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The Best of Times: Challenges and Triumphs in British Politi, Economi and Foreign Affairs 2013-2015

The Best of Times: Challenges and Triumphs in British Politi, Economi and Foreign Affairs 2013-2015

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The Best of Times: Challenges and Triumphs in British Politi, Economi and Foreign Affairs 2013-2015

458 pagine
6 ore
May 19, 2016


Tensions simmer in the aftermath of 2008’s catastrophic financial crash. As the darkest days of the crisis fade behind us, great obstacles to prosperity remain. Mark Field’s acclaimed first book, Between the Crashes, explored the economic collapse. Now, in his new collection of essays, the City of London MP charts our progress as the economy splutters back to life, untangling the rhetoric of deficit reduction from reality, and meaningful reform from political posture.

The Best of Times traces the compromises of coalition government and the emergence of a new anti-establishment sentiment, taking in the Scottish independence referendum, UKIP’s rise and fall, and the unexpected genesis of Corbynism. Conflicts in the Middle East open a dark chapter in foreign affairs while, closer to home, a shock Conservative victory in the 2015 general election ensures a hotly debated EU referendum.

Yet, for all the surprises delivered by the past three years, today’s challenges are deeply familiar: shifting global power, generational wars and disillusionment with capitalism still threaten our prosperity. Engaging and unflinching, The Best of Times offers erudite analysis and practical solutions to the challenges facing Britain today.

May 19, 2016

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The Best of Times - Mark Field



The dawning of 2013 represented the halfway mark of the coalition government’s five year term. Formed between Conservatives and Liberal Democrats in the wake of 2010’s indeterminate general election result, the coalition’s avowed raison d’être was to unite at a time of national crisis and shut the UK’s gaping budget deficit. In 2009–10, that deficit had stood at 10.2 per cent of GDP – £154 billion in cash terms, the highest in the UK’s peacetime history. Government debt, meanwhile, hovered just under £1 trillion.

By the time of Chancellor George Osborne’s Autumn Statement in December 2012, however, it was clear that the coalition was being badly blown off course in restoring order to the public finances. Osborne’s gloomy report to the Commons revealed that the government was going to miss its debt reduction target, with public debt predicted to balloon to £1.5 trillion in 2016, some 80 per cent of GDP. Meanwhile, growth was proving elusive. After forecasting in June 2010 that real GDP growth between Q1 2010 and Q4 2012 would be 7.4 per cent, instead it had limped in at 3.5 per cent with private consumption, business investment and residential investment all undershooting the projections in the coalition’s inaugural Emergency Budget.

The Chancellor was not to mourn the closing of 2012. His downbeat Autumn Statement had followed the so-called Omnishambles Budget in March of that year, which had been sharply criticised for introducing an assortment of relatively modest taxation changes on the less wealthy – with new levies on grannies, pasties, charities and caravans – at the same time that the top rate of tax was dropped for the very highest earners.

While Osborne’s reserves of personal political capital were running low as the New Year beckoned, he was nonetheless protected by the continued weakness of his opponents. Labour Leader Ed Miliband and his shadow Chancellor Ed Balls had made some headway in narrowing the credibility gap with the Tories on the question of economic management, developing a new ‘One Nation’ theme at their October conference. However, there was scant evidence that they had convinced voters of their readiness to retake the reins of government.

Stagnation and crisis continued to plague the eurozone, with 2012 witnessing major bailouts of Greece and Spain and spiralling unemployment rates that suppressed continental demand for British exports and fuelled speculation that a domestic triple-dip recession might be on the cards. Conversely, figures showed that British jobless queues were shrinking but question marks hovered over the quality of the employment opportunities that the UK economy was now providing. Were low wages and high job insecurity the new norm for UK workers? Such anxieties fed the anti-wealth rhetoric that had stalked the nation since the financial crisis, ramping up yet more hostility towards bankers and the political elite. For all the patient and painstaking reform of the financial sector, the banking system remained dangerously fragile as 2013 approached, and the persistent failure of banks to lend to businesses led to frenzied government efforts to get credit flowing by other means.

