Not many clues in the UK Chancellor's Pre-Budget report today on how the Treasury is preparing to defend the City of London against new measures coming from Brussels aimed to restrict the financial services sector. Much less was there any ideas of what the rationale would be when there is, according to some, pressure in the UK economy to reduce dependence on the financial services sector.
New Internal Market Commissioner, Michel Barnier, is on record as saying that the City of London is an asset to Europe. However, there is real anxienty in the Square Mile that the European Commission proposals on market regulation will put the City in a competitive disadvantage and that the Government is not properly geared up to take the battle to Brussels. The Anglo-Saxon model has been castigated by the French, Dutch, Belgian and Germans for the financial crisis even though their banks too were horribly exposed.
The Pre-Budget Report says that the Government is "closely involved in negotiating the proposed Alternative Investment Fund Manager Directive" and that it "has been working to secure substantial improvements". Still early days I suppose but its not clear that the Government has developed a fully operational strategy yet to deal with the regulatory threats to its hedge fund and private equity industry.
The Pre-Budget Report also says that the Government is "actively engaged in EU efforts to amend the Capital Requirements Directive to provide a state-of-the-art prudential framework for credit institutions and investment firms in the EU." Current proposals will raise the amount of capital banks must hold against resecuritisations and assets held in their trading books: "The UK is strongly supportive of the adoption of these rules and will continue to ensure that EU legislation appropriately strengthens prudential standards while being consistent with international agreements."
Another priority is “Solvency II”: "contributing to the development of modern and risk-based EU-wide solvency requirements for insurers that protect Europe’s claimants, savers and pensioners. What would be good to know is what the Government's position on the tax consequences of the Directive is.
The British have a real fight on their hands to defend the interests of the City. It will also have to square its position with its claim to take a global leadership role in cracking down on "excessive risk-taking" in in financial services as well as reducing over-reliance on the financial sector in the British economy.