LONDON ( Breakingviews) – A plan to move the Bank of England out of London defies financial gravity. Britain’s opposition Labour party says it may move parts of the central bank to Birmingham. That may appeal to voters, but both the BBC and HSBC have found relocating out of the capital expensive and difficult. The idea also ignores the reason London exerts such a strong pull.
The proposal in a report commissioned by Labour financial policy chief John McDonnell fits the party’s radical image. McDonnell and Labour leader Jeremy Corbyn have been rattling British business in recent months with proposals to renationalise railways, energy companies and postal services. Now they want to shake up financial services.
The new proposal suggests sending parts of the Bank of England to other cities like Glasgow, Cardiff, Belfast, Newcastle and Plymouth. The idea is that moving the central bank would prompt private institutions – and jobs – to follow. Redistributing some of the 48 billion pounds that the City of London contributed to Britain’s national income in 2014 – about 3 percent of the total – would help ease regional inequality.
This ignores the cluster effect at work in the City, though. The global and domestic banks that gather in the historic financial centre benefit from the plumbing that has evolved over centuries. Law firms, consultants and institutional investors are all close at hand. Companies pay a premium in terms of office costs and salaries to be near this pool of expertise.
HSBC is a prime example of the kind of challenges that await Labour’s proposal. Europe’s largest bank has faced an uphill battle to persuade 1,000 staff to move from London to the new headquarters of its UK subsidiary in Birmingham. This is despite sweeteners including help with property and schools in Britain’s second-largest city. Similarly, the BBC initially struggled to convince its staff to make the move to new studios near Manchester. For the Bank of England, escaping London’s orbit would be an even bigger challenge.
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