After threatening for several years to overtake Wall Street as the financial capital of the world, London may lose its leading position as large global banks contemplate shunning the city over its plan to apply a 50% tax on banker bonuses.
Since the U.K. government unveiled plans last month for the tax on banks, speculation has heated up that financial giants such as Goldman Sachs and JPMorgan Chase & Co. will move to more tax-friendly European havens.
No big banks are considering a complete pullout of London, but some could move parts of their operations and divert planned new business to other financial centres to skirt the tax and other costly restrictions on the financial sector.
"It's definitely causing bankers in London to express significant concern that the city's position as a leading financial centre of the world may be ceded to another financial centre, whether it be Paris, Dubai or Switzerland," says Daniel Raglan. "There's been a constant jockeying among the financial centres around the world over the last decade to establish and maintain a preeminence. However, I don't think anyone knows whether one factor is going to make any particular difference."
The move by the U.K. government to impose the tax comes about eight months after a similar plan in the United States -- a tax of 90% on bonuses paid by financial firms that got bailed out by U.S. taxpayers -- was dropped by U.S. lawmakers amid concern that bankers would flee to London and other financial hubs.
Some industry observers say the tax likely would not last beyond this year.
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