London’s affluent and multinational institutional trading and interbank FX sector is a veritable towering giant compared to the rest of the United Kingdom’s enterprises, and indeed quite possibly the mainstay of the nation in which it is hosted.
Just four banks whose vast operations occupy London’s Canary Wharf and more traditional Square Mile account for over 45% of the entire world’s interbank FX order flow.
Largely, the order flow handled by these financial giants is attributable not to Great Britain, but to the Far East, North America, Russia and the Middle East, thus rendering London as a world center which provides global financial markets across multiple venues abroad, with a vast social and economic gulf between its participants and the rest of the United Kingdom.
Nestling among the banking giants is the long-standing institutional trading sector, comprising benchmark industry firms such as LMAX, Sucden and CFH, providing liquidity to brokerages globally.
For several decades, Britain has not been as business-friendly as its transatlantic counterpart, however the tradition of London’s financial sector has always paid its large taxes and retained its presence, but for how long?
With the prospect of a return to the Labour government and its promise to sting businesses and top earners looming in the advent of the forthcoming General Election, Shadow Chancellor Ed Balls is contemplating not only hitting high earners hard, which, as detailed recently by LeapRate, may lead to an exodus of top talent, but also seeks to add a further 5% to an already high corporation tax.
Currently, UK corporation tax is 20%, however a 5% rise would create a large extra expense for large banks and established British CFD companies and liquidity providers alike.
Just last week, Michael Spencer, CEO of ICAP plc (LON:IAP) stated that he may relocate his firm to North America should the socialist Labour Party become victorious at the General Election.
The previous Labour administration which ran from 1997 to 2010 wreaked economic havoc across Britain, signing blank checks for social programs and allowing retail banking institutions to encourage customers to self-certify mortgages so that the ‘entitlement’ culture could be fueled by every person, even those who could ill-afford it, were able to purchase homes with no down-payment and very little in the way of due diligence checks, with disastrous consequences in many cases.
Should some of the senior executives decide to seek pastures new in the event of a Labour victory, it is entirely possible that companies may follow suit, as the entire electronic trading industry is borderless and infrastructure is so effective nowadays that connectivity with minimal latency ensures virtual proximity to all major venues, thus operations could be moved overseas, registered as a non-British entity which maintains a small office in London for administration or compliance purposes.
Back in the 1970s, under Labour’s Prime Ministers Harold Wilson and then James Callaghan when refuse was piled high on the streets, the picket lines outside the factories were longer than the production lines inside, and the three day working week was imposed as firms could not afford wages, no such choice was available, as the majority of industry was analog, whereas today’s digital world would permit an easy relocation with no disruption to product or service offering.
Indeed, when the Labour Party left office, former Treasury Chief Secretary Liam Byrne left a note for his successor, David Laws, saying: “I’m afraid to tell you there’s no money left.”
With banks mostly nationalized after a severe collapse and, according to Mr. Byrne. no money left, it is quite simply a matter of wondering what the Labour Party did with the income from the 80 taxes that they raised between 1997 and 2006, some 9 years after assuming office.
