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If “a week is a long time in politics”, as Harold Wilson, one of Keir Starmer’s few predecessors as Labour prime minister, quipped half a century ago, then a year in banking is certainly a very long time.
Just 12 months ago commentators were writing admiringly of the financial services build-up that Paris had achieved at London’s expense. It was hailed as a golden period for the French capital, as President Emmanuel Macron and his finance minister Bruno Le Maire succeeded in their strategic pitch to lure finance jobs from post-Brexit Britain. The big five US investment banks moved at least 1,600 staff to Paris, according to Financial Times calculations.
Now, the twin election results in the UK and France threaten to reverse the relative appeal of the capital cities. In Sunday’s legislative plebiscite, the French electorate retreated from making the far-right Rassemblement National the biggest party in parliament, as seemed likely. But the resulting triumph for the leftist alliance, with its high-tax, high-spend agenda, could be even more of a threat for the interests of business and finance.
Macron’s original pitch to London bankers was based on three pillars: lower taxes, stable politics and increased labour market flexibility. He delivered on the last of those in the days before the election. But the first two have been thoroughly undermined, in large part because of a popular backlash against the them-and-us society that Macron’s policies produced.
Much of the City of London, meanwhile, is relieved that the tumultuous Conservative rule of recent years is over: the market chaos that followed Liz Truss’s unfunded mini-Budget and the costly impediments imposed by Brexit mattered far more than any promises of deregulation.
Starmer’s Labour administration spent many months in the run-up to the election convincing the City that they will be a source of stability and predictability. More productively, chancellor Rachel Reeves’s plan to boost strategic investment across the economy by facilitating private sector financing is going to be crucial. It is a principle that senior City figures are eager to support. “We would like to see engagement with the sector to help drive investment in the UK,” said Clare Woodman, who heads Morgan Stanley in Europe, the Middle East and Africa.
Another priority for international financiers is the smoothing of relations with the EU. They have taken heart that Starmer has declared this a priority.
“Banks would like to see relations with Europe rebuilt, so that mutual market access is improved and we can seamlessly operate cross-border without inefficient cost duplication,” said one bank boss, bemoaning that services were neglected in former prime minister Boris Johnson’s Brexit agreement. Currently, banks in the UK and the EU have to double up on staff, functions and capital across the two jurisdictions.
Segments of the City and the broader business community are, of course, concerned by potentially costly tax increases and what they see as a likely reversion to Labour’s more traditional tax-and-spend approach. Although Reeves has ruled out income tax, national insurance or VAT increases, there are suspicions that capital gains and inheritance tax regimes could be made more punitive. Already “non-dom” tax breaks are being dismantled. And the private equity industry has been alarmed by Reeves’s plan to clamp down on so-called carried interest being taxed as capital rather than income.
But even here, tempers have been calmed by the promise of consultation. “On tax engagement, we’re encouraged,” says Michael Moore, who heads the BVCA lobby group for the buyout industry.
It is hard to find a French banker today who will talk bullishly about the outlook for the French government. The banking jobs that relocated to Paris are probably secure for now — most are internationally focused and are independent of the French domestic outlook. But if Starmer and Reeves deliver their plan successfully, future growth prospects — both for the City and the broader economy the City serves — may well outstrip the French competition.