The broader international outlook stoked the economic pessimism. US President Barack Obama’s re-election bid was successful, but Washington remained deadlocked over how to balance the US budget. As 2013 approached, the prospect of America falling off a fiscal cliff to trigger automatic spending cuts and tax rises wove fresh risk into the nascent global recovery. In China, a new era was also beginning as November saw Xi Jinping replace Hu Jintao as the new President. After a decade of jaw-dropping growth, it remained unclear how China might transition to the next stage of its economic development, weaning itself off colossal investment spending towards greater domestic consumption.

Never far from the headlines, the Middle East provided its fair share of dark clouds too as the hope of the Arab Spring chilled to an Arab Winter. The violence of President Assad against his own people showed no sign of abating in what was becoming a state of full-blown civil war in Syria. The Muslim Brotherhood’s Mohammed Morsi won the Egyptian Presidential Election, exacerbating tensions between Egypt’s secularists and Islamists, and the US Ambassador to Libya was brutally murdered as security deteriorated yet further in that nation.

Meanwhile, coalition relations were souring. A failure to secure House of Lords reform before the summer recess badly damaged Nick Clegg’s credibility with his own Liberal Democrat party. He took his revenge on his Conservative coalition partners by instructing his MPs to vote against Boundary Commission recommendations to redraw parliamentary constituencies, destroying cherished Conservative ambitions to reduce Labour’s electoral advantage by equalising constituency sizes.

Political pundits were predicting that 2013 would be another difficult year for the coalition partners, although most assumed both parties would struggle on together, if only to avoid a potentially devastating election. With the 2015 general election looming on the horizon, however, the Liberal Democrats would begin a new strategy to differentiate themselves from their coalition partners in order to stem dismal poll ratings and poor by-election performances. It was a risky approach – neither taking full ownership for coalition successes nor seeking to withdraw from the uncomfortable arrangement.

Conservatives had their own electoral worries, fearing the rise in fortunes of the UK Independence Party, which was beginning to make inroads into mainstream politics as disillusion with the Establishment deepened. Such disillusion now extended to the mainstream media, which was itself under the microscope as Lord Leveson issued his report on press freedoms, and lurid allegations about the conduct of Jimmy Savile and the BBC bubbled to the surface. With UKIP entrenching themselves and his own backbenchers baying for blood, Prime Minister David Cameron was under increasing pressure to set out his position on Europe as 2013 dawned.

Nonetheless, a triumphant summer in 2012 for the UK, which had seen the Queen’s Diamond Jubilee celebrations and the London Olympics showcase Britain’s creativity and cultural vibrancy to the world, had left a feel-good factor hanging over the capital and nation at large.

Such was the backdrop to the fresh year that beckoned and compelled my pen to return to paper to carry on from where my first book, Between the Crashes, had left off…

Corporate tax avoidance, 7 January 2013

The bailout of global banks with taxpayers’ money in the wake of 2008’s financial crisis enraged electorates across the Western world. The notion that the international elite had designed a ‘heads I win, tails you lose’ system pervaded public sentiment, and manifested itself most visibly in the Occupy protest movement whose slogan, ‘We are the 99 per cent’, drew attention to the amount of wealth now concentrated among the world’s richest one per cent.

With banks chastened and far less profitable than their pre-crash incarnations, focus shifted towards the new generation of global corporate giants and their tax arrangements. Anti-austerity group, UK Uncut, managed to close down Vodafone’s Oxford Street store in 2010 when reports surfaced of the company’s tax avoidance activities. But the issue refused to go away and by December 2012, the tax affairs of Starbucks were in the spotlight after it was revealed that in fourteen years of trading, the hugely successful coffee chain had paid only £8.6 million in UK corporation tax in spite of sales in 2011 alone of nearly £400 million. Following public outcry, Starbucks agreed to pay more – though HMRC pointed out that tax was not voluntary. The story was much bigger than coffee sales, however. US corporate giants like Google, Facebook, Amazon and Apple and many others also had their tax contributions brought into question.

The problem of how to react to this tax avoidance phenomenon in an integrated global economy, where large firms could pick and choose in which jurisdiction to base themselves, was the subject of a House of Commons debate to which I made the following contribution:

Mark Field (Cities of London & Westminster) (Con): I am rather concerned by the strongly anti-business approach to this issue shown by Members [in this debate].

