Burnham set for crunch decision on JP Morgan’s £10bn tower
Andy Burnham’s government will face a crunch decision on the future of JP Morgan’s flagship tower in Canary Wharf as it weighs whether to uphold a major tax break for the project despite opposition from industry groups.
The next Chancellor will serve as the final arbiter on the framework of a business rates exemption for the Wall Street bank’s new office, that could reach up to 100 per cent.
Tower Hamlets Council – which covers Canary Wharf – the Greater London Authority, and the government agreed to a Memorandum of Understanding (MoU) with the bank in March that signalled the project would be exempt from business rates.
The MoU – which is not legally binding – was only formally inked last month, sources told City PM, meaning the new government will face the immediate task of progressing the deal to a legally binding agreement.
The decision will pose an early test for the Chancellor and provide a clear signal to business over the government’s willingness to court and encourage international investment – something Rachel Reeves had pledged to do during her tenure.
When questioned whether the MoU would be upheld, a spokesperson for Andy Burnham said they were “not going to add at the moment”.
Legal complications
The local council had recommended designating the site of the tower an enterprise zone, which would give JP Morgan a business rates discount for five years and then hand Tower Hamlets the entirety of the business rates revenue for the 25 years following.
Those terms were agreed in June’s deal, avoiding an alternative plan that would see the cost of the tax cut split between Tower Hamlets, the Treasury and Greater London Authority.
The enterprise zone is expected to unlock between £1bn and £1.6bn in long-term local returns over the 25 year period, according to Tower Hamlet’s calculations. But the site is yet to receive the formal designation, which would require legislation to be passed through Parliament.
The declaration of an enterprise zone is also being held up by legal complications which surround the Subsidy Control Act of 2022, City PM understands. The post-Brexit regulation requires any targeted tax discounts to clear a seven-principle statutory test to prove it doesn’t unfairly distort the market.
In order to declare an enterprise zone, the government must draft a statutory instrument – a form of secondary legislation – that contains a legally binding map designing the geographic coordinates of the zone.
The final decision to draft this instrument and rule on the framework of the tax road map will land on the desk of Burnham’s Chancellor – now widely expected to be current home secretary Shabana Mahmood.
Dimon: We’ll pull tower if government becomes hostile to banks
The government has warned the local authority that America’s biggest bank was “unlikely to progress” the project “without clarity and certainty” on its tax bill, according to a council report.
JP Morgan revealed plans to build the tower in the aftermath of Rachel Reeves’ last Autumn Budget, which she declared a “vote of confidence” in the UK economy.
A source close to the bank told City PM: “All relevant parties have signed the Memorandum of Understanding and it is our belief that the terms of it will be honoured in good faith.”
The tower, which would mark the largest in the Docklands, received the green light from London City Airport in April following discussions around air restrictions.
It is expected to pump £10bn into the local economy, and create up to 7,800 construction jobs at its peak.
Jamie Dimon, the chief executive of JP Morgan, said in May the bank could scrap the new HQ, expected to house more than half of its 23,000 UK staff, if the government became “hostile to banks again”.
“We paid probably $10bn in extra taxes by now… I don’t think that’s right or fair. If that happens too much we will reconsider,” he said.
Hospitality sounds off on ‘unfair’ tax deal
Andy Burnham is already facing a series of lobbying calls to overhaul the business rates system to support high street firms.
UKHospitality – which is on a lobbying offensive to overhaul the tax – has previously been critical of plans for JP Morgan to receive an exemption.
Kate Nicholls, the chair of the industry body, said it doesn’t feel “fair or sustainable” to be giving incentives to companies that can afford to pay.
One City source suggested Manchester’s high-rise boom overseen by Burnham during his stint as Mayor could provide some hope he would deliver on the deal.
The Manchester Combined Authority agreed to pump over £50m into a project by Nobu Hospitality that will see the construction of the tallest skyscraper outside of London after efforts appeared to be stalling last year.
The Treasury, JP Morgan, GLA and Tower Hamlets Council all declined to comment.