Nicholas Faith: The selfish City won't repay a national sacrifice


Related Topics

Let us hope that the City – and above all the hedge funds which contributed so generously to the Tory war chest – are happy.

For in the early hours of yesterday, David Cameron made it clear that the well-being of London's financial community was a vital element in Britain's economic well-being. So crucial, in fact, that it formed the key reason – or was it just a convenient excuse? – for the decision to ruin our relationship with the European Union, and above all with its dominant forces, France and Germany.

Cameron's veto of the EU treaty change needed to save the euro could prove an exceedingly expensive gamble, politically and economically for him – and indeed for the whole country. It also turns the spotlight on what the City can do in return for the Prime Minister's loyalty. In theory, it should lead the City to help the rest of a country that has taken such a risk on its behalf. But this would set a historic precedent in 2,000 years which, unfortunately, show that London has always been a selfish, insular place invariably independent from the rest of the country, looking abroad for its living, and perfectly capable of ignoring the wishes of successive governments up-river in distant Whitehall, let alone the needs of the wider economy by providing funds for industrial development.

The City's neglect is based on a fundamental inability to think long term, for the Square Mile has always been a home for traders rather than investors. The tradition of trade and finance has been reinforced by a steady stream of immigrants reaching back over the past two millennia. In Roman times, they came from as far as North Africa. Since then, the City has always flourished because of incomers, Dutch and Danes, Huguenots, Jews – and, today, as many as 300,000 young Frenchmen.

For centuries, the greed and short-sightedness of the City's denizens have made them a target: in the 18th century, Jonathan Swift described the jobbers as "traders waiting for shipwrecks in order to strip the dead". Alexander Pope was just as sharp: "There's London's voice, 'get money, get money'." The industrial revolution emphasised that the rest of the country lacked any real business connection with London. In the 19th century, great manufacturing cities – Birmingham, Manchester, Middlesbrough – boomed thanks to local finance. The biggest absorbers of capital, the railways, were originally financed by Quakers in the north east and by what was called the "Liverpool interest". As soon as the City got involved, there was the usual pattern of recurrent financial crises. For most of London's company promoters were crooked. During the 19th century, the London markets became steadily less connected with commercial reality. As the great Nathan Meyer Rothschild put it: "I am no trader in goods." By the end of century, the City was investing money everywhere from US railroads to the railway networks of Argentina, often with disastrous results, rather than at home.

There has been one previous attempt to fill the historic finance gap left by the City's reluctance to rally round. In 1945, the newly elected Labour government founded the ICFC (Industrial and Commercial Finance Corporation), funded by the clearing banks. The corporation aroused intense hatred in the City; the clearers declared that it was unnecessary, while the merchant banks hated it because it undercut their fees. Nevertheless, it provided a lot of money to worthy industrial borrowers.

In the early 1970s, the City taught a previous Tory prime minister, Edward Heath, not to rely on it – indeed, demonstrated clearly the damage that it could do to British industry. The damage was the work of a horde of adolescent asset strippers whose antics – mostly in the form of insider trading – destroyed many "ordinary" companies which provided actual goods and services. The leader of the pack – Jim Slater of Slater Walker – put their attitude clearly: "Let's face it: none of us here are interested in management." Their antics infuriated Ted Heath – and contributed to his downfall. As Anthony Sampson pointed out, by the 1980s "the Square Mile of the City has become like an offshore island in the heart of the nation".

Not surprisingly, the Thatcher years led the ICFC astray. In 1987, the banks sold their shares. It was renamed 3i, floated on the stock market, abandoned its former role and mutated into just another private equity fund investing more abroad than at home. Its story shows clearly how the very success of the City in the past 30 years has merely accentuated its irrelevance to the vast majority of British businesses. The City's inhabitants simply became richer, greedier – and more arrogant – fleecing any business foolhardy enough to look to place its shares on the stock market, or simply for capital for investment purposes.

If history was anything to go by, the arrival of a Labour government in 1997 should have helped. Sadly, Gordon Brown took his personal reaction against Old Labour to an extreme degree. Worse, he was obsessed by the City, which he saw as the only possible saviour for the economy and Fred Goodwin of RBS as his beau ideal of a businessman, and we know what that led to. Not surprisingly, barely any manufacturing jobs were created in the West Midlands, traditionally the heartland of the country's manufacturing sector, during his decade at the country's economic helm.

It was only in January 2009 that the improbable figure of Peter Mandelson resuscitated the idea by allocating the pathetic sum of £75m to a new enterprise fund. In the past year, Messrs Cameron and Osborne, the sons of a leading stockbroker and a wallpaper manufacturer respectively, have provided financial help to Britain's small and medium-sized businesses in the form of £1.5bn grant to the regional growth fund. But this was only a pilot scheme which will require the City to put up far more money to salvage manufacturing.

