Spring 2015 HSBC announces during the general election campaign that it is thinking about moving its global HQ from London to Kong Kong, citing unhappiness about City regulation in general and George Osborne’s bank levy in particular.
Summer 2015 Newly reappointed chancellor in a majority Conservative government, Osborne announces he is going to reform the bank levy in a way that makes it less onerous for HSBC. The chancellor says it is time for a new settlement with the City, and demonstrates what that means by getting rid of Martin Wheatley as chief executive of the Financial Conduct Authority. Wheatley’s crime? Being too tough on the banks.
February 2016 HSBC announces that, following an exhaustive, bottom-up review, it has decided to remain domiciled in London. The bank’s chairman, Douglas Flint, insists there was no deal with the government; no arm-twisting from an institution that is one of the biggest companies quoted on the FTSE 100; certainly not a gigantic game of bluff.
Three big questions arise from the HSBC decision. The first is whether the bank ever really intended to leave the UK. As Andre Spicer of the Cass Business School notes, the assumption that multinational corporations are footloose and fancy free doesn’t really square with the facts. Between 1996 and 2006, a decade that could be argued was the high point of globalisation, only 6% of multinationals moved their HQ.
London is a good place for an international bank to be domiciled. The time zone is right, a dense network of support services is available, and executives feel at home. It would probably have taken more than a gripe about the bank levy and unhappiness about Wheatley’s “shoot first, ask questions later” approach to have prompted HSBC to uproot.
The second question is whether, in the light of that, Osborne paid too high a price to keep HSBC here. The answer to that is that he did. The changes have resulted in the tax burden being shifted to the new challenger banks which are meant to be providing much-needed competition to the high street big four, leaving weaker oversight of the financial system. Osborne may live to regret this if the gyrations in the markets really do portend a re-run of 2008.
Finally, what does this episode say about the power of the banks? Quite a lot. HSBC was founded in 1865, a year that coincided with the death of Lord Palmerston, famed as foreign secretary for his gunboat diplomacy. Flint sailed his gunboat up the Thames from Canary Wharf and moored it within sight of the Palace of Westminster. There didn’t need to be any negotiation. Osborne got the message.
This article was written by Larry Elliott Economics editor, for theguardian.com on Monday 15th February 2016 13.00 Europe/Londonguardian.co.uk © Guardian News and Media Limited 2010