I have a great deal of sympathy for the leaders of all the political parties in formulating what would be regarded as an adequate response to the hot potato of corporate tax avoidance. In today’s 24/7 media world, there is a constant demand on political figures to provide a running commentary on populist media campaigns following high-profile cases, including global businesses such as Google, Amazon and Starbucks.

I can fully understand the temptation to brand this as a moral issue, appealing to corporates’ consciences when the legislative framework has failed, but it is a temptation that we in politics should try to avoid. In sparking a debate on morality in relation to the payment of tax, I fear that elite politicians open up a dangerous flank, because it suggests that the government are either impotent or are being disingenuous in their outrage. That applies to governments of all colours. After all, Parliament must ultimately set the rules within which companies operate. The precedent that has now been set, with Starbucks paying an amount of tax that it alone has determined sufficient publicly to salve its conscience, is a very odd one.

I am very concerned about the whole idea of mob rule. We must recognise that we are a democracy and that this is the forum within which the rules should be made. We should not try to inspire mob rule, whether on the payment of tax or for any other purposes within our society.

I have lost count of the number of times that media commentators have remarked that they would be delighted to apply the same approach to their own tax affairs by paying what they feel like rather than what the government demand of them. However, I have a much wider concern – that investors will begin to sense that UK policy on tax and regulation is becoming ever more arbitrary, governed more by sentiment and the news cycle than by the strict rules that should be enforced by HMRC and ultimately by the courts. The UK should be proud of its traditional place as a bastion of commercial certainty attracting investment from every corner of the globe, and will be undermined by high-profile rows such as this.

That is not to say that all is well. As we saw in my own constituency with the protest outside St Paul’s Cathedral only a year or so ago, there is deep-seated concern that the rules of capitalism are being skewed. None of us should take this issue lightly, not least – dare I say it? – Conservative Members, as middle-class Tory voters often feel most strongly about it. To focus on arbitrary media campaigns or to invoke mob rule, as several Members have, is entirely the wrong way forward.

Too often, coalition Ministers have conflated the concepts of avoidance and evasion in debating taxation policy. The ideal solution is for aggressive tax avoidance schemes to be stopped in their tracks before they are marketed. That requires constant dialogue and the re-establishment of trust between HMRC and tax intermediaries. As a matter of urgency, therefore, the Treasury needs to promote a much better and more extensive pre-clearance regime to allow companies, individuals and tax advisers to road-test their proposed schemes. HMRC must start investing more time in developing and managing relationships with accountants and tax lawyers.

Meanwhile, the Treasury is committed at the time of the next Finance Bill to introducing general tax anti-avoidance provisions. It is clear that any such general power of anti-avoidance will feature some retrospective taxation. That is wrong in a free society, and it will risk further damaging our nation’s reputation as a free, open and transparent place to set up, develop and run businesses.

I represent a central London seat where a lot of big businesses are based and operate. Nothing is more important than encouraging independents, whether they are restaurants, wine bars or bookshops, rather than just relying on big multinationals. No one wants to see all our high streets entirely dominated by large international corporations, many of which may involve themselves in what is currently regarded as aggressive tax avoidance.

The underlying lesson is that the UK tax code and regime remains far too complicated. The godfather of tax avoidance is complexity and uncertainty in the system. When even tax experts find it impossible to understand the workings of the tax code, people begin to question whether everyone is really paying their fair share. This, in turn, creates a sense of greater acceptability in the avoiding and evading of tax. Furthermore, a complicated and opaque tax system will always be vulnerable to misrepresentation, particularly by the media, and that again weakens confidence and encourages further avoidance. People think, ‘If Amazon can get away with not paying its fair share, why should I bother to stump up?’ I can understand why that is a general sentiment, but it frustrates many of the corporates that have paid in an open and transparent manner and will ultimately undermine their whole business framework.

