial sector flexes its muscles
Britain's powerful finance sector ramped up the pressure on Prime Minister David Cameron on Friday, warning the government that the country's unpredictable tax regime was "out of control."
A report by the City of London Corporation, the body which runs the historic heart of the British banking and insurance sector, added to the threats from banks to re-locate abroad if the government fails to safeguard their interests.
It called on Cameron's Conservative-Liberal Democrat coalition to roll back tax measures introduced from the previous Labour government over the past five years.
Conscious that some British banks were bailed out by the taxpayer just two years ago, Cameron has vowed to prevent a return to the excesses of the past by introducing tougher regulations.
But Friday's report underlines the importance of the financial services sector to the British economy, saying it generated 66 billion pounds (105.7 billion dollars, 75.5 billion euros) in tax revenues in 2009, employed one million people and accounted for 10 percent of the gross domestic product.
The report rated Britain on six factors: predictability, overall tax burden, attitude of tax authorities, network of tax treaties, complexity and cost of compliance.
Every respondent, from the banking, hedge funds, insurance, asset management, and the private equity sectors, gave Britain a poor rating on predictability.
The report concluded: "The recent and potential tax measures directed at the sector, especially banks, when taken together with the extensive regulatory changes in prospect, gives an appearance of insufficient fiscal and regulatory coordination."
The giant HSBC has threatened to leave its London headquarters if planned reforms to divide the bank into retail and investment divisions are pushed through, while Barclays has expressed similar concerns.
However, despite the threats to leave Britain, the report identified just a handful of insurance firms that have actually moved their tax HQs out of the country, including Hiscox and Brit Insurance.
In addition, three hedge funds -- Moore Capital, Blue Crest and Brevan Howard -- have transferred staff to Switzerland and fund manager Henderson has moved its corporate headquarters to the Netherlands.
The report warns that the threat of seeing big names quitting London remains real because Amsterdam, Dublin and Geneva offer more attractive tax regimes than Britain.
While it welcomes the new government's decision to reduce corporation tax from 28 percent to 24 percent over the next four years, it warns that personal tax rates of 50-percent for high earners put Britain on a par with France and Germany.
© 2010 AFP