In the longer run, however, over regulation shackles GDP and, in turn, accountants’ fee income from audit and consultancy services. It is therefore highly significant that PWC’s chairman is saying enough is enough. Referring to the threats posed to the UK economy Powell observes, “The quantity and scope of regulation combined with the level of uncertainty and complexity in this country’s tax system are particular causes for concern”.
Meanwhile, yet another hedge fund – Krom River – announced it was relocating from London. In this case, the winner was Zug in Switzerland (pictured right). Mounting tax bills and Switzerland’s more conducive regulatory regime, which was recently overhauled, were given as the principal reasons for the move.
Already this year a growing roster of major companies, including Shire pharmaceuticals, United Business Media and Henderson, the financial services group, have announced they are leaving British shores for more attractive regulatory and fiscal jurisdictions. This list will inevitably lengthen unless policy makers reverse the trend towards ever more cumbersome and expensive regulatory intervention. What is more, the recent turmoil in the financial markets makes the temptation to adopt ill thought-through regulatory initiatives that much greater.
Coupled with regulatory reform is an urgent need to establish a tax regime that promotes wealth creation and attracts businesses from overseas. London topped the Global Financial Centres Index this year but its achievement is increasingly under threat, not least – as the compilers of the Index point out – because of a widespread perception that there has been a less than effective regulatory response to the Northern Rock debacle. Compared with the speedy US regulatory response to the credit crisis, once again demonstrated by Treasury Secretary Hank Paulson over the last weekend, London’s regulatory dithering risks losing valuable business to thriving financial centres such as Zurich, Dublin, and Bermuda. All of them have two things in common: an effective light touch regulatory regime along with highly attractive tax rates.
As far as the financial markets are concerned, we need to implement effective regulation, but regulation that does not impose onerous compliance costs. If the authorities impose a welter of new regulatory controls, firms will vote with their feet and relocate to one of a raft of rapidly growing financial centres overseas.
Keith Boyfield is a Senior Fellow at the ASI and chairman of REG – our regulatory evaluation group.