If you work in the City of London, it has been a good result – for the moment. Longer term, however, the Conservatives’ unexpected election victory could have unexpected repercussions for finance professionals in the UK.
City jobs will be safer in 2015
Had the Labour Party won the election, bonuses would have become an unaffordable extravagance.
As Deutsche Bank analysts pointed out, a Labour victory would have precipitated both a bonus tax and a 150% top marginal tax rate on incomes above £150k. Every £50k of bonuses ‘in the pocket’ of top rate tax payers would therefore have cost £100k in taxation. Pay in the City would almost certainly have shifted further in the direction of salaries. And those higher salaries would have made banking jobs even more vulnerable to periods of cyclically declining revenues.
Hiring at US banks will be muted and City jobs could be routed in 2017 and 2018
Longer term, however, the Conservatives’ outright victory has cast a pall over finance jobs in London. The party has promised to hold a referendum on the UK’s membership of the European Union by 2017. “With a smaller majority, more Eurosceptic elements of the Conservative party could hold more sway over the timing of the referendum and negotiating strategy employed,” says Oliver Harvey, macro economist at Deutsche Bank.
In the run-up to this vote, US and non-EU banks may think twice about committing further resources to the City. Michael Sherwood, head of Goldman Sachs International, has heavily implied Goldman’s unwillingness to commit to a London that is not part of the European Union. In January, Gary Cohn, Goldman’s COO, warned that if the City wants to remain a “a great financial capital of the world” it needs to be within the European Union. In the event that the UK decides to exit the EU, Goldman Sachs and other US banks could divert EMEA staff to Paris or Frankfurt.
HSBC and Standard Chartered may stick around
Both HSBC and Standard Chartered have been making noises about relocating their headquarters outside London to escape the banking levy. The Conservatives’ win doesn’t eliminate the possibility of either bank taking its desktops to Asia, but it makes it less likely. As Stanford Bernstein analyst Chirantan Barua points out, the Conservatives had already budgeted a £0.9bn increase in the bank levy for 2015 but Labour wanted to increase the levy by a further £0.8bn.
RBS may move its head office to London
Barua suggests that the City may even benefit from a new banking HQ. “The total sweep by the SNP (the pro Independence party) in Scotland will reopen the case for the likes of RBS to move back their registered offices to London,” says Barua. He adds that a second referendum on Scottish Independence looks likely and that investors (including the UKFI) would want the banks to relocate.
Bankers at Barclays will be better off
Barclays’ shares are up nearly 4% this morning. That’s good news if you’re one of the managing directors at Barclays who had 100% of your bonus deferred in the bank’s own stock.
But London house prices and rents will remain punitively high
The cloud to the silver lining is that London will remain the most expensive city in the world in which to live and work. There will no Miliband-style rent controls and there will be no three year tenancies. Rents in bankers’ favourite suburbs already average £33k and are unlikely to fall.
If you’re a senior banker with a strong UK client base and high pay, today’s result is good news. If you’re a junior banker or operations professional whose pay is lower and whose job could be offshored, it’s a lot more equivocal.