City of London

That is an extremely good point. Some of the livery companies have strong connections with other areas; for instance, given the historical and traditional importance of steel, the Cutlers are strong in places such as Sheffield. The fact that a huge number of schools have received large sums from trusts set up, often centuries ago, by the livery companies bears witness to what my hon. Friend says, as does the fact that large tracts in Greater London and outside the square mile—places such as Epping forest, Hampstead heath, West Ham park and Queen's park—are some of the finest open spaces, which are of great benefit to Londoners and those who live in the home counties. As the hon. Member for Selby said, the financial services global competitiveness group report was published on 7 May. It called for greater co-ordination and strategy in the way in which the UK financial services industry promotes itself. I take on board his concern that too many City folk may have been involved, but it is fair to say, as he did, that although the City was regarded—certainly between 1914 and about 1986—very much as a club, it has become much more open, and there is now more social mobility in some areas than we could have dreamed of only 20 or 30 years ago. City professionals may therefore come from different walks of life than would have been the case a generation or so ago. Since last year, the City of London corporation has been working to set up a new body with the aim of providing a single focus for promoting the financial services industry to a domestic and international audience. It will work alongside existing bodies in international finance, and Sir Stephen Wright plays an important role in that regard, working with the Mayor of London, who clearly has an interest in the issue. There has been some tremendous co-ordination under the auspices of the City of London corporation, with one eye very much on the future and the importance of our capital, alongside Beijing, which held the Olympics in 2008, and Rio de Janeiro in Brazil, which will be a big global capital in 2016. As a starting point, a small steering group has been established, and it is anticipated that the new body will be launched and perhaps named later this year. It will be independent, practitioner-led, politically neutral and cross-sectoral. Above all, it will try to represent the financial services industry across the UK, not just in central London. The Government, particularly the Treasury and UK Trade and Investment, have been closely involved in the development of the initiative, which will form one of the most important elements of the City of London's outlook in the years to come. I want now to say a few words about hedge funds. In many ways, their rise and power represent one of the biggest changes to the global economy over the past half a century. Largely for that reason, there has been a demand, which predates the banking collapses of the past two years, for an alternative investment directive in Europe. Hedge funds are predominantly limited liability partnerships, so they are exempted from much of the regulation that applies to investment banks and even mutual funds. As pools of highly mobile capital, they have fast developed a reputation for moving financial market mountains by anticipating future expectations. There is no doubt that they thrive on volatility, and the crux of the controversy that surrounds them is the degree to which they cause or affect fundamental shifts in financial markets. As the hon. Member for Selby said, this relatively unpoliced, unsupervised and, until recent years, fairly low-profile sector of the financial services world is now firmly in the sights of the European Commission, as well as of Mr. Will Hutton of The Work Foundation. However, the Commission's proposed directive to regulate hedge funds and the private equity sphere betrays, as my hon. Friend the Member for West Suffolk (Mr. Spring) said, a lack of understanding about the business's workings. Alternative investment funds have already accepted that the new regulatory climate means that they will be required to boost transparency, as well as to accept new controls on disclosure and, most likely, on clearing, settlement and custody. However, the draft directive goes a long way beyond that and may make it quite impractical for funds owned by non-EU entities, which make up a significant proportion of the funds operating in London, to distribute their products in the EU. The combination of such an approach with other perceived regulatory and fiscal burdens may persuade hedge funds to relocate to other financial centres, such as Switzerland, or to return to the United States, with its much more mature market. Similarly, hedge funds that relocate may provide the critical mass for emerging financial centres such as the Gulf or the far east. Such an outcome would be in the interests of neither the UK and the City of London, nor the EU. At a supranational level, the directive would diminish competition, and I entirely endorse what the hon. Member for Selby said, because competition is key. We will no doubt experience a big hue and cry about huge banking profits in the press in the next week or two, but the point is that competition has simply diminished and died away to a large extent. In fairness, I suspect that most of the huge profits that we will see this year will be an exception, and I hope that there will be new players in the market. We must remember, however, that regulation itself is the biggest barrier to allowing new, innovative companies into any new market. One concern is that a highly regulated market will have a very detrimental effect.