Chris Giles in the FT has a useful corrective to a commonplace nostrum that often does the rounds: namely, that the UK has become so dependent on strong performance in the financial services sector that if the Square Mile’s economy goes belly-up, it’ll take the rest of us with it. “So wealthy are the thousands of workers in the City of London, and so skilled is the Square Mile at trumpeting its success,” he writes, “you would be forgiven for thinking it represented the beating heart on which the whole country depends.”
But it’s not so, he continues:
…the City’s pivotal role in the economy is, at best, an exaggeration. Banking and finance accounted for only 5.85 per cent of the total value of the British economy in 2004, according to the Office for National Statistics, and even if insurance, pension funds and other financial services are added in, the figure reached is only just above 8 per cent of the economy.
In fact, Giles reckons, the real losers would not be “lawyers, accountants and other people in business services”, but instead Her Majesty’s Treasury:
The well-paid folk of the City contribute heavily to the exchequer because their high salaries ensure they pay more tax than they receive in services. Financial Times research this spring estimated London was running a budget surplus of 6.2 per cent of London’s gross domestic product…
[snip]
…if the City takes a nasty hit from the global credit squeeze, the big loser is likely to be the government, which is reliant on its success both for meeting its ambitious economic growth forecasts and sustaining above inflationary rises in public expenditure.