Businesses unhappy with their City of London lots

The recently trumpeted deal with JP Morgan to pay £500m for a Canary Wharf estate seems to defiy bankers' threats to leave London, but many taxing problems remain.

JP Morgan's acquisition of the London headquarters of Lehman Brothers undermines the threat of banks to leave the City.
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Canary Wharf Group, the property company that transformed London's skyline and provided homes for most of the Wall Street banks in the City, finally had something to celebrate days before Christmas.

Its courtship of JP Morgan has been an on-again, off-again affair. But finally a deal was struck and JP Morgan said it would pay almost £500 million (Dh2.84 billion) to take on the 1 million square foot former Lehman Brother's tower on Canary Wharf's estate, which it will use as its European investment bank headquarters from 2012.

At the same time it will keep building, at least to street level, the Riverside South site that is also on Canary Wharf's estate, where it had planned two towers.

The deal was hailed as a sign that London was again hot - the best location a global bank could wish to have. If only it were that simple. Bankers have been threatening to leave London in droves, saying they are being pushed out by high personal taxes, a supertax on banks and treatment of bonuses.

JP Morgan's decision to make a huge property investment seemed to expose the empty threat banks were holding over the chancellor of the exchequer, George Osborne, and the Treasury.

But in reality it was a negotiation hewn out of granite.

Boris Johnson, the mayor of London, and the government launched a charm offensive last year on Jamie Dimon, the chief executive of JP Morgan.

As the Canary Wharf Group chief executive, George Iacobescu, said: "This is not a Canary Wharf deal. It is a UK and London plc deal. It is a win-win for everybody."

But it is still not clear what, if anything, JP Morgan will do with a second half-built building. The US bank's endorsement of London is far from ringing.

Another banker, Michael Geoghegan, the departing chief executive of HSBC, recently described how his bank reconsiders every three years whether London is the place for the bank to be based.

Mr Geoghegan said shareholders were beginning to take more of an interest in this question and are asking about the cost to HSBC of being located in London.

Disaffection with London goes a lot further than the banks. A survey of 500 senior executives in London by the international law company Eversheds shows confidence in the City's position on the world stage is wavering. Nearly half of those questioned believe London is merely "average" compared with other international financial centres.

The survey for Eversheds blames the City's fall from favour on the EU. Almost half (46 per cent) of businesses say EU policy is damaging London's reputation as a place to do business, with that rising to 57 per cent among senior executives concerned about the threat to London's global ranking. The survey also finds London is being hampered by red tape and unfavourable tax arrangements. Almost half of those surveyed (49 per cent) believe simpler and proportionate regulation would make London a more attractive place to do business, with 46 per cent also thinking a more competitive tax regime would benefit the capital.

The tally of negatives is mounting up: immigration quotas do not help multinational corporations move staff around the world; the transport system fails badly too often; and the cost of living, particularly accommodation, is high.

Markets and possibly recovery are likely to be held back this year by euro-zone problems, to which UK banks are still dangerously exposed. Yet at the end of the day, if jobs are here people will come.

The biggest gift the government can give the capital is to ensure it remains competitive on taxation. Increasingly, it has globally competitive corporate tax rates but not personal taxes. Everything else - banker bashing, rows about snow ploughs - is a sideshow.