Can we afford to keep kicking the City?

Bashing the banks might make us feel better, but are we cutting off our nose to spite our face? That’s the suggestion of economist Tim Congdon, the founder of the International Monetary Research think-tank; according to today’s Telegraph, he’s calculated that UK financial services exports have fallen by about one-fifth – that’s £10bn – in a single year. Clearly there’s an argument for the banks repaying the support they’ve received from the taxpayer – either explicitly or implicitly. But it’s a balancing act: we don’t want to cripple what remains our most successful export, particularly with the financial centres of the Middle East and Asia keen to step into the breach…

Congdon’s findings might sound self-serving, but they’re apparently based on the Government’s official statistics. They show that quarterly exports of UK financial services, which peaked at nearly £15bn in Q4 2008, had fallen to less than £10bn by Q1 2010. In fact, exports in the year to Q1 2010 were a full £10bn lower than they were in the previous year – down from about £50bn to about £40bn – which equates to shaving three-quarters of a percentage point off GDP. Since the economy isn’t expected to grow by more than this in any quarter next year (according to the CBI, anyway), that’s a fairly substantial chunk of UK output.

Congdon himself is in no doubt that the anti-City political mood is the main culprit for this: ‘The official data suggest that the UK’s international financial services industry is being badly hit by officialdom’s assault.’ By which he means the proposed curbs on pay and bonuses, demands for banks to improve their capital ratios, and special levies on profits. And it’s hard to argue that these measures aren’t making our banks less attractive and competitive relative to two years ago.

Of course, some would say this misses the point entirely. After all, the 2008 peak was promptly followed by a huge crash, which required the taxpayer to stump up billions to prop the industry up. Surely it’s right that banks are required to pay some kind of premium for this protection?

True enough. But Congdon is also right to point out that as a result of the financial services industry’s staggering growth over the last couple of decades – at a compound annual rate of 16%, he says – it now accounts for about a fifth of all UK exports, and 4% of GDP. Bashing bankers might be fun, and even fair. But can we really afford to cripple an industry that, like it or not, is one of the UK’s most significant exporters and employers?