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If “a week is a long time in politics”, as Harold Wilson, one of Keir Starmer’s few predecessors as Labor prime minister, quipped half a century ago, then a year is certainly a very long time in banking.
Just 12 months ago, commentators were writing admiringly about the financial services build-up Paris had achieved at London’s expense. It was hailed as a golden period for the French capital as President Emmanuel Macron and his finance minister Bruno Le Maire succeeded in their strategic aim to attract finance jobs from Britain after Brexit. Five major US investment banks have moved at least 1,600 employees to Paris, according to calculations by the Financial Times.
Now the results of two elections in the UK and France threaten to reverse the relative appeal of capital cities. In Sunday’s legislative plebiscite, French voters backed away from making the far-right Rassemblement National the largest party in parliament, as had seemed likely. But the resulting triumph of a left-wing alliance with its high-tax, high-spend agenda could be an even greater threat to business and financial interests.
Macron’s original stance on London bankers was based on three pillars: lower taxes, stable policies and increased labor market flexibility. He delivered the last of them in the days before the elections. But the first two have been thoroughly undermined, in large part because of the popular backlash against the them-and-us society that Macron’s policies have engendered.
Much of the City of London, meanwhile, is relieved that the tumultuous Tory rule of recent years is over: the market chaos that followed Liz Truss’s unfunded mini-budget and the costly hurdles of Brexit mattered far more than any promises of deregulation.
Starmer’s Labor administration spent many months before the election persuading the city that they would be a source of stability and predictability. More productively, Chancellor Rachel Reeves’ plan to support strategic investment across the economy by facilitating private sector funding will be key. It’s a policy city leaders are eager to support. “We would like to see the sector working together to help drive investment in the UK,” said Clare Woodman, who heads Morgan Stanley’s Europe, Middle East and Africa.
Another priority for international financiers is settling relations with the EU. They took heart that Starmer made it a priority.
“Banks would like to see a rebuilt relationship with Europe so that we improve mutual access to markets and can operate seamlessly across borders without inefficiently doubling costs,” said one bank chief, complaining that services were neglected in former prime minister Boris Johnson’s Brexit deal. . Currently, banks in the UK and EU have to double the number of staff, functions and capital in both jurisdictions.
Of course, segments of the city and the wider business community are concerned about the potentially costly tax hike and what they see as a likely return to Labour’s more traditional tax-and-spend approach. Although Reeves has ruled out increases in income tax, national insurance or VAT, there are suspicions that the capital gains and inheritance tax regimes could be more punitive. “Non-dom” tax credits are already being abolished. And the private equity industry was alarmed by Reeves’ plan to crack down on so-called carried interest, which would be taxed as capital rather than income.
But even here the mood was calmed by the promise of consultation. “In terms of tax engagement, we are encouraged,” says Michael Moore, who heads the BVCA’s buyout industry lobby group.
It is hard to find a French banker today who will be bullish about the prospects of the French government. The banking jobs that have moved to Paris are probably safe for now – most of them are internationally focused and independent of the French domestic outlook. However, if Starmer and Reeves succeed in their plan, the prospects for future growth – both for City and the wider economy that City serves – may overtake the French competition.
patrick.jenkins@ft.com