A letter to the Editor of the Daily Telegraph on 8 October 2001 about the value of the City to the UK’s economic health

In his Brighton speech the Prime Minister proclaimed his wish to abolish the Pound Sterling in favour of the Euro provided Gordon Brown’s famous five tests were satisfied.  As one of these five tests concerns the effect on the City – the only section of the economy meriting such special consideration – it is instructive to measure just how important the City really is, particularly when there is so much panicky talk about our economic future in the wake of the horrific events of September 11.  Christopher Fildes in Business News 3 (Monday, 8 October) quotes the City as Britain’s “leading exporter” . . . “being worth in 1999 more than £30 billion a year to our balance of payments”.  This is a considerable exaggeration to put it mildly.

The figures given in the United Kingdom’s Balance of Payments 2000 (the Pink Book) show (Table 3.6) Financial Services exports at £6,992 million in 1999, (£3,711 million in 1992 – Table 3.5).  Even if you add on insurance services exports at £4,111 million you only arrive at £11 billion (rounded).  But the financial sector is not just a City business; Edinburgh and Bristol among others would claim a substantial slice of this £11bn.

These figures for the financial sector, about which we hear so much, may be compared for instance with “other business services” which total £17bn exports.  Technical services alone came to £5.9 billion, having grown from £1.4 billion in 1992, more than twice as fast as financial services.

Income from overseas investments is often conflated in the financial press with financial services income.  But here again, by far the greater contribution to the balance of payments comes from direct investment (£11.5bn in 1999), such as the oil companies, and has nothing to do with the City at all (Table 4.4).  The contribution to the balance of payments from portfolio investment (which may reasonably be attributed to the financial sector) in 1999 was £100 million having declined from a high in 1993 of £6,400 million (Table 4.5).  The City is not therefore the biggest exporter, still less the biggest net contributor to the balance of payments.  It does however have much the biggest press to the detriment of other sectors of the economy, which also merit attention at this time.