Government can make piecemeal efforts to address particular instances of avoidance – they can play catch-up to a certain extent – but responses tend to involve making the entire system far more complex, thereby reinforcing the very factors that have driven avoidance in the first place, displacing the activity and giving rise to a whole set of new avoidance techniques. Instead, the government need to take an entirely different and fresh approach. They should look at how they can overhaul the entire system so that avoidance and evasion offer a similar, smaller reward and will therefore be seen as far less acceptable. Fundamentally, that can mean only lower taxes and a radically simplified tax code. For example, a single income tax applicable to income, however it is received, at the same single rate is the best way of stripping out of the system any incentive to avoid income tax. A simpler tax code would also free up HMRC resources to concentrate on tackling the real problem of tax evasion while making transgressions easier to identify.

It has been a pleasure to make a brief contribution to this debate on an important issue to which we must all return. However, I am concerned that too much of the rhetoric coming from this place almost suggests a sense of powerlessness that gives rise to the view that there is an aggressive anti-business approach in this country. We do need to have a thriving business sector. Global businesses can, of course, choose where they locate their business. We should be proud in this country of having a track record of being open to business, but I also accept that we want to ensure that businesses pay their fair share, because we have a huge deficit and a huge debt that has to be paid off if we are not to burden future generations.

I hope that we will look at the whole issue with that in mind, but above all I hope that the Treasury will take on board the idea that HMRC needs to have an approach that is much more open to the pre-clearance I referred to. We must also, as a matter of urgency, look at the complications in our tax code that are allowing some of the high-profile avoidance to take place.

The first skirmish of many?, 21 January 2013

In 2010, I was appointed by the Prime Minister to parliament’s Intelligence and Security Committee which scrutinises the work of MI5, MI6 and GCHQ. Fellow committee members included former Labour Cabinet Minister Hazel Blears and former Liberal Democrat leader Sir Menzies Campbell. We were expertly chaired by ex-Foreign Secretary Sir Malcolm Rifkind, and in our five-year term were tasked with examining many of the issues relating to Islamist terrorism and the use of communications data by the security services. My role on the ISC broadened my knowledge and understanding of the politics and security situation in vast tracts of the Middle East and Africa, particularly with regard to the terror groups operating there.

At the beginning of 2013, al-Qaeda-linked militants attacked the In Amenas gas plant in Algeria, close to the border with Libya. A siege began and over 800 staff at the jointly run BP, Statoil and Sonatrach plant were taken hostage. By the time Algerian Special Forces stormed the compound four days later, forty staff and twenty-nine militants had been killed. The demands of the terrorists for an immediate end to French military operations against Islamists in northern Mali woke the world up to the sheer geographical reach of Islamist terrorism, which was now fomenting fear in nations from Nigeria to Indonesia.

Thankfully, few people have to endure the unimaginable terror that beset our nation’s hostages and waiting relatives as the In Amenas gas plant siege dragged on last week. In a world of relentlessly demanding 24/7 media coverage, the frustration of senior government ministers was palpable, as unreliable, piecemeal information trickled through from Algeria.

While today’s attention rightly focuses upon the bereaved, little time should be lost in developing a diplomatic and intelligence strategy in this region. For we shall hear much more of al-Qaeda in the Islamic Maghreb (AQIM) and the Nigerian fundamentalist terror group, Boko Haram, in the months ahead.

The sheer vastness of this part of north Africa is best illustrated by the fact that Algeria’s capital, Algiers, is nearer to London than it is to that nation’s southern-most districts. Indeed the utter remoteness of the In Amenas complex meant that any plans to engage British, French or US special services in the hostage rescue were fanciful. Besides, after a brutal civil war in the 1990s, the Algerian security forces are highly experienced, albeit uncompromising. Moreover, the lesson that the Algerian government will have learned from the West’s treatment of one-time ally Colonel Gaddafi in neighbouring Libya is to act ruthlessly in the face of any perceived insurgency. It understandably fears similar betrayal by France (its old colonial master) and the West. So any suggestion that the so-called ‘Arab Spring’ might have extended to Algeria would have led to Western military assistance to rebel forces, in which AQIM would almost certainly have featured. What message would the Algerian government have been sending to its own people over recent days if it had allowed protracted negotiations over the siege or foreign armed forces to engage on Algerian soil?

