London-based HSBC is to review the long-term location of its headquarters next year, in a move that will spook the coalition, which is sensitive that its proposed banking levy has infuriated the industry.
Although HSBC privately reviews whether London should remain its legal headquarters every three years, the timing could hardly be worse for the government. The Chancellor, George Osborne, announced a bank tax in June designed to raise an extra £2bn every year, which several HSBC board members believe to be damaging to the financial services sector.
Speculation has been rife about a move from Canary Wharf since its chief executive, Michael Geoghegan, moved to Hong Kong in March. Leaving the UK would save on HSBC's huge tax bill and starve government coffers at a time when the Treasury is looking to reduce the country's debt burden. HSBC has paid around £1bn a year in UK tax for the past half-decade.
Mr Geoghegan has tried to play down the rumours. At the bank's interim results earlier this month, he insisted: "We get lots of advantages being in the UK, we've got a sensible time zone between our operations around the world, we've got the ability to get the best talent in financial services. So I don't think there is any need for us to move our headquarters."
However, HSBC will press on with its location review, which last took place in 2008. At least one senior HSBC figure has voiced anger at the levy and thinks that a move abroad should be seriously considered. "HSBC is a significantly profitable business," said a City source. "All these changes to the tax rules have meant that it could look at its location quite seriously." The source believes that HSBC was looking at the location "more imminently" than next year, but others insisted that the review would take place in 2011 as originally planned.
There have been several high-profile defections from the UK in recent years to avoid what is increasingly viewed as a business-punishing tax regime. United Business Media, the publisher of trade titles Building and Property Week; Shire Pharmaceuticals, a London and New York-listed group; and the Sir Martin Sorrell-led marketing giant WPP have all moved their headquarters to Dublin.
Mr Osborne has vigorously defended the levy, which is currently open for consultation. In June he said: "This was a crisis that started in the banking sector and the failures of the banks imposed a huge cost on the rest of society. So it is fair and right that in future banks should make a more appropriate contribution which reflects the many risks that they generate."
HSBC announced a pre-tax profit for the six months to 30 June of $11.1bn, up from barely $5bn in the same period last year. The bank's shares closed at 652.9p on Friday, down 1.27 per cent on the start of the day's trading.Reuse content