Boris Johnson on the world stage: hysterical, isolated and ridiculed (I)

Posted on February 18th, 2010 by Jeremy Cliffe

The Conservative Party promises to “renew and reinforce our role in the world”, to ensure that British values are “widely respected”, and to “restore Britain’s reputation on the world stage”.

Stirring stuff, but hardly born out by growing international concerns at the party’s “Europhobic” foreign policy, “lightweight” leadership and “Hooverite” economic arguments. Such misgivings about the party’s isolation (indeed, isolationism) on the world stage have been voiced by, amongst others, the US, French, German, Swedish and Spanish governments, Lord Brittan, the IMF, the Foreign Office, two Nobel-prize winning economists (Stiglitz and Krugman), Hillary Clinton, the Financial Times and no fewer than thirteen Tory MEPs.

As the voice of Britain’s global city, a city whose international profile stands to gain little from such isolation, one might expect Boris Johnson to join the Shadow Business Secretary in rejecting his party’s insularity. Far from it. This two-part report surveys the mayor’s standing on the world stage, highlighting his party’s growing distance from the political mainstream. This first part shows that Johnson is voicing unfounded threats that equate London less with comparable global cities than with fringe tax havens; the second demonstrates the extent of his isolation from his counterparts abroad.

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Mr Johnson has had a busy start to the year. On January 5th he laid into “the recent knee-jerk and ill-thought-out tax grab by the Government to punish bankers”. On January 11th he wrote to the Chair of the Commons Treasury Select Committee to call for an inquiry into the government’s plans for a tax on bankers’ bonuses, warning that “the whole UK economy will suffer”. On January 15th he wrote to Alistair Darling requesting a meeting to discuss “the damage done to perceptions of London as a global financial centre” by the 50p top tax rate and the bonus tax. On 24th January he expressed “instinctive” reservations about US plans to reform the banking industry. On 29th January he told bankers at the Davos Summit that “the people who want to mess around with the City are just bonkers”. Johnson’s attacks hinge on his claim that “9,000 bankers” will leave London.

Quite aside from the justice and popularity of the new taxes, or the fact that top-rate tax is still lower than in six of the richest OECD countries and lower than it was during the Big Bang, Johnson’s warning of an exodus from the City comes up against mixed opinions within the banking community itself as to the effects of the new taxes and regulation.

Deutsche Bank’s CEO brushed aside their impact on London in an interview with the FT in December, saying “There is so much more to it than a short measure in terms of taxation: it is infrastructure, resources, the quality of people, where families like to live, where you have law and audit firms in support [...] If people think one measure could jeopardise the strength of a financial hub they are dead wrong. This is not going to happen.” Meanwhile Mark Field, the Tory MP for the Cities of London and Westminster and a former City recruiter, has called the mayor’s claims “hysterical” and doubted that there was “any qualitative or quantitative evidence” behind them.

Indeed, even Harvey McGrath, a former City fund manager who now chairs Johnson’s London Development Agency, has said “I am not aware of any specific financial institution that has declared that it will relocate from London”. Savvas Savouri, a Chief Economist at the fund Tosca, has also dismissed Johnson’s claims, pointing out that “taxes are rising and regulation is being tightened elsewhere too” and predicting the creation of 100,000 new financial jobs in London in the next 10 years. The LSE economist Dr Tom Kirchmaier has said that “The threat that leading banks will leave is just not credible. There is a lot of rhetoric.”

Thus for a man who describes London as ‘the greatest city in the world’ Johnson appears to have remarkably little confidence in its strengths and attractions. Elsewhere, France has followed the UK’s lead in introducing a bonus tax, in the US Barack Obama’s proposed banking reforms go far beyond regulation in the UK in their radicalism, whilst the rest of the EU is also considering a US-style bank levy.

Johnson appears to acknowledge this, albeit tacitly, talking instead of boutique, low-tax destinations as the likely beneficiaries of the new taxes. In 2008 he commissioned and promoted a report on London’s financial sector that specifically highlighted the lower tax rates of the following ‘rival financial centres’: Luxembourg, Dublin, Bermuda, Switzerland, Hong Kong, Shanghai, Singapore and the Gulf region. On the basis of these ‘rivals’, the report proposed a slew of tax cuts, loopholes and exemptions.

Does Johnson really believe that London should be in the business of competing with isolated tax havens? For a man so fearful of ceding power to Brussels, he seems remarkably nonchalant about the prospect of indexing the UK’s tax levels to those of Bermuda and Dubai.

