Who loses if the City slumps?

by | Oct 1, 2007


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.

Author

  • Alex Evans is founder of Larger Us, which explores how we can use psychology to reduce political tribalism and polarisation, a senior fellow at New York University, and author of The Myth Gap: What Happens When Evidence and Arguments Aren’t Enough? (Penguin, 2017). He is a former Campaign Director of the 50 million member global citizen’s movement Avaaz, special adviser to two UK Cabinet Ministers, climate expert in the UN Secretary-General’s office, and was Research Director for the Business Commission on Sustainable Development. Alex lives with his wife and two children in Yorkshire.


More from Global Dashboard

Let’s make climate a culture war!

Let’s make climate a culture war!

If the politics of climate change end up polarised, is that so bad?  No – it’s disastrous. Or so I’ve long thought. Look at the US – where climate is even more polarised than abortion. Result: decades of flip flopping. Ambition under Clinton; reversal...