As chancellor from 1997-2007, Gordon Brown's approach was to shear the sheep, not ?kill them. Leftwing demands to increase the top rate of income tax and abolish tax concessions for foreign non-domiciled residents were ignored and capital gains tax was cut. The government went out of its way to help the City. The Financial Services Authority was encouraged to foster innovation and preserve London's competitive position through light-touch regulation, and foreign banks and bankers flocked to London. Politicians praised the City as a beacon for the knowledge economy. Senior financiers applauded the government's actions and were welcomed into Westminster and Whitehall.

The banking crisis put this mutual admiration on hold. The public sector deficit, popular outrage at bankers' greed and ineptitude, and a realisation that light touch was the wrong touch caused many of the totemic City-friendly policies to be reversed. Capital gains tax was raised, income tax increases for high earners were announced and non-domiciles were drawn into the UK tax net. “Enforcement-led” replaced “light touch” regulation. City grandees still found their way to Downing Street but the atmosphere was frostier and they were required to do more listening.

For some months the City was in no position to object but the blend of the industry's recovery and this week's announced tax on bonus pools has lifted the lid. Trade associations and senior bankers have warned that capital and people are mobile, and that if the environment for financial services in the UK becomes harsher than elsewhere they will be off, taking their tax payments with them.