I fear it’s already too late for Britain

Let’s start with the more positive news.

A Boston Consulting Group survey published last week found that London still tops the global rankings of cities that the professional class worldwide would most like to work in, and that the UK as a whole is the most favoured European country.

If Brexit was supposed to spark a mass exodus, it hasn’t yet done so. In terms of greenfield direct foreign investment, moreover, we are beaten only by the US and China, and are streets ahead of any other European country.

Microsoft recently committed £2.5bn of investment over the next three years to expand its next-generation AI data centre infrastructure in the UK.

This is not the decision of a company that has begun to think of Britain as a declining, no-hope nation.

And yet… much of the data – and certainly the perception of a land of milk and honey, overflowing with business opportunities – is quite backwards-looking. It better reflects the past than the future. Sadly, real life perceptions are far less flattering.

Anecdotal evidence is of a steady stream of departures to the Middle East, America and Europe, with growing fears in the City and beyond that it may soon become a flood.

“It may still be too soon to think in terms of tipping points,” says one seasoned City practitioner. “But we may not be far off. For some, the crackdown on non-doms is the final straw.”

Take the following portents, all with their very different reasons for leaving.

Last week it was reported that Goldman Sachs, a one-time trend setter among investment banks in concentrating its European operations in London, is relocating one of its top corporate financiers to Paris to be closer to European clients.

He’s only the latest example. Since Brexit, Goldman Sachs has transferred a significant number of high-earning dealmaking teams to the Continent. There is little sign of the outflow ending.

For the City as a whole, the loss is admittedly not nearly as bad as some of the more alarmist predictions made by Remain campaigners at the time of the referendum.

But it is also true that new hires in finance are now strongly focused on rival European financial centres.

Critical mass in backup infrastructure and legal expertise guarantees London a degree of resilience, but it’s amazing how quickly this can change.

Once-abundant liquidity has been steadily drained from London markets in recent years. Our increasingly sickly stock market is just the most obvious manifestation of it.

The FTSE 100 last week hit a new all-time high, but in dollar and euro terms it still languishes close to where it was at the turn of the century, a dismal rate of return which reflects widespread lack of enthusiasm for low-growth Britain.

In any case, the forces now pulling London apart as a financial centre are proving as powerful as the gravitational ones that once acted so strongly in its favour.

Brexit certainly hasn’t helped, but it is not the primary cause. Rather it is a culture of risk aversion which has spread like a virus through the tax and regulatory system, poisoning Britain’s position as a magnet for international capital, talent and wealth.

Curiously, the problem has grown worse since Brexit, not better. New-found freedoms have been used to further tighten the noose, rather than to loosen it as promised. The City is drowning in regulation.

The turning point was the financial crisis 15 years ago. It was, I suppose, inevitable that this should have invited a fierce regulatory response; the quid pro quo for the taxpayer pounds spent rescuing the banking system was a stultifying straitjacket of state control.

It also sparked a steady ratcheting up of the tax burden as the Treasury sought to repair the damage done to the public finances. Both these responses, though understandable, have proved ruinously counter productive.

Britain has never recovered from the destruction of the financial crisis, with the economy still more than 20pc smaller than it would have been had its pre-crisis growth trajectory been maintained.

The difference with the US, which is where the crisis began, could hardly be greater. The US quickly clawed back all the economic losses of the crisis, and has done the same again with the pandemic.

While Europe faffed around with measures to cap banker bonuses and generally hem the financiers in, the US rebooted the system and moved quickly on.

We went even further than the Europeans here in Britain; we imposed special levies on the banks, we dug deep into their lending practices, and we quite unnecessarily forced them, at great expense, to ring fence their retail operations.

Today they can barely move for enforcement measures, “know your client” box-ticking and “unexplained wealth orders”.

The real power in the City has shifted wholesale away from wealth creation to compliance.

Regulators are so terrified of mishaps that they are afraid of their own shadow. Their default position is simply to say no to almost everything. I exaggerate, obviously, but only a little.

One fund manager I’ve been talking to has had enough, and will shortly be shifting the bulk of his operations to the Gulf.

“The Financial Conduct Authority only wants the larger players, because it’s easier and cheaper to keep an eye on them,” he complains. “They’d rather close us down than allow us to compete”.

No kind of carve-out for finance was sought during the Brexit trade negotiations; the City can look after itself, was the attitude taken.

This might have been true. There is no reason the City shouldn’t thrive outside the European Union. But it will wither and die if denied access to alternative pools of international capital as compensation for loss of its European markets.

As things stand, these are heading for Dubai, Abu Dhabi, New York and the Far East, not to London.

So too is Sameer Lilani, who has closed his three, once-thriving Amrapali high-end jewellery and precious stones retail outlets, and is relocating with his family to Dubai.

The Government’s decision to end VAT-free shopping for overseas clients has killed his industry, with the business shifting wholesale to the Continent and the Gulf.

“I’ve never seen so many empty boutiques on Bond Street, where only the big luxury brands now maintain a presence,” says Lilani.

London is fast becoming a place for temporary import under bond (TIB) viewings only, with the transaction, and therefore the economic benefit, taking place overseas.

The three examples I cite here of business flight are just the tip of the iceberg. The Government has of late taken some small, tentative steps in the right direction, including lifting the restrictions on banker bonuses.

But I fear it’s already too late. Once the ball starts rolling, it’s difficult to stop.