When the City suffers the rest of the country will suffer, as well. Those much derided bankers, traders and hedge fund managers bring in a lot of money. And they do not like what is coming from the British government and, especially, the European Union.
The Wall Street Journal has now noted what has been discussed in various corridors for some time: the hedge funds are beginning to move to Switzerland. (And no, the Swiss are not stupid enough to make their lives difficult.)
Lawyers estimate hedge funds managing close to $15 billion have moved to Switzerland in the past year, with more possibly to come. David Butler, founder of professional-services firm Kinetic Partners, said his company had advised 23 hedge funds on leaving the U.K. in the 15 months to April. An additional 15 are close to quitting the U.K., he said.
As it happens, this subject has been raised in the House of Lords a couple of times by Lord Pearson of Rannoch.
On July 2 he asked
a question in the Chamber:
To ask Her Majesty's Government what assessment they have made of how the powers granted to the new European Union financial institutions will develop in future; and whether they will affect the independence of the United Kingdom and its financial institutions.
The response was, unsurprisingly, rather bland so the Noble Lord followed up with two supplementary questions that the rules allow, one of which he specifically asked:
Secondly, have Her Majesty’s Government made their own assessment of the damage to our economy caused by firms leaving the City in droves, which they are already starting to do?
Pshaw, said the Noble Minister, Lord Myners.
I am unaware of firms leaving the City of London in droves—quite the opposite. The City of London is continuing to grow in global significance, as underlined by the recent Bischoff report.
Well, Lord Pearson was not going to leave matters there and, unlike his former party, he did something about it. On July 20,
he tackled the subject again in a Written Question that asked
Her Majesty's Government further to the answer by Lord Myners on 2 July (Official Report, House of Lords, col. 329) saying that firms are not leaving the City of London, whether they discussed with the Swiss authorities the number of firms leaving the City of London for Switzerland.
HMG was having none of it. Well, to be quite precise, HMG was not going to admit either to ignorance or to panic.
Treasury Ministers and officials have discussions with a wide variety of organisations in the public and private sectors as part of the process of policy development and delivery. As was the case with previous Administrations, it is not the Government's practice to provide details of all such discussions.
I trust Lord Myners read the WSJ article with his toast and marmalade this morning.
COMMENT THREADNew U.K. Tax Sends Hedge Funds Fleeing
A stream of hedge-fund managers and other financial-services professionals are quitting the U.K., following plans to raise top personal tax rates to 51%.
Lawyers estimate hedge funds managing close to $15 billion have moved to Switzerland in the past year, with more possibly to come. David Butler, founder of professional-services firm Kinetic Partners, said his company had advised 23 hedge funds on leaving the U.K. in the 15 months to April. An additional 15 are close to quitting the U.K., he said.
![[Guy Hands]](http://s.wsj.net/public/resources/images/HC-GN517_Hands_BV_20090317154913.gif)
GUY HANDS
"In the past, managers would say they'd move some operations or dip their toe in the water," Mr. Butler said. "Now that's changed."
Hedge fund Amplitude Capital took its $735 million in assets under management to Switzerland at the start of this year. In May, Odey Asset Management threatened to move.
All the hedge funds that have left the U.K. for Switzerland are concerned about tighter European Union regulations, as well as a new top rate of income tax announced by the U.K. government.
Starting next April, individuals in the U.K. who earn more than £150,000, or about $247,000, a year will pay tax at 51%, including national insurance. They will also be taxed heavily on pension payments.
Private-equity manager Guy Hands, founder of Terra Firma, decided to quit London for Guernsey. "He has no intention of returning in the foreseeable future," a spokesman for Mr. Hands said.
Jon Moulton, founder of private-equity firm Alchemy Partners, said he had no plans to leave his home in Kent, but confirmed that he owned a house in Guernsey and introduced Mr. Hands to his house. Mr. Moulton said he "may very well one day retreat to an environment of lower taxes, no [members of European Parliament] and where the most powerful posts in government are filled by election."
Richard Jordan, a partner at law firm Thomas Eggar, said: "I would say that 40% of my work involves advising people on ways to leave the country. We have reached a tipping point, in terms of hostility to the U.K. tax system."
One of his clients has just received a dividend of £2.5 million from his business. "He said to me, I'm going to be start being charged £1.3 million on a payment like that. It's time I thought about leaving," Mr. Jordan said.
Recent research by accounting firm PricewaterhouseCoopers suggested that married bankers earning £250,000 a year in the U.K. would retain less of their income after 51% tax than their counterparts in Paris, Frankfurt, Singapore and Dubai.
Matthew Feargrieve, London-based partner at offshore law firm Mourant du Feu & Jeune said the combination of higher taxes and prospective EU rule tightening was potent. The Swiss cantons of Zug and Zurich plan U.K. shows designed to lure businesses from London.
Swiss cantons are prepared to agree to ultralow tax rates with people bringing business to the country. Even without discounts, Zug's tax charge is just 14%.
