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The City of London is in bad shape – but Labour threatens to kill it off completely

Britain’s financial heart is in dire need of revitalisation

Labour would work with tech companies to increase the number of listings, Jonathan Reynolds, then shadow business secretary, pledged at the World Economic Forum back in January. 
Private investment was the “lifeblood of the economy” insisted Rachel Reeves, then shadow chancellor, when she spoke at a JP Morgan event earlier this year. 
In the run-up to the election, Labour frontbenchers tirelessly championed the City, promising reforms that would reboot and revitalise London’s financial centre. 
But a couple of months after Labour took power, major companies are still leaving the market and investors are heading for the exit. 
In reality, the City was in bad shape already. But unless it changes course quickly this Government looks set to finish it off completely.
It has been yet another bad week for the City. AngloGold Ashanti unveiled a $2.5bn (£1.9bn) takeover of its rival gold miner Centamin to create the fourth-largest miner of the precious metal in the world. It may or may not prove a good deal for the company – we will find out over the next few years. 
And yet one point is certain. 
It will mean yet another major company leaving the London market and, given that it is an all-paper deal, shareholders will essentially be swapping shares traded in London for shares traded in New York. 
It will mark yet another decline in the City as a place for raising capital for precious metal mining, a sector in which it used to be one of the world leaders. After Randgold’s exit a few years ago, as well as the Russian miners since the Ukraine war, Endeavour Mining is the only major precious metals miner left on the London market. 
Meanwhile, there is plenty of evidence that investors are bailing out. 
The funds network Calastone reported earlier this month that outflows from UK equity funds increased again in August, with £510m of net selling, more than double the July figure – hardly a great vote of confidence in the new Government. 
If the City was in robust health that might not matter very much. There are always a few bumps and setbacks for any financial centre. The trouble is, there was already plenty of evidence that London was in deep trouble. 
The number of companies listed in London has been in relentless decline. It has fallen from 3,200 back in 2007 to slightly over 1,700 today, and with the departure of the likes of Centamin it is still going down. 
Only eight new companies were listed in the first half of the year, and there is absolutely no evidence of any major new companies rushing to quote their shares in London over the next few months.
New York is steadily increasing its lead, while financial centres such as Dubai are turning into serious rivals. The outlook was already dire, and it is steadily getting worse. 
The trouble is, there is absolutely no sign that the Government is willing to make any serious effort to turn that around. Instead, it appears intent on doing everything it can possibly think of to punish the City even further. 
The widely trailed “horror Budget” planned for next month is likely to see a steep increase in capital gains tax, hitting financiers hardest of all, and it may even see tax breaks for entrepreneurs and their backers scaled back further, making London an even less attractive place both to raise capital, and then realise its value when it is a success, than it already is. 
There is likely to be a big tax rise on the private equity industry, with “carried interest”, as profit sharing for partners is known, treated as income instead of as a capital gain, and while that may be justifiable in itself, all it will do in practice is drive the major buyout houses to move somewhere else. 
Perhaps worst of all, the banks are threatened with yet another windfall tax, mainly on the grounds that no one likes them, and the Government needs to get some money from somewhere. 
And yet that will only hit share prices, and leave the UK major financial institutions even less money to lend out. 
It would be purely punitive, with no purpose beyond a shake-down of a group of companies that the Government has decided it does not approve of. 
It would be hard to think of a worse message to send to the financial markets than a random levy imposed just because finance isn’t loved. 
The departed Conservative government certainly had plenty of faults, and, disgracefully, did far too little to keep the City thriving during its 14 years in power, even though many of its leading figures were staunch Tory supporters. 
And yet despite that, the Edinburgh Reforms unveiled by the previous chancellor Jeremy Hunt did at least make a start on improving sentiment, and provided a platform that could have been built on. In the months since then, absolutely nothing has happened to turn the markets around. 
In reality, the City needs help, and it needs it very soon. 
It needs a round of deregulation, stripping away many of the completely pointless governance rules that have built up over the last two decades, and embracing the opportunity of our departure from the European Union to create a more flexible finance hub. 
It needs lower taxes, especially on share trading and capital gains. 
And it needs incentives for companies to list their shares here, such as an exemption from capital gains tax for entrepreneurs opting for a London IPO over a trade sale or a foreign listing. 
Labour’s DNA is to regulate and tax more, and none of those reforms will come naturally to the party. But it campaigned on a platform of reviving the City. 
If it doesn’t do something soon there won’t be a financial centre left – and the whole of the UK will be far worse off as a result.

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