The French decision to commence military action in Mali may well have brought forward the attack on the Algerian gas refinery, but its sophistication clearly means such an operation had been long in the planning. Arguably, the US and Western success in deconstructing al-Qaeda’s strongholds in Pakistan and Afghanistan over the last decade or so has resulted in its reorientation in both the Arab Peninsula (particularly Yemen) and more recently in the Maghreb and Sahel. Inevitably, these developments have stretched further our military and intelligence resources. To a large extent, reflecting historical ties in the region, the UK has sub-contracted some of the responsibility for strategic security to the French. However, if, as widely feared, the conflict in Algeria, Mali and Chad extends to Nigeria, then more significant UK commercial interests will be directly threatened. The largely Muslim north of Nigeria is increasingly under the control of the fundamentalist Boko Haram, whose separatist goals have resulted in a refugee crisis and desperate food shortages. This regional instability will require the UK government and our allies, especially the US and France, to embark upon a patient campaign to win hearts and minds. This will require judicious use of our international development budget and an intensification of diplomatic efforts and intelligence gathering and sharing.

Significant numbers of UK nationals live and work in Algeria and neighbouring states. They are by no means exclusively employed in the oil/gas and mineral sectors, whose international importance is likely to increase in the foreseeable future.

This is going to be a long and thankless diplomatic haul requiring boundless patience and a remorseless eye on the long-term. But if we can learn the lessons of our mistakes during the last ten years in Afghanistan, Iraq and Libya, the UK will be safer in the decades ahead.

Bash the banks and global companies if you must, but we need them more than ever, 2 February 2013

January 2013 proved a seminal month in David Cameron’s leadership. In a long-awaited speech on Europe, delivered at Bloomberg’s City headquarters, the Prime Minister confirmed plans to renegotiate the UK’s membership of the European Union before holding an in–out referendum by the end of 2017. With this bold intervention, he hoped to quell the criticism of right-wingers in his own party who were fearful of being outflanked by UKIP in the affections of an increasingly Eurosceptic public. Yet in expressing his own preference to remain in the EU, doubt was cast over just how significant any renegotiation concessions might be.

Receiving acclaim among the British press for his pledge, Cameron simultaneously threw a blanket of uncertainty over the UK economy and international relationships, as well as a fresh spanner in the works of any potential post-2015 coalition. Nonetheless, many pundits speculated that given the electoral mountain Conservatives would have to climb ever to secure a working majority, the Prime Minister may already have calculated he would be unlikely ever have to honour his own promise.

Only days after the Bloomberg speech, Cameron flew to the World Economic Forum in Davos where he committed the UK to leading a global clampdown on tax avoidance, telling global corporations to ‘wake up and smell the coffee’ and arguing that the G8 needed to cooperate in stopping the ‘travelling bandwagon’ of accountants and lawyers who assisted firms in exploiting loopholes and moving between favourable tax jurisdictions. Later that evening, it was revealed that the UK economy had gone into reverse by 0.3 per cent in the final quarter of 2012. The Chancellor reminded the public that there was a difficult path ahead.

Berate banks and bankers if you wish.

Slate the tax arrangements of large multinationals, whose contributions in VAT and employers’ national insurance remains substantial, even if their corporate tax contributions (thanks to a hopelessly complicated UK tax code) fall short of that demanded by a print media (whose own holding companies are operated by tax-efficient trust).

But for so long as UK governments of any colour remain addicted to spending well beyond our means, then we are in hock to both banks and global corporations. For even as the annual ritual of banker bonus baiting is upon us, it is these institutions that are integral to the market system that feeds the national borrowing and spending addiction.

The harsh truth is that the clamour for ever-greater public expenditure is the biggest roadblock to meaningful reform of our banks.

The government’s attempts to kick-start bank activity via the Funding for Lending scheme have delivered some success in the area of subsidised mortgages (albeit largely where borrowers have existing significant equity holdings). More faltering has been progress at lending into the real economy.

As bank manager after bank manager has told me, the trouble is that for all their plans to lend more widely there are relatively few borrowers in the market place at the moment. Confidence remains elusive. Meanwhile the twin burdens of tax and fears as to rising interest rates are dissuading many companies from investing for the future.

