Birmingham isn’t famous for much. Heavy Metal. Balti houses. A distinctive accent. And a complicated motorway system. In a few years, however, it may be better known for gleaming skyscrapers, champagne bars, and dealing floors. Britain’s second city is targeting financial service as the key industry for its new enterprise zone – one of the first under a new government scheme to offer tax breaks to regional centres.
It is a good idea. Finance is one of the industries that Britain does well, but it is far too concentrated in London and the southeast. Regional centres such as Birmingham have a proud history of financial innovation. The trouble is, a few minor tax breaks are not going to persuade banks and fund managers to move there.
Instead, the government should be willing to make the kind of irresistible offer that finance houses simply could not refuse. It would make a lot more sense than pointless pieces of grandiose infrastructure, such as the proposed high-speed rail line.
Initially, most bankers would probably react with horror to the idea of moving to Birmingham. Assailed by the European Union, and with their bonuses under threat, they have probably been checking the flight schedules to Singapore, or Grand Cayman, rather than the train timetables from Euston. Birmingham’s dour reputation doesn’t help. But most importantly, it doesn’t have a great deal to offer that London doesn’t have.
Birmingham is trying to change that. Its new enterprise zone, one of the first to be launched under a scheme created by the government in 2011, aims to turn it into a financial services hub. It is a perfectly sensible idea.
The City has been a huge success for more than a century, attracting a host of global banks and hedge funds that have made it the key financial centre for the whole of Europe, and for much of Russia and eastern Europe as well. It has generated a huge amount of wealth for the country. But it is a mistake to think that it is just the City that can make a success of finance.
Edinburgh and Glasgow are big financial centres in their own right. In much the same way as Switzerland has Zurich and Geneva as finance centres, and America has New York and Boston, there is no reason why Britain should not have several cities playing a role in the capital markets.
England used to have important regional financial centres. Manchester had its own stock exchange. Cities such as Leeds or Liverpool were important regional hubs. So was Birmingham. Lloyds TSB was founded there: Taylors & Lloyds, as it was then called, opened its first branch in 1765.
The Midland Bank, which was swallowed up by HSBC, opened its first branch in the city in 1836. So it is not as if Birmingham does not have a rich tradition in finance. It is just that it has been allowed to wither away.
If financial services could be encouraged to grow in more centres it would contribute hugely to the re-balancing of the economy. The regions need more jobs and more wealth – and whatever its current problems, the finance industry creates plenty of both. The trouble is, the incentives on offer are puny.
A company setting up in one of the new enterprise zones will get relief from business rates for up to five years. It will get some relief from planning rules and other regulations too. But that is about it. Unless the government comes up with a far better package than that, it is hard to see much progress being made.
For a place such as Birmingham to attract finance houses, it needs to be able to offer really significant tax breaks – at least as good as those that made Dublin a major offshore centre. Here are some suggestions.
First, how about a major reduction in corporation tax? A rate that was below the 12.5% charged in Ireland would make finance directors sit up and take notice. Next, why not offer an exemption from national insurance (NI) for ten years? Financial firms employ a lot of staff and they pay them well, so NI can be a huge cost. A ten-year exemption would be a major incentive.
Or, if you wanted to be really provocative, how about offering banking secrecy, so long as money-laundering rules were obeyed? A lot of private banking money that used to go to Geneva might be just as happy to go to Birmingham if it was guaranteed to be kept secret.
Banking secrecy has acquired a bad image, as if it was only used by money launderers and tax dodgers. But there were plenty of legitimate reasons for keeping your finances confidential – divorce cases, or family squabbles, for example, or differences between business partners. It would certainly be a dramatic move – and one that might persuade a lot of companies to move there.
True, it might be expensive – tax breaks cost money. But it wouldn’t necessarily be as expensive as a high-speed rail link from London to Birmingham. That’s going to cost £32bn and may not generate any real return: after all, you can already get from London to Birmingham in 90 minutes. It would be better to spend the money on tax breaks that would create genuine regional rivals to the City – and it would be far more likely to generate a return.