City of London Corporation letter to the Chancellor of the Exchequer
The City of London Corporation recently submitted a letter to the Chancellor of the Exchequer ahead of the Budget on 22 November. The text by Policy Chairman Catherine McGuinness can be found below. In this letter, the Corporation is calling for:
- Effective bridging and adaptation periods so businesses can prepare for transition after Brexit in March 2019.
- Transition, trade and talent at the heart of delivering a smooth and orderly Brexit.
- The lowering of tax rates for corporate treasury centres to make the UK competitive and attract additional corporate treasury centres from Asia and elsewhere.
- Certainty and stability for businesses over tax changes. The setting of parameters for future tax changes, their simplification and their evolution, will aid business investment and location decisions.
- A further round of devolution for London government, particularly in terms of education, skills and employability.
- A new a bespoke London Commission to look at the much longer term infrastructure needs of the capital.
The timetable for business to prepare for transition is tightening very rapidly. This means we must have agreement with the EU on transition before the end of 2017.
For the City of London Corporation, and the range of businesses we work with, the focus should remain on effective bridging and adaptation periods to allow for a smooth, orderly Brexit; mutual market access based on mutual recognition and regulatory co-operation; and access to global talent. Our priorities can be summarised as transition, trade and talent.
On transition, it is critical for the UK-based financial and related professional services industry, and for other UK and EU businesses, to have urgent clarity from the UK and the EU27 on time-limited, legally-binding transitional arrangements and the principles underpinning them. While businesses will have different cut-off points for activating contingency plans, clarity will be needed by the end of this year. A transitional period as close as possible to the status quo, and that provides a continuation of current mutual market access arrangements, will avoid two sets of costly adaptation phases. For businesses that have already begun activating contingency plans, clarity on transition will allow them to decelerate those plans. For others, it may help them avoid taking unnecessary contingency measures entirely. The earlier transitional arrangements are agreed, the more value they will have for businesses and their customers.
On trade, both the EU and the UK have, in their own ways, expressed the desire to secure future arrangements for free trade in financial services. An enhanced FTA as proposed by the recent report from the International Regulatory Strategy Group (chaired by Mark Hoban) is technically and legally feasible, and would properly form a financial services ‘chapter’ of a wider EU/UK agreement. Indeed, the cross-border supply of financial services under the FTA envisaged by the report, using the parties’ uniquely aligned starting point as a means to develop a detailed and workable template, could be a catalyst for accelerating other discussions. The EU has the ability to form such an agreement under existing treaties, and it would, at the very least, constitute the basis for a transitional arrangement, or bridge towards a foreseeable future relationship with the UK.
On talent, we have an unequalled pool of global talent and expertise assembled in the UK. This is a major competitive advantage that we cannot afford to lose on the world stage. To retain its status as an attractive global financial centre, the UK needs continued access to the best talent: home-grown, from across the EU and from the rest of the world. As I have been told forcefully, a wide range of potential staff is a key factor for firms locating in the UK. This is also critical to the UK’s future strength as a successful exporter and provider of low cost capital to Europe. The industry supports the aim of the UK Government to provide reassurance over the status of EU nationals, and of British nationals in the EU, as an early outcome from the Brexit negotiations. UK immigration policy should be designed to broaden the future pool of international talent that the industry can access.
Economic policy must continue in parallel and help prepare the country for its post-Brexit future. Here are some points that I hope you and your Treasury teams will be able to consider.
Brexit and Corporate Treasury
Brexit discussions involving the City inevitably focus on banks, asset managers, insurance companies, legal and accountancy firms. Their retention is critical to London’s future status as a global financial centre. Equally, investor retention is critical to keeping these financial and professional service firms.
One such investor group is corporate treasury. In particular, as Asian businesses expand overseas, they have the opportunity to locate their corporate treasury centres (CTC’s) outside of their headquarters location. This makes sense in particular where capital accounts are not open, such as China, India and much of ASEAN, and our extensive work in Asia has highlighted this.
The UK offers a tax rate of 17% for CTC’s where Singapore offers 8% and, since June 2016, Hong Kong offers 8.25%. Tax is obviously not their only consideration. CTCs choose London as their global corporate treasury centre based on the access to international talent, foreign exchange pools, banking efficiency, access to capital markets and product diversity in various currencies.
