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London's mountain of money
Camilla Cavendish

The middle classes are being squeezed by the capital's sup-rich. But they shouldn't complain


READING THIS WEEK that most architects, scientists and, er, journalists can no longer afford to pay private school fees, I was reminded of a conversation with a friend who has been doing the rounds of various London prep schools. “They’re full of bankers,” she moaned. “We’ve picked the one with more lawyers.” That’ll make a nice diverse group to grow up with.
The Halifax bank study says that only nine professions can now “comfortably” afford to pay such fees; five years ago 20 professions could. That is partly because many of these schools have spent fortunes on extra facilities, betting that they could stick the rich with ever-higher prices. It is also because English private schools have become an international commodity, to be snapped up by the world’s super-rich who are overpaid and over here.

We are in the midst of an economic shift of a kind not seen since the building of the railways or the invention of the silicon chip. The internet is driving globalisation: India and China are booming; capital markets have gone global. This is one of those shifts that sends great geysers of wealth shooting up. A lot of people who are standing in the right place are getting drenched in cash. And one of the right places to stand is the City of London. The City is a phenomenal driver of growth in the British economy. It is a tribute to its success that so much international talent wants a slice of the action. I realised recently that so many of our French and American friends have moved to London that we can no longer cadge a bed for the night in Paris or New York. They in their turn are boggled that London is so expensive. But of course the one is partly responsible for the other.

This year you had to be a billionaire to make Fortune magazine’s list of the richest 400 Americans. Britain has 54 billionaires, and the ranks of the super-rich are swelling. There are now almost half a million liquid millionaires in the UK, and in London one in twenty households has more than £1 million in property and other investments. This has various effects. You may not be particularly concerned that inflation in luxury goods is rampant, that trophy paintings, for example, are going through the roof — Klimt’s Portrait of Adele Bloch-Bauer I sold in June for $135 million, thought to be the highest sum paid for a painting — or that a kilo of Beluga caviar costs 40 per cent more today than it did a year ago. It’s getting expensive to be rich. So what?

But it is also getting expensive not to be rich. London has become the most costly city in the world to live in. The South East’s property market tightened again this year as half of all houses sold for more than £2 million went to foreigners who mostly had no property to sell in its place. You may not care that Belgravia is a graveyard of empty dwellings, because their owners divide their time between New York and Moscow and whatever Caribbean island is most fashionable. But the top end pulls prices up all down the scale. That’s not good for middle-class professional families which are being priced out of the areas they could once expect to live in. They are gradually becoming aware that they are being outbid and outpaced by this new wealth. And they are starting to resent it.

The word “banker” has ceased merely to describe a profession: it has become a profanity. “All those bloody people in the City,” said a top architect I saw a few weeks ago, “doing jobs that any of us could do.” He, of course, has not tried getting up at five in the morning to engineer a Japanese IPO. The Tim-Nice-But-Dims left the City long ago for estate agency, where they are now profiting handsomely from their clever successors. But there are still mediocre people coining it from the geyser. And it has to be said that the architect does at least create buildings that you can see. The new Masters of the Universe conjure up hedge funds and financial instruments that sound to many people like numbers masquerading as work. Most people experience the City only when they invest in Isas or pensions, on which they mostly get dismal returns because they pay such big charges to the very same fund managers who seem to be pricing them out of the housing market.

The moneymakers are dangerously detached from this reality. I was at a private dinner a few months ago with some top finance men. As the wine flowed, the conversation turned to tax. “Poor old Philip (Green)” said one, “it’s awful that he has to live in Monaco most of the year.” Why does he do that, I asked stupidly, instantly confirming myself as out of their league. “To avoid paying tax,” explained my neighbour with a sigh. “I may have to start doing the same myself.” “What?” I blundered on furiously. “Why can’t you pay tax like everyone else? How many yachts do you need?” This, I admit, may have been a faux pas. But it was instructive. These men are all self-made. They are hugely talented. At least one is a serious philanthropist, as are many of the super-rich. But they all seem strangely unaware of the increasing suspicion with which their ilk is viewed by people who would once have respected their ability.

When people hear that the bosses of Britain’s 100 largest companies have upped their own salaries by more than double that which they have paid their staff this year, often with little apparent relationship between pay and performance, they wonder what values those people are living by. When they read about the former bond trader who is suing Nomura for £7.5 million, because it paid him only a £1.3 million bonus, they wish the whole damn lot would move to the other planet it is mentally living on.

That would be terrible. For the fact that the world is coming to London has given us an economic strength that we did not have 20 years ago. And the British world of finance is a fantastic meritocracy. The best and brightest, the self-made, have routed the old upper classes. We shouldn’t want to lose them.

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http://www.timesonline.co.uk/article/0, ... 27,00.html