Furthermore, British overseas tax havens – Bermuda, the Channel Islands, the Caymans et al. – have come under substantial pressure from the Treasury to introduce new regulation and increase tax levels to diversify their economies. There have even been moves to introduce a bonus tax in Switzerland, where there is also a “broad alliance” of political parties in favour of a US-style bank tax. Meanwhile, the G20 has pledged to crack down on tax havens.

It is also worth noting that a 2004 study showed that London’s personal tax regime was the least relevant of fourteen factors in the City’s international appeal, whilst a 2008 study commissioned by Michael Bloomberg showed that the areas that underpinned New York’s financial sector were “deep and liquid markets”, a “high-quality transportation infrastructure”, the “availability of professional workers”, the “high quality of life” and not levels of tax and regulation.

In short, aside from the tax havens, major financial centres comparable with London are introducing regulations just as stringent as those in place in the UK, if not more so. Many too are raising taxes to meet the fiscal and social costs of the economic crisis. Yet only in London does one find a mayor ridiculing the idea of a diversified economy as a “Pol Pot-style purge” tantamount to “demolish[ing] the banks” and telling the world that his city is in the grip of “vindictive […] neo-socialist claptrap”, an “anti-enterprise mentality” and a “rage against the kulaks”. Whether or not this language will put off potential investors remains to be seen.

What is Johnson playing at? Why not spend less time hyperventilating about a phantom exodus from the City and more time supporting the rest of the London economy? Above all, what does this unsubstantiated hysteria say about his ability to represent London with credibility and maturity on the world stage?

For Part 2 see here.

Boris Johnson on the world stage: hysterical, isolated and ridiculed (II)

Posted on February 18th, 2010 by Jeremy Cliffe

Boris Johnson’s outlandish claims not only diverge from attitudes within the very industries he claims to speak for (see Part 1), they also contrast markedly with the actions of his counterparts abroad, demonstrating yet again the Tories’ international isolation.

Frankfurt’s mayor Petra Roth, for example, has backed the German government’s new regulation of financial markets, is establishing an Institute of Banking Risk Management and Regulation in the city, and has argued that “the local tax burden plays a fairly small role in investors’ decisions about where to base their operations. Centrality, proximity to markets and connections to research, development and other parts of the supply chain are far more important. Most businesspeople value the quality of their city’s infrastructure”.

Meanwhile, Mayor Michael Bloomberg has turned down Johnson’s offer of an alliance against regulation and backed a plan to diversify the New York economy to reduce dependence on the financial sector. The Mayor of Los Angeles, Antonio Villaraigosa, responded to the economic crisis with a powerful attack on “an anti-government philosophy […] that says that sensible financial regulation is bad for the economy and that progressive taxation equals class warfare.”

The Mayor of Paris, Bertrand Delanoë, has increased local taxes in a ‘solidarity budget’ to fund support for those hardest-hit by the economic crisis, increasing housing benefit and introducing micro-loans for those in difficulty. Zürich’s mayor Corine Mauch has backed a programme of “anticyclical microeconomic deficit spending according to Keynesian theory” and called for a more diversified city economy, less dependent on the financial sector. The Mayor of Shanghai, Han Zheng has said that the banks are “obsessed with financial innovation and leverage and they’ve put risk management on the backburner” and that China needs “to develop regulations and laws to put those ‘animal spirits’ on a leash so they play within the scope we’ve defined.”

That Johnson is isolated on these issues is notable. And, as it happens, at the same time as his international isolation increases, London’s mayor appears to be gaining a growing fan base in the ranks of UKIP. The party’s website announces that “Mayor Boris backs UKIP position on City”, quoting Johnson, praising his opposition to regulation, and reporting that the mayor has “decided to join the UKIP call for something to be done”. UKIP also backs Johnson’s opposition to the increased top rate of tax. Another UKIP article, entitled “BoJo on the money with City backing”, quotes leading UKIP MEP Nigel Farage as saying “Boris is right on the money” and echoes the mayor’s warnings of a loss of business to ‘Geneva or the Bahamas’. Farage concludes: “we back Boris to the hilt”.