These mostly consisted of domestic taxes, but indeed it certainly adds up, as follows:
1997
1. Council tax up 6.5 per cent to Band D average of £688
2. Mortgage tax relief cut from 15 per cent to 10 per cent, saving Chancellor £800million-a-year
3. £5billion-a-year tax grab on retirement savings by scrapping dividend tax credits for pension funds
4. Private medical insurance tax relief for pensioners abolished
5. Health insurance taxed again
6. Fuel tax escalator up, leading to inflation-busting rises on petrol prices
7. Vehicle excise duty up
8. Tobacco duty escalator up (as fuel)
9. Stamp duty increased on properties over £250,000
10. Corporation tax changes
11. Windfall tax on privatised utilities, designed to raise £5.2billion
1998
12. Married couples’ allowance cut from 15 per cent to 10 per cent from April 1999
13. Tax on travel insurance up
14. Tax on casinos and gaming machines up
15. Fuel tax escalator brought forward
16. Tax on company cars increased
17. Tax relief for foreign earnings abolished
18. Tax concession for certain professions abolished
19. Capital gains tax imposed on certain non-residents
20. Reinvestment relief restricted
21. Corporation tax payments brought forward
22. Stamp duty on properties increased again
23. Some petrol and oil duties raised
24. Additional diesel duties
25. Landfill tax up, from £7 to £10 per ton 26. Council tax up by 8.6 per cent for average bill on Band D property to £747
1999
27. Upper earnings limit for National Insurance contributions raised above inflation
28. National Insurance for self-employed people raised
29. Married couple’s allowance abolished from 2000 for under-65s
30. Mortgage interest relief abolished from April 2000, increasing typical bill for average homeowner by £240-a-year
31. New rules to stop contractors in IT industry setting up firms to reduce their tax bills
32. High mileage discount for company cars cut
33. Tobacco duty escalator brought forward
34. Insurance premium tax up from one to five per cent
35. Vocational training relief abolished
36. Employer’s National Insurance contributions extended to all benefits-in-kind
37. VAT on some banking services increased
38. Premiums paid to tenants by landlords taxed
39. Duty on minor oils, such as fuel oil, up
40. Vehicle excise duties for lorries up
41. Landfill tax escalator introduced
42. Stamp duty on properties increased again
43. Council tax up by 6.7 per cent for average bill on Band D property to £798
2000
44. Tobacco duties up by five per cent above inflation
45. Stamp duty on properties increased again
46. Extra taxation of life assurance companies
47. Rules extended on companies using foreign subsidiaries to shelter profits in low tax regime
48. Council tax up by 6.1 per cent for average bill on Band D property to £847
2001
49. Council tax up by 6.4 per cent for average bill on Band D property to £901
2002
50. Personal allowances for everybody under the age of 65 frozen
51. National Insurance rate to rise from 10 per cent to 11 per cent from April 2003
52. New NI band for higher earners
53. National Insurance for employers rises from 11 per cent to 12 per cent
54. Self-employed also rises by 1 per cent
55. North Sea taxation up
56. Tax on some alcoholic drinks up
57. New stamp duty regime aimed at stamping out tax avoidance
58. New rules on loan relationships
59. Council tax up by 8.2 per cent for average bill on Band D property to £976
2003
60. VAT on electronically supplied services
61. IR35 applied to domestic workers to stop families from reducing tax bills on nannies
62. Betting duty change
63. Tax on red diesel and fuel oil up
64. Rules extended on companies using foreign subsidiaries to shelter profits in low tax regime extended to Ireland
65. Vehicle excise duty up by £5 on cars and vans
66. Council tax up by 12.9 per cent for average bill on Band D property to £1,102
2004
67. New 19 per cent tax rate for owner-managed businesses
68. Six-fold increase in the amount of tax paid by tradesmen for using their vans outside working hours. For basic rate tax-paters, an annual rise of £110 to £660
69. UK transfer pricing introduced, substantially increasing red tape on British firms
70. Increase in rate of tax on discretionary trusts becomes 40 per cent
71. Increase in tax on red diesel fuel
72. Increase in tax on red diesel fuels, including LPG (liquid petroleum gas)
73. Council tax up by 5.9 per cent for average bill on Band D property to £1,167
2005
74. Cancellation of stamp duty land tax relief on disadvantaged areas
75. Tax on North Sea oil firms doubled from 10 per cent to 20 per cent
75. Tax on North Sea oil firms doubled from 10 per cent to 20 per cent
76. 0 per cent rate of corporation tax abolished which had been introduced by Mr Brown to encourage small businesses
77. Council tax up by 4.1 per cent for average bill on Band D property to £1,214
2006
78. Clampdown on trusts and insurance policies commonly used to cut future inheritance bills
79. Increase of £45 in vehicle excise duty for gas-guzzling 4x4s cars
80. Council tax up by 4.5 per cent for average bill on Band D property to £1,268
Source: Grant Thornton, Institute for Fiscal Studies and Conservative Party