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London Tops Financial Centre League, But Tax Concerns Persist

by Robert Lee,, London

16 March 2007

New research has put London at the top of an index comparing the competitiveness of 46 of the world’s financial cities.

The Global Financial Centres Index (conducted by Z/Yen for the City of London Corporation with additional data from PricewaterhouseCoopers), was launched on Thursday, and showed London and New York as the only two truly global financial centres, ahead of the two Asian centres of Hong Kong (3rd place) and Singapore (4th place). Zurich was in 5th place, just ahead of Frankfurt.

London is currently ranked ahead of New York by five points and, according to the research, led in all five areas of competitiveness – people, business environment, market access, infrastructure and general competitiveness.

However, the report highlighted widespread concerns about the UK tax regime, relative to its competitors, adding to the growing body of anecdotal evidence cited by the country's business leaders that companies are increasingly looking to more tax-favourable jurisidctions from which to operate. The Institute of Directors has recently warned that the UK's tax burden is fast approaching a "tipping point," while the Confederation of British Industry has similarly called on the government to end the slide in the UK's tax competitiveness.

Michael Snyder, Chairman of Policy and Resources at the City of London Corporation which represents UK financial services, and which commissioned the research, argued that: “To maintain competitiveness, the UK must take action to address concerns over its corporate tax environment.”

The GFCI shows a change in emphasis regarding the areas of competitiveness. Currently, the regulatory and tax environments are judged to be the biggest contributors to overall competitiveness. This compares to the City of London’s 2005 report 'The Competitive Position of London as a Global Financial Centre', in which respondents rated people and skills as the most important factors in competitiveness.

It also highlights the changing nature of Asian financial market, with Hong Kong rated third and considered to be a real contender to become a global financial centre. Singapore falls in fourth place, with the emerging markets of Shanghai (24th place) and Beijing (36th place) some way further down the table.

Mr Snyder added: "This index will prove to be an invaluable tool for tracking changing fortunes and perceptions of financial centres.”

Other key findings from the research show that Shanghai and Tokyo are unlikely to be global centres, but Hong Kong seems the most likely Asian city to emerge – assisted by a strong regulatory system and a well-skilled financial services workforce. However, the future of Asia is still the "subject of conjecture" according to the report.

The report also found that commercial property prices in London are not currently hindering competitiveness in financial services, although the London is falling behind other cities when it comes to the development of its transport network.

The GFCI is the first of what will be a biannual index of competitiveness for 46 world financial centres, charting how they rate relative to each other on an ongoing basis.

The index brings together the results of online surveys completed by financial services leaders and 47 separate indices of competitiveness. Further surveys will follow, incorporating greater geographical coverage and additional instrumental factors.

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