Michael Bear: In defence of the City and why it is the key to recovery

The Prime Minister's statement reflects the Government's determination to introduce greater diversity within the UK economy, both in terms of geography and in terms of encouraging broader sectoral growth.

It could be inferred that such a commitment – shifting the focus away from London and away from the financial services industry – is bad news for the City.

This is not necessarily the case.

The financial services industry remains vital to the UK's future prosperity. Even during the financial crisis, it continued to make a huge contribution to the economy, generating 11.2 per cent of the total tax take for 2009/10.

It is in all our interests to promote greater economic diversity which will not only help to repair the gaping hole in our public finances but will also leave the UK better placed to withstand future economic downturns.

Only a sophisticated and globally connected financial services industry is capable of delivering the combination of financing which British businesses will need if we are to succeed in achieving this ambition.

Clearly it is not the financial services industry that must slow; it is other sectors that must grow.

There is a common misconception that "the City" is made up of big banks that pay their employees big salaries to work in big towers in London.

However, as the Lord Mayor of the City of London, I represent firms of all sizes regardless of their ownership or geographic location, acting as an ambassador for "the City" in the broadest sense both at home and abroad.

Of the one million people the financial and professional services industry employs throughout the UK, fewer than a third are based in London and the South East. Around 240,000 of these employees – representing 20 per cent of the local workforce – work in the Leeds City Region at more than 20,000 firms, ranging from huge multi-national organisations to small, local businesses.

Leeds is one of the foremost centres for financial services in the UK and was recently ranked among the top 25 cities for business in Europe, ahead of larger, higher-profile financial centres such as Copenhagen, Rome, Moscow and Athens.

With banking and insurance services increasing by 107 per cent between 1997 and 2007, it is clear that the financial services industry will be a key driver of economic growth in this area in the years to come.

One of the main concerns for City firms, wherever in the UK they are based, is their ability to compete in the global marketplace.

A lack of certainty surrounding issues such as tax and regulation, combined with continuing public anger and sensationalist media headlines, especially surrounding remuneration and bonuses, are making the international business community understandably nervous about investing in the UK.

Of course the City accepts, and indeed welcomes, any measures designed to increase stability and reduce excessive risk taking but we must be cautious about taking any actions that diminish our international competitiveness and leave us isolated on the world stage.

There are many reasons why firms and their employees choose to base themselves in the UK – the language, the time-zone, the English legal system, the ease of doing business, not to mention the quality of life – and global firms such as HSBC (First Direct), Lloyds Banking Group (Halifax), KPMG and PWC are based in Leeds because it makes good business sense.

However, there is a tipping point and if our competitive position is further eroded then cities in the UK, particularly those outside London, will suffer as global firms consider downsizing the scale of their UK operations in favour of more welcoming business environments overseas.

Nor is it just the big firms that will be affected: changes to the regulatory landscape will impact upon even the smallest, most locally focused companies as they strive to cover the costs of complying with a new mountain of red tape.

That is why we must work together to ensure policy-makers at home and in Brussels put political point-scoring to one side and focus instead on ensuring the UK remains open for business, and that is why restoring the reputation of the financial services industry in the eyes of the British public is one of our top priorities.

To this end, the City of London last year helped establish TheCityUK, a country wide, industry-led representative body that will promote the financial services industry at home and overseas.

As President of the Advisory Council, I hope to see many more firms from the Leeds City Region signing up so that, together, we can demonstrate the City is about more than a small number of people earning huge bonuses.

Michael Bear is the Lord Mayor of the City of London. He is also an ambassador for UK financial services and concludes a two-day fact-finding visit to Leeds today.