The big retail banks remain fearful of the next toxic legacy of the boom years of the noughties that will begin to unravel. PFI, LIBOR, interest rate swaps and other synthetic derivative products will no doubt be joined by a range of other novel financial products that were marketed in the past, but with the benefit of 20:20 hindsight will be regarded as missold. If in future banks are terrified at the prospect of any sort of innovation, we should not be surprised to see their profits plummet permanently. The prospect of several new waves of class action litigation claims arises at the very time we desperately need banks to lend normally. If certainty and stability do not return to the world of financial services, there is precious little prospect of the UK enjoying the future economic wellbeing that is created by growth.

Few would dispute David Cameron’s recent proclamation at Davos that when it comes to paying tax, large multinationals need to ‘smell the coffee’.

However, taking such a political stance has its risks – not that anyone should be overly concerned at the knee-jerk reaction by many FTSE 250 communications directors in the immediate aftermath, arguing that UK Plc was being ‘talked down’.

A more legitimate concern is the hazard that tax and regulation becomes arbitrary. One of our nation’s greatest assets as a place to do business is our reputation as predictable, reliable, certain and underpinned by the rule of law. We undermine that timeless tradition as an open place to trade and prosper at our peril.

If large international corporations are arranging their affairs to avoid paying their ‘fair share’ of tax, the government should cease moralising and get back to legislating such loopholes out of existence. Naturally, the sheer complexity and size of the UK tax code, now larger even than the once-derided Indian version, has been the creator of the highly remunerated Guild of Tax Avoiders.

What should worry us most is that once the tax authorities are empowered to make ethical judgements on the affairs of global corporations, before long they will turn their attention to ordinary taxpayers who have every right to feel that, once settled, their tax affairs should not be re-opened on a whim.

This perceived imbalance between the rewards for success and the risks of failure is the essential roadblock to restoring confidence in our small, medium-sized and growing business sectors. Without it, economic recovery will remain tantalisingly elusive.

London under threat from a European banking union?, 5 February 2013

I was asked by the French Chamber of Commerce to write the following article for their magazine, INFO. They were keen for my perspective as the City’s MP on whether London’s position as Europe’s financial hub was under threat by the prospect of banking union among eurozone members.

As the eurozone crisis had worn on, it had become ever clearer that the single currency’s problems were unlikely to be solved unless there was greater financial and political integration between its members. A vicious cycle had developed because of an interdependency between sovereign credit and bank credit that needed desperately to be broken. Since one of the key ways of judging a bank’s strength was to look at the likely support the sovereign would provide in the face of imminent collapse, the fragile banking system was putting enormous strain on national finances and making credit scarce. In crippling any possibility of growth in the wider economy, sovereigns were further weakened, reinfecting banks which held large sums of sovereign debt.

To break this pattern, the process of banking union was initiated in June 2012 at a euro-member summit, shortly after another Greek election. This summit made way for banking supervisory authority to be centralised within the European Central Bank (ECB), moving most regulatory decision-making for euro-area banks from national to European authorities. The banking union was to be defined by two specific policies – the Single Supervisory Mechanism (SSM) and Single Resolution Mechanism (SRM). The SSM transferred a number of supervisory duties and the power to grant or withdraw banking licences from national authorities to the ECB. The SRM, on the other hand, was intended to centralise authority in dealing with non-viable banks.

By that July, the ECB President, Mario Draghi, declared that the ‘ECB is ready to do whatever it takes to preserve the euro’. With markets reassured that this would include buying large amounts of the sovereign bonds of the euro’s weakest members, Draghi hoped finally to initiate a positive cycle fuelled by greater market confidence.

Spiralling borrowing costs in Spain and Italy; protests in Greece; questions over French finances; growing German unease about its liability for eurozone debts. All these ingredients contributed to a poisonous cocktail in 2012 of deepening financial uncertainty.

As the UK economy limped through the last twelve months, dire trade figures and weak confidence were blamed largely on that continental uncertainty. It has been of no surprise that the official line in London has been to welcome any moves that might precipitate the end of the eurozone crisis. The break-up of the euro – which would undoubtedly inflict significant short-term pain on the City of London, the UK’s famous financial district – remains the British government’s greatest immediate fear. Forget triumphalism about the UK staying out of the single currency. Britain’s key trading partners remain European. If they suffer, so too does the UK’s forlorn hope of export-led growth.