In theory, this week's demonstration of the City's power should at least persuade it to change the habits of two millennia and make a positive contribution to the economic welfare of the majority of the country which provides the nine-tenths of British economic life for which the City is not responsible. There will be an early test of a possible new relationship as the Government tries to persuade investors to provide long-term finance for long-neglected crumbling infrastructure. But the City is such a short-termist community that it may well not show any such gratitude. In fact, its inhabitants may even resent Cameron's support. Just remember the old saying: "Why do you hate me? I have never tried to help you."

React Now

Latest stories from i100
Have you tried new the Independent Digital Edition apps?
iJobs Job Widget
iJobs General

Opilio Recruitment: QA Automation Engineer

£30k - 38k per year + Benefits: Opilio Recruitment: An award-winning consume...

Opilio Recruitment: UX & Design Specialist

£40k - 45k per year + Benefits: Opilio Recruitment: A fantastic opportunity ...

Opilio Recruitment: Publishing Application Support Analyst

£30k - 35k per year + Benefits: Opilio Recruitment: We’re currently re...

Opilio Recruitment: Digital Marketing Manager

£35k - 45k per year + benefits: Opilio Recruitment: A fantastic opportunity ...

Day In a Page

Read Next
A Pokot woman holds a razor blade after performing a circumcision on four girls  

The campaigns to end FGM are a welcomed step, but they don't go far enough

Charlotte Rachael Proudman
Our political system is fragmented, with disillusioned voters looking to the margins for satisfaction  

Politics of hope needed to avert flight to margins

Liam Fox
Homeless Veterans Christmas Appeal: ‘We give them hope. They come to us when no one else can help’

Christmas Appeal

Meet the charity giving homeless veterans hope – and who they turn to when no one else can help
Should doctors and patients learn to plan humane, happier endings rather than trying to prolong life?

Is it always right to try to prolong life?

Most of us would prefer to die in our own beds, with our families beside us. But, as a GP, Margaret McCartney sees too many end their days in a medicalised battle
Thomas Cook's outgoing boss Harriet Green got by on four hours sleep a night - is that what it takes for women to get to the top?

What does it take for women to get to the top?

Thomas Cook's outgoing boss Harriet Green got by on four hours sleep a night and told women they had to do more if they wanted to get on
Christmas jumper craze: Inside the UK factory behind this year's multicultural must-have

Knitting pretty: British Christmas Jumpers

Simmy Richman visits Jack Masters, the company behind this year's multicultural must-have
French chefs have launched a campaign to end violence in kitchens - should British restaurants follow suit?

French chefs campaign against bullying

A group of top chefs signed a manifesto against violence in kitchens following the sacking of a chef at a Paris restaurant for scalding his kitchen assistant with a white-hot spoon
Radio 4 to broadcast 10-hour War and Peace on New Year's Day as Controller warns of cuts

Just what you need on a New Year hangover...

Radio 4 to broadcast 10-hour adaptation of War and Peace on first day of 2015
Cuba set to stage its first US musical in 50 years

Cuba to stage first US musical in 50 years

Claire Allfree finds out if the new production of Rent will hit the right note in Havana
Christmas 2014: 10 best educational toys

Learn and play: 10 best educational toys

Of course you want them to have fun, but even better if they can learn at the same time
Paul Scholes column: I like Brendan Rodgers as a manager but Liverpool seem to be going backwards not forwards this season

Paul Scholes column

I like Brendan Rodgers as a manager but Liverpool seem to be going backwards not forwards this season
Lewis Moody column: Stuart Lancaster has made all the right calls – now England must deliver

Lewis Moody: Lancaster has made all the right calls – now England must deliver

So what must the red-rose do differently? They have to take the points on offer 
Cameron, Miliband and Clegg join forces for Homeless Veterans campaign

Cameron, Miliband and Clegg join forces for Homeless Veterans campaign

It's in all our interests to look after servicemen and women who fall on hard times, say party leaders
Millionaire Sol Campbell wades into wealthy backlash against Labour's mansion tax

Sol Campbell cries foul at Labour's mansion tax

The former England defender joins Myleene Klass, Griff Rhys Jones and Melvyn Bragg in criticising proposals
Nicolas Sarkozy returns: The ex-President is preparing to fight for the leadership of France's main opposition party – but will he win big enough?

Sarkozy returns

The ex-President is preparing to fight for the leadership of France's main opposition party – but will he win big enough?
Is the criticism of Ed Miliband a coded form of anti-Semitism?

Is the criticism of Miliband anti-Semitic?

Attacks on the Labour leader have coalesced around a sense that he is different, weird, a man apart. But is the criticism more sinister?
Ouija boards are the must-have gift this Christmas, fuelled by a schlock horror film

Ouija boards are the must-have festive gift

Simon Usborne explores the appeal - and mysteries - of a century-old parlour game