Bob Wigley, chairman, UK Finance
If we look at all the factors that have gone into why London has been so successful as a global financial centre historically, not much has changed, and many of them have become even more important in the context of Brexit. Let me highlight four key areas.
The first is a supportive tax legal and regulatory context. Probably the single most important thing within that is to have an internationally competitive corporation tax rate. Whether Brexit is a risk to the corporation tax rate is an interesting question; I would say probably the bigger risk on the horizon regarding tax would be a Labour government.
The next thing is the predictability of the tax regime. We absolutely need to focus on predictability, and making sure that we are clear on not just what’s called the roadmap for taxation: so not just what we’re going to do this year and next year, but what are we going to do for the next five or 10 years.
The regulatory system, and the reputation of it, was always very strong up until the financial crisis, when it obviously took a knock. The question is: what will happen post-Brexit? We think the mantra for London and the UK more generally post-Brexit is to be the safest and most transparent place to conduct financial services business in the world, and for that you need a world-class regulatory system that is upheld and supported by its major financial participants.
We also need labour laws that are flexible and do not punish cyclicality. The financial service industry is highly cyclical: every five or six years, you need to lay people off. One of the advantages of London over other European centres was that it was faster and less expensive to do that here than it was elsewhere. We need to keep an eye on that always.
Openness to foreign ownership is somewhat under threat. Since the Cadbury transaction, there’s been talk about bringing new laws to create a sort of national interest test for takeovers and extend it further. Again, we need to think about that in the context of the post-Brexit world.
Open immigration was a historic factor, and is clearly a danger now post-Brexit, particularly to the fintech sector. We have in London the company Blockchain, which is the biggest blockchain company in the world based here, has a pool of coders three times the size of the next biggest blockchain company in the world, which is based in the US. If we can’t bring people in to code for that company, we will miss creating one of the few potential unicorns that London has ever had the potential to create in this technological world.
Finally, a stable, fair, clean, reliable legal framework is crucial: I think that’s pretty safe for now.
Jin Xu, minister counsellor, Chinese embassy in the UK
I’m from the commercial section of the Chinese embassy, and [we are seeing] so many more Chinese people, especially businesspeople, coming to the UK. They come here to buy, to enjoy the culture and to see different cities. Also, more and more Chinese people send their children to study here. Now the UK is the second largest destination for Chinese students. We have nearly 200,000 people starting not only in London but also in every university in the UK, even in some very remote areas. I think the reason Chinese people love the UK is because of the legal system and the language, and also people love the culture here. Last year more than a million Chinese people visited the UK.
We also try very hard to build stronger relations, especially since 2015. Chinese president Xi Jinping visited the UK, and we have started a ‘golden era’ of co-operation between China and the UK. We hope that after Brexit, the UK can have more flexibility on policies, for example, to talk about a free trade agreement with China. That could help the relationship between China and the UK become even stronger. We are very optimistic about our [shared] future, including the post-Brexit economy here.
Daniel Cowen, head of financial services, China Prosperity Programme, British Embassy Beijing
I like to think that British people are quite pragmatic and straightforward when it comes to doing business, and we will continue to be so. We will continue to be ourselves. At a time when other countries in the world are closing up, the UK is becoming more open to opportunity.
As minister Jin also mentioned, the fantastic rate of international participation in our education markets is important. The UK is not only home to some of the best educational institutions in the world, but these also support some of the best innovation centres and [create] new industries and new opportunities for businesses to invest in. While research levels will need to be maintained and improved, the UK’s ingenuity is something that has seen it become one of the world’s largest economies for centuries, and is something that will continue.
That said, I think there are challenges, and any challenges present opportunities. As we leave the EU, there are elements where we could be more open to foreign involvement and foreign engagement within the UK. For instance, in the area of financial services particularly, looking at a low corporation tax rate is indeed important, and I would imagine that there would be similar rates across the EU.
But then we come to the element of something such as withholding tax, which on dividends is lower than other areas of the EU. If there become disparities between the UK and other countries, we’ll find that companies pay accountants lots of money to figure out the most tax-efficient way to manage their money, and they may divert some of their earnings away from the UK, whereas otherwise they would have been here as part of a union.
There would need to be a continual update to make sure that we’re competitive with EU and other countries, but also that we’re pragmatic.
We are going out into the world and this is a new area. There will be areas of uncertainty, but there will also be new opportunities. One is in building stronger relationships with partners individually on a EU-to-UK basis, but also on a more global basis across the Commonwealth [and elsewhere, including China]. Building the UK’s success beyond the shores of the EU is really going to be the priority for the future.
In summary, I would say that we maintain our strengths, there will be bumps along the road, but provided we are pragmatic and continue to act as we always have done, rising to these challenges and taking advantage of fresh opportunities, strengthening relationships with long-time friends overseas, I think that’s a strong recipe for future success and shared prosperity.
Rupert Gather, CEO, InvestUK
Private clients [like the ones we advise] are a bellwether because we’re talking to individual entrepreneurs and investors, and a lot of these points keep coming up and up again. We identify language, law and learning as being the three great drivers of investment into the UK. Of those three, education is absolutely fundamental, as has been mentioned.
I think there’s one other point that was not so much a private client point, but one that comes up a lot. Many Chinese investors are acutely aware that China is 74th in the league table of ease of doing business [according to the World Bank], and I think the UK was third or fourth. This really matters to people, and if you connect all the dots, it’s about a basket of things that make the country successful.
The panel discussion took place in May 2018 as part of a dinner series hosted by InvestUK and chaired by fDi Magazine.