Nevertheless, the greater existential threat to the UK comes from a successful banking and fiscal union among eurozone members. Before the 2008 financial crisis, the City of London drew envious glances from Frankfurt and Paris and was the great success story of the British economy. In spite of all the upheaval that followed the global credit crunch, by 2010 the financial and associated professional services sector was still contributing 14 per cent to the UK’s GDP, comprised 7 per cent of total UK employment and contributed £63 billion in tax revenue. To give some idea of the extent of its domination of European financial services, the City is responsible for half of all investment banking on the European continent, with the UK trading twice as many Euros as all the eurozone countries combined. In 2011 the UK’s financial services trade surplus with the EU totalled £17.6 billion. But it is not at all clear whether this dominance can continue should the eurozone successfully complete its march towards fully fledged banking union.

In December, European member states agreed the shape of the future Single Supervisory Mechanism that will pave the way from 2014 for the European Central Bank to oversee systemically important eurozone credit institutions. The UK, along with the Czech Republic and Sweden, has chosen to opt out of the SSM and has been given firm assurances over the preservation both of the Single Market and non-euro member states’ voices over European regulation. Yet the sustainability of this position remains unclear.

These first tentative steps towards banking union do not currently pose an unmanageable threat to the UK’s lead in financial services. Nor is the Single Market in immediate danger. Nevertheless, these opening stages represent the start of a process that poses longer-term risks to the City of London, the UK economy and Britain’s ongoing membership of the Union.

Since the Single Market is the biggest pull factor of the EU for Britain, the threat of it being undermined by a multi-speed Europe has triggered momentous debate within the UK about whether ever-closer union between our partners pushes Britain inevitably towards the exit door. That debate went up a gear last month when Prime Minister David Cameron announced that he would hold an in/out referendum on UK membership of the EU within five years. The case in favour in the run-up to such a referendum will hold so long as the UK electorate perceives its economic interests to be served by EU membership. The moment that economic case diminishes, we should not be surprised if a clamour for Britain’s exit from the EU quickly follows.

In the meantime, British domestic grandstanding risks having a significant impact on diplomatic relations with our fellow member states, potentially spurring a self-fulfilling prophecy as Britain’s ability to influence in its favour the outcome of the eurozone crisis and the future direction of the Union declines as a result. The Prime Minister’s position has already undermined confidence that the UK is committed to shaping Europe’s direction and has a strategy when it comes to maintaining British influence.

The City of London boasts many powerful competitive advantages over its continental counterparts that include a skilled workforce, sophisticated legal system, deeply liquid markets and an international outlook. As a result, many believe that the City has the critical mass to ensure that the UK will play a leading role in global finance for decades to come, no matter what happens on the continent. Nevertheless, since the 2008 crash, the eurozone has understandably demanded greater oversight of its financial infrastructure. Awkward questions have been raised about the ability of London and UK financial services regulators to prevent the system silting up and whether it is sustainable (or desirable) for euro-denominated risk to be cleared offshore in the British capital. In turn, the City has questioned how long it might feasibly avoid being infected by the numerous directives being churned out by the EU to create common financial standards without its global competitiveness being fundamentally damaged. Those question marks only multiply with each step closer to eurozone banking union, putting at risk the City’s global status.

History also teaches Britain that economic upheavals are often regarded as too good an opportunity to waste for ambitious European statesmen seeking to impose a wider political agenda. Talk of a transaction tax to be applied throughout the EU would probably represent only the first such salvo. We have already seen too a land grab by the Paris-based European Securities and Markets Authority, which may start sabre-rattling when it comes to the question of which financial entities and products pose systemic risk. To hope that the UK would have any real clout in an EU with fiscally integrated eurozone members would be hopelessly naïve. The City of London is only too aware of the risk of losing business from regulatory arbitrage, having benefited so handsomely in the past from US regulatory clampdowns on Wall Street.

London’s position as Europe’s leading international financial and business centre is crucial to sustaining jobs and growth – not just in the UK but across the continent. Uncertainty over this relationship with Europe, intensified by the prospect of banking union, risks making the UK less attractive as an international centre across many industries – not just financial and professional services.

As nations in the

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