Taxing the expats would be a crippling blow for the City

A DEPUTY Governor of the Bank of England once told me that only two things could topple the City of London from its pre-eminence as a global financial centre. One was an excess of regulation. The other was a stiffening of the personal tax regime, which would make London much less attractive to the thousands of expatriates who work in the financial sector.

The jury is still out on the first, and whether the combination of retail and wholesale regulation under one roof can be made to work remains to be seen, although thus far regulation appears to be as much a plus as a minus.

Yesterday, however, things took a notable turn for the worse on the second front when Gordon Brown confirmed in his Budget speech that he is looking again at the rules allowing people resident but not domiciled here to avoid tax on their overseas income. If the Chancellor follows through on his threat, it will be the most disastrous blow for the City since Labour returned to power.

A change in the tax status of non-domiciled resident individuals will devastate the London shipping business centred on the Baltic Exchange, cost thousands of City jobs, destroy London's position as the international centre for shipping, undermine its ability to attract key foreign personnel in all its other areas of activities and result in a lower, not a higher, tax take for the Exchequer.

When people talk about the competitiveness of the City, they usually refer to the number of foreign bankers and brokers who are happy to come here to work. These create the pool of talent that cements London's position as the leading international financial centre. A change in the rules will make them want to leave London.

There is nothing the Government could do that would give a bigger boost to Paris, Frankfurt and Zurich, the rival Continental financial centres.

Unprofessional

LINKS between the auditing firm Andersen and the Government are known to be close, but until yesterday no one would have thought they extended to the burying of bad news in the manner made famous by Transport Secretary Stephen Byers' former aide Jo Moore. She it was who famously saw in the events of 11 September an opportunity to slip out bad news in the hope that a preoccupied Press would not notice.

Yesterday afternoon, with the Chancellor in full flow at the Dsspatch Box making his Budget speech, was a similar predictable occasion when the Press would be looking elsewhere. It was then that the British end of Andersen announced it was making 1,500 of its 5,000 staff redundant. This is a savage cut, the like of which has never been seen by an accountancy firm of this size in this country.

The reason, obviously enough, is that since the Enron scandal, people are avoiding the firm like the plague, and there is no longer enough work for these people to do. One would have thought better of the Andersen management, however, and been more sympathetic, if the partners had had the courage to announce the redundancies in a less sneaky way. The employees being fired, through little or no fault of their own, are surely worthy of rather more respect than is implied by trying to cast them overboard as if they were lepers when no one is looking.

Its decision is the odder because Andersen has been brought to this state owing to the behaviour of parts of the American firm. The defence of the UK side is that it has behaved with honour throughout and done nothing to be ashamed of. But not any more.

Public relations modelled on the Jo Moore handbook are no way to retain support and sympathy - or to restore the firm's reputation for straight dealing.