It is close to 40 years since the Big Bang reforms of London’s financial markets transformed the City forever. A relatively technical programme of Thatcherite deregulation — the abolition of fixed commissions and the end of the separation of brokers and jobbers on the London Stock Exchange — opened the floodgates to a deluge of foreign capital and talent that lifted the tired old city affectionately known as The Smoke. Much of what we now associate with modern London, for good and for ill — the sky-high property prices, the gleaming towers of Docklands and the Square Mile, the unrecognisably improved restaurant scene, the world leadership position in exciting industries such as fintech — can be traced back to that bold Big Bang moment in October 1986.
Yet now London seems to be going backwards. Not so much a reverse Big Bang as a slow slump, the proverbial balloon that is gradually losing its air. London is arguably suffering its biggest drain of talent and capital since the 1970s — and the warning signs are everywhere. The world’s wealthy who flocked to London for its unrivalled lifestyle over decades are now, often reluctantly and sadly, calling it a day.
We have been warned about the risk of an exodus from London many times before — notably after Brexit — and thankfully it has always turned out to be a false alarm. Ultimately the appeal of London always trumped the charms of Geneva, Paris or Frankfurt.
This time it really does appear to be genuine. Even if you are sceptical, as many are, about the widely reported figures from consultants Henley & Partners suggesting the UK is losing a millionaire every 45 minutes, the anecdotal evidence is impossible to ignore. Ask any financial adviser. The scramble to leave London is real. Dubai alone has attracted tens of thousands of British expats over recent years, and not just for the weather. European countries such as Italy are also working hard to attract disillusioned London émigrés.
The impact has been profound on the top end of the capital’s property market. Prices in prime London addresses are still down more than 20 per cent on their 2014 peaks, and buyers are increasingly hard to find. Figures from analysts LonRes show the number of prime London homes for sale has ballooned 48 per cent since 2020.
The abolition of non-dom tax status — proposed by former Tory chancellor Jeremy Hunt and confirmed and doubled down on by his Labour successor Rachel Reeves in the October Budget — was the tipping point for many, but it has been a long, slow build. The tax burden on London’s wealthy has grown heavier with virtually every “fiscal event” since the financial crisis, from Alistair Darling’s tax allowance taper trap, to George Osborne’s shake-ups of stamp duty, to Reeves’s halving of the inheritance tax relief on AIM listed shares.
This autumn’s Budget will almost certainly be no exception, as the Chancellor struggles to keep within her fiscal rules while showering the largesse flagged in her spending review last week on much of the rest of the country.
There is talk of a U-turn on the non-doms, perhaps lifting their foreign assets out of the inheritance tax net. That will be welcome, but how much damage has already been done? Many Londoners and non-Londoners alike might be tempted to pick up their tiny violins and ask, “Why does any of this matter, why should we care if a few rich people flee to a mansion in another city in another country?”
But that is to profoundly misunderstand London’s role in the British economy. London has always acted as the wealth creation machine at the heart of UK PLC. Yes, it sucks in talent, but it also exports affluence, skills, and tax revenues to the rest of the country.
In 2023, London individuals and businesses contributed a net fiscal surplus of £44 billion, up from £37.9billion in 2022. The capital and the South East were the only two regions that make a net contribution to the Exchequer, helping to subsidise public spending in every other part of the UK. Meanwhile the City’s status is under threat.
Big Bang propelled the Square Mile past Wall Street to make it the world’s pre-eminent financial centre in the 1990s and 2000s. Now the City is having to fight to hold on to its leadership position even in Europe. The decision this month by Wise, the money transfer fintech giant, to switch its primary share listing from London to America, was hugely damaging symbolically. But, sadly, it was also no great surprise, following similar moves by the likes of plant hire company Ashtead and online gambling company Flutter.
Meanwhile foreign bidders and private equity, much of it American, are hoovering up long-established London-listed businesses companies on an almost daily basis. Companies are choosing to be listed outside London. It is a depressing fact, but again, not surprising, that there has been a net outflow of investment in UK equities for 95 out of the 110 quarters since Brexit. The flight of capital is averaging around £13 billion a year.
That sets up a negative feedback loop of lower share valuations that in turn makes it more likely that companies will take their share listings elsewhere. The truth is that successive Governments have neglected London for years, arguably since the financial crisis, when much of the country understandably felt disgust at the reckless activities of the relatively small number of bankers and traders that brought down the house of cards.
But the City has cleaned up its act, and the unspoken political consensus that the country can only be levelled up by levelling London down must end.
The political classes are still in thrall to the voters of the Midlands and the North who lent their support to the Leave campaign in 2016, to Boris Johnson’s Tories in 2019, to Labour in 2024 and are now perhaps preparing to offer it up to Nigel Farage’s Reform in 2029.
It will not have gone unnoticed to Londoners that voting Labour in national elections gets you very little, even when the party occupies Downing Street. Already there are ominous early signs that Reform is now making inroads in boroughs where the party has barely registered on the political dial before. The Government can no longer take London’s vote for granted.
London is not in trouble, it is a remarkably resilient city, but it is not being allowed to fulfil its potential. If the UK is to break out of the growth slow lane it needs its great capital of nine million people to be unleashed and unshackled and once again drawing in the world’s brightest talents.
Over the coming weeks the Standard will be running a series of articles online and in print outlining in more detail the challenges London and the City face in achieving this long overdue revival and how they can be tackled