Further questions arise as to the the impression Johnson gives to the international press. Handelsblatt and Financial Times Deutschland, both leading European financial dailies, have described the mayor as a ‘clown’. The German news magazine Focus has maintained that he “lacks the necessary gravity”, whilst Spain’s El Mundo has described him as ‘ridiculous’. El Periódico has reported that “Johnson is famous for coming out with reactionary and racist comments against homosexuals and Africans”.  In France L’Express has described him as a ‘flamboyantly chauvinist […] clown’ with a ‘bad reputation’, and in 2008 Berlin’s Tageszeitung described comments by Johnson as “islamophobic gibberish”.

Further afield, Newsweek has talked of Johnson’s “absence of discernible qualifications to run a great city”, whilst the mayor’s description of his £250,000 Telegraph contract as ‘chicken feed’ attracted ridicule from across the world (to take three examples, in the Sydney Morning Herald, the Süddeutsche Zeitung and Singapore’s Straits Times). Der Spiegel described Johnson’s response to the financial crisis as ‘bluster’, doubted that the new taxes would have any significant effect and suggested that those prophesying an exodus from the City were “letting themselves be led by the nose by the bankers”.

It is surely not unreasonable to ask whether Johnson’s hysteria over the City, his reception in the international press, his isolation amongst other world mayors and his concomitant proximity to what David Cameron has described as the “fruitcakes, loonies and closet racists” of UKIP, together risk undermining London’s standing. That is of course debatable, but what is of much greater consequence is what this all tells us about today’s Tories: Johnson’s recent actions serve as yet another example of the Conservative Party’s growing scepticism towards and distance from the international political mainstream.

After all, the pattern of hysteria, isolation and ridicule does not just pertain to Johnson: it is true too of the party’s rejection of moderate European politics, its ‘cast iron’ promise on the Lisbon Treaty, the growing influence of right-wing evangelicals on Tory social policy and the party’s lonely, discredited and wavering insistence on sudden and deep spending cuts. Boris Johnson’s behaviour tells us much about the Tories’ ability to engage with the rest of the world and govern with reason and moderation, an ability, it seems, that is distinctly limited.

Boris Johnson: too busy lobbying for bankers to stand up for London’s businesses

Posted on December 26th, 2009 by Jeremy Cliffe

“As Mayor I will be a champion for all London business”, Boris Johnson wrote in his 2008 manifesto, adding that “[London’s] success is not just powered from the glittering citadels in the square mile”.

From his choice of priorities since taking office, one might be forgiven for thinking otherwise: financial services represent 17.1% of London’s output, yet some have criticised the Mayor for displaying an insufficient commitment to the remaining 82.9% of the London economy. Johnson, it is said, “wants to support the super-rich and leave the vulnerable to struggle.”

In September 2008, as the government injected billions into the banks to prevent wholesale economic collapse, Johnson railed pre-emptively against ‘vindictive’ regulation and ‘neo-socialist claptrap’, telling people to stop “whingeing [...] about house prices boosted by City bonuses”.

In April 2009 he described the 50% top rate of tax as a ‘gimmick’, in September he called EU regulation of private equity and hedge funds “a naked piece of commercial warfare by France and Germany upon the City of London”, in October he used his conference speech to attack ‘banker bashers’ and in December he broke ranks from his own party to oppose the government’s 50% bonus tax. When challenged to suggest an alternative to the tax he replied “Well I think that [the bankers] should have shown much greater self-restraint. What kind of impost, what kind of tax you come up with, I don’t know.” The Nobel-winning economist Paul Krugman has described Johnson’s analysis of the financial crisis as ‘economically illiterate’.

Interestingly,  Johnson has received substantial sums of money from financial organisations and wealthy individuals. A 2009 study by the Party of European Socialists found that private equity and hedge funds donated 77% of his 2008 campaign budget (much of which he failed to declare). The paper also revealed that in the first half of 2009 46% of all individual donations to the Conservative Party (£3.26 million) came from managers in the hedge fund and private equity industries.

Elsewhere, Johnson has been accused of neglecting other sectors of the London economy. In March 2009, nineteen leading figures from London’s retail, tourism and cultural sectors wrote to the Mayor to express disappointment at his response to the recession. This came after he had abolished London Unlimited (established under Ken Livingstone to promote London internationally) and cut the budget of Visit London to help cover the £50 million of annual revenue forfeited by cancelling the £25 congestion charge for ‘gas guzzlers’ and the £70 million lost by halving the congestion zone.

Boris Johnson’s response to the financial crisis therefore seems to belie the varied make-up of the London economy, craven to those ‘glittering citadels’ that bankrolled his mayoral campaign.