But lowering tax rates for CTCs will make the UK competitive and attract additional corporate treasury centres from Asia and elsewhere. Making CTC tax rates competitive will allow London to win more business from Asian rivals.
During a period where China is promoting the Belt and Road Initiative, Chinese corporates will increasingly be looking to deploy capital and forge new business. London’s role as the number one global foreign exchange centre and its status as largest western centre for offshore RMB, make it an excellent choice to develop a CTC. This lowers the cost of capital for all and goes to ensuring London’s global financial centre role post-Brexit.
With existing uncertainty and development of contingency plans by firms for a range of scenarios, the Treasury should be sensitive to the danger that further levies would mean for both retention and competitiveness. The City has already been required to make significant contributions through the banks’ and the disproportionate effect of the business rates revaluation, and the present uncertainty and sensitivity is not the time to impose additional burdens on the sector.
Where it’s possible to lower the overall taxation burden we would urge you to, but we realise that this must be balanced with the need for revenue and continued deficit reduction.
The principles established in the Business Tax Road Map by your predecessor remain very valuable. During 2018 and 2019 businesses will need as much certainty and stability as can be provided. We appreciate that you will be unable to fix taxes, as the economy navigates choppy waters, but setting parameters for them, their simplification and their evolution, will aid business investment and location decisions.
Fiscal policy must go beyond Brexit considerations to help ensure the UK’s continued competitiveness more broadly, and tax policy is a fundamental part of this.
Devolution and Business Rates
We welcome this government’s commitment to devolution and in particular Memorandum of Understanding agreed with London government and published alongside the Spring Budget. Not only does this give the chance to the Mayor, the boroughs and the City Corporation to implement innovative policies locally, it also gives us the chance to enhance the role of the capital as a major driver of economic growth for the rest of the UK.
Your next Budget is a golden opportunity to bring forward a proposal, or advance discussions, on a further round of devolution for London government, particularly in terms of education, skills and employability. This will help the capital to grow and to address its particular skills needs, as well as get more young people into work.
The City Corporation has also recently signified its in-principle support for a 100% rates retention pilot and accompanying business rates pool in London (subject to continued recognition of the particular circumstances of the City in the rating system). While many detailed matters remain to be discussed and agreed, this scheme could provide a platform for further devolution to the capital and enable London government to assume greater responsibility for driving economic development, for instance through decisions on infrastructure.
It would be useful if you could provide clarity on the future devolution of business rates, and indeed the status of the Local Government Bill, when you deliver the Budget.
A key part of maintaining London and the UK’s competitiveness is improving the capital’s transport infrastructure and connectivity with the rest of the country.
It is vital for London’s global competitiveness that it expands its airport capacity, which will support trade and business links with the rest of the world for the whole of the UK. We strongly support commitment to a new runway at Heathrow and this expansion must be delivered as quickly as possible, providing the capital and the country with a world class international business travel hub.
We also look forward to the opening of the Elizabeth Line following the City Corporation’s financial support for the Crossrail project and welcome the Government’s commitment to the building of HS2, improving London’s transport links with other cities. Quicker progress must be made to get Crossrail 2 started and we would like to hear initial proposals from Government, promised in the previous Autumn Statement, for how this would be funded.
Whilst pushing these schemes forward, we must have an eye on the next generation of integrated infrastructure we need, transport, utilities and housing – pushing well into the post-Brexit future – and anticipating that which is required for the pressures and opportunities of a renewed global role. Significant investment will certainly be needed beyond existing commitments.
The National Infrastructure Commission’s Transport for a World City was still essentially quite near term in its recommendations – we feel that either they, or new a bespoke London Commission, should look at the much longer term needs of the capital.
The next few years will be historically defining for the City, for London as our capital and for the country at large. This period will be crucial for the financial and professional services industry in the UK too, for the role they play both domestically and of course internationally.
On the renewed world stage, where new markets present opportunities, and where the Corporation and firms are already innovating in areas such as fintech and green finance, financial services have a huge amount to contribute to the future economic growth and success of the UK.
This Budget is an opportunity we believe to do three things:
• Competitiveness – where we can attract specific investor audiences through small changes
• Certainty – in an agreed Brexit transition and through keeping taxes stable
• Connectivity – through prioritised major schemes and longer term insight to support growth
We look forward to continuing to work with you and the Government.
Chairman of Policy and Resources
City of London Corporation