Fiona Sheffield, a partner in the hedge-funds tax practice at accounting firm Ernst & Young, said in June: "We have had most of the 250 hedge-fund managers we provide services for talking about the pros and cons of leaving the U.K. for Switzerland."
Write to David Walker at david.walker@dowjones.com and Mike Foster atmike.foster@dowjones.com
Printed in The Wall Street Journal, page C2..............
EU: Financial Institutions
Question
11.23 am
Asked By Lord Pearson of Rannoch
To ask Her Majesty’s Government what assessment they have made of how the powers granted to the new European Union financial institutions will develop in future; and whether they will affect the independence of the United Kingdom and its financial institutions.
The Financial Services Secretary to the Treasury (Lord Myners): My Lords, the Government have agreed with EU leaders that any powers granted to the new EU regulatory bodies should be targeted at strengthening regulation and the effectiveness of supervision and should not undermine the fiscal responsibilities of national Governments. The Government expect to see this reflected in the Commission’s draft proposals, which are due in the autumn.
Lord Pearson of Rannoch: My Lords, I thank the noble Lord for that reply. However, it does not accord with the view of the French President, which is worth putting on the record. He said:
“We have agreed a European system of supervision with binding powers ... It is a complete sea-change in the Anglo-Saxon strategy ... We could have gone further, but I believe that it will widen [its powers] through experience and practice, the way it’s always happened”.
Quite so. My first question is—
Noble Lords: Oh!
Lord Pearson of Rannoch: My Lords, that was a comment on the Minister’s Answer. When can we expect the Commission’s impact assessments on all this and on the proposed hedge fund directive? Will the Minister be good enough to put copies in your Lordships’ Library when he gets them? Secondly, have Her Majesty’s Government made their own assessment of the damage to our economy caused by firms leaving the City in droves, which they are already starting to do?
Lord Myners: My Lords, I am sure that President Sarkozy will be delighted to know that the noble Lord, Lord Pearson of Rannoch, stands in this House as his spokesman; it is a significant change for Members of the House to see the noble Lord speaking on behalf of a leading European statesman. The outcome of the European Council meeting and the ECOFIN finance
2 July 2009 : Column 329
meeting was absolutely in accordance with what we set out to do, which was to ensure that the holder of the ECB presidency did not naturally chair the European systemic risk council and that the three upgraded Lamfalussy level 3 committees should have advisory but not statutory responsibilities for supervision. I am unaware of firms leaving the City of London in droves—quite the opposite. The City of London is continuing to grow in global significance, as underlined by the recent Bischoff report.
Lord Harrison: My Lords, does my noble friend acknowledge that the independence of the United Kingdom and its financial institutions is defended because we are playing an active role within the European Union and its financial institutions?
Lord Myners: My Lords, I absolutely agree with my noble friend. We are doing that in terms of the architecture of regulation and supervision. As the noble Lord, Lord Pearson, raised the subject of the European draft directive on alternative investment management—that was the source of his original Question, before he changed his mind to ask a different question—let me say that we are also actively engaged in representing the views of those who invest in hedge funds and those involved in that industry and supporting it here in London. In that connection, I am regularly engaged with the Commission and with the new Swedish presidency to fight Britain’s corner.
Lord Newby: My Lords, does the Minister accept that there is near unanimity, not necessarily extending to the noble Lord, Lord Pearson, on the need to develop and strengthen the international regulation of financial institutions? Does he agree that, unless the EU takes a lead on this, the chances of London surviving, prospering and developing as an international financial services centre will be jeopardised, not improved?
Lord Myners: My Lords, I once again find myself in agreement with the noble Lord, Lord Newby. Britain’s central role in financial services in Europe is greatly enhanced by our ability to work with our European partners to ensure that we develop new methods of macro-prudential supervision, regulation and micro-supervision, which will strengthen confidence in the financial services and banking sectors across Europe. The fact that we have a powerful voice in Europe undoubtedly provides much useful opportunity.
Lord Tebbit: My Lords, would the noble Lord like to confirm what I think he said, which was that President Sarkozy has got it all wrong and that the Minister and his colleagues, with their usual brilliance and charm, have negotiated in Europe an agreement that enables us to do exactly what we want, despite the opposing views of many in Europe? That is what he implied. Is that what he meant?
............................
EU: Financial Institutions
Question
Asked by Lord Pearson of Rannoch
To ask Her Majesty's Government further to the answer by Lord Myners on 2 July (Official Report, House of Lords, col. 329) saying that firms are not leaving the City of London, whether they discussed with the Swiss authorities the number of firms leaving the City of London for Switzerland. [HL4999]
The Financial Services Secretary to the Treasury (Lord Myners): Treasury Ministers and officials have discussions with a wide variety of organisations in the public and private sectors as part of the process of policy development and delivery. As was the case with previous Administrations, it is not the Government's practice to provide details of all such discussions.
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