So how will this cap on immigration work?

LONDON, 14 MAY 2012 – Global investment bank MorganGoldensacks this morning threatened to move its entire operation out of the United Kingdom after it was refused permission to relocate staff from New York, Singapore and Hong Kong to its London office. The bank’s management hit out at excessive government regulation after falling foul of the new immigration rules brought in by David Cameron’s government last year.

MorganGoldensacks had planned to set up a new team in London to take advantage of the rapidly growing Black Hole Derivatives (BHD) market. Black Hole Derivatives are complex financial instruments designed to exploit the loopholes in the international banking regulations brought in after the 2011 G20 summit. Over the past year, London has established itself as a major centre for trading in BHDs but investment banks are warning that its position is now under threat.

As Bradley Smythe-Hoover, head of derivatives at MorganGoldensacks explained:

“BHDs are highly complex instruments. The analysts and traders who work in this field are our brightest people. It’s not something just anyone can do. The BHD market is constantly changing and the creativity needed to stay ahead of the game needs people to be in one place so they can bounce ideas of each other. We wanted to bring them all together to create that critical mass. We hoped to be able to do that in London. Now we will have to look somewhere else.”

A combination of factors has meant that, five months into the year, the 2012 immigration cap has already been reached. Unemployment has fallen rapidly as the economy has improved and ideal weather conditions have caused farmers to bring in foreign workers to prepare for a bumper harvest. There has been little interest from local people in jobs at the Olympic Games, so London 2012 sent out an urgent appeal for migrant workers in January. The annual cap on migrants was reached a few days ago when EasyTandoori, the joint venture between Stelios Haji-Ioannou and Gulam Noon, brought 500 Indian waiters and kitchen staff to the UK, in preparation for the opening of its restaurants later this year.

These explanations cut little ice with Mr Smythe-Hoover.

“The bottom line is, if we can’t bring our people into the UK, then we will take our people in the UK and move them somewhere else. Other investment banks are in a similar position. This is a serious threat to London’s status as a major financial centre.”

The cap on immigration was one of the Conservative Party’s flagship policies in the 2010 general election. Any attempt to water it down would be seen as a humiliating climb-down. The investment banks are privately furious that the policy has been applied to their staff. There is talk in the City pubs and wine bars of a mass exodus to Switzerland, New York or the Far East.

The Conservatives were preparing for some tough battles when they took office but they probably did not expect to pick a fight with the investment banks. The future of the government’s immigration policy may depend on who blinks first.