Senior figures in the United Kingdom government are increasingly concerned about the rise of Dubai as a financial centre and what it might mean for the future of the City of London.
They fear that a combination of huge oil surpluses in the Middle East and a relatively low-cost business hub, regulated with a common law legal system, may prove an irresistible lure to financial executives struggling with soaring costs in a global recession.
Last week Standard Chartered chief economist Gerald Lyons told journalists in Dubai that he had recently been in a meeting with senior members of the UK government where, for the first time in his experience, genuine concern over the mounting competition from Dubai as a financial centre was expressed "at the highest levels".
When you stop and think about it this is not so surprising. You only have to visit the Dubai International Financial Centre (DIFC) and note the new 80-storey skyscrapers under construction, let alone the tallest building in the world, the Burj Dubai, shooting up next door. Something is definitely happening in Dubai.
Across Dubai there is a trebling of commercial office space in progress towards a target of 50 square foot per capita, amongst the highest density of office accommodation in the world, and certainly the largest commercial real estate development between Asia and Europe.
But the DIFC is about much more than real estate. The centre is a free zone with its own system of common law for everything except criminal matters. Financial firms within the DIFC therefore operate to the same English-language law used in 95 per cent of commercial transactions around the globe. The free zone has its own court system and even its own land registry. DIFC firms can be 100 per cent foreign owned and are not taxed.
Then there is the Dubai International Financial Exchange (DIFX), an international stock market operated to global standards, now partly owned by Nasdaq, the giant United States stock exchange. The DIFX has not had an easy launch. But the $5 billion (Dh18.36bn) listing of DP World last autumn marked a big step forward in improving liquidity, and the probable initial public offerings of Emirates airline and Dubal are keenly awaited.
At the same time, high oil prices mean that consumer nations are effectively being taxed by the oil producers and that money is coming back to the Gulf Co-operation Council in buckets. The estimated current account surplus of the GCC nations this year will be a record $500bn. This is a very substantial amount of money that the financial sector will have to recycle back into the local and global economy.
Step forward the DIFC and its growing coterie of international financial firms, among them the giants like HSBC, Standard Chartered, Deutsche Bank, Morgan Stanley, Goldman Sachs and Barclays. Then there are all the ancillary services, old City of London names such as commercial litigation specialists Herbert Smith who now has a burgeoning law practice in the DIFC.
Now there is one thing that the City of London would not deny but hates to admit. The City is a very expensive place to do business. Office rental costs are among the highest in the world. Restaurants are staggeringly overpriced. Buying a suit will always cost more in the Square Mile. Apartment rents are astronomic. Salaries are sky high even in present markets. Deal costs are therefore very high.
The problem is that the UK, US, and possibly the whole of Europe are entering a long and deep period of recession. If you disagree with that then good luck as you are probably going to need it. More sober business heads will admit the possibility, if not likelihood of recession and look very, very hard at how to cut costs.
Coming to Dubai is likely to look an increasingly attractive option in this new financial environment. You will be closer to a growing source of new business, with a rapidly evolving financial sector underpinned by oil revenues and booming investment in real estate and infrastructure.
And new firms will also be able to significantly cut their costs by comparison to the super prices of the City of London at least.
Office accommodation will cost less, and is expected to fall in price as new projects are completed. Local infrastructure is world-class, particularly the airport with its well connected carrier Emirates airline. And the cost of ancillary services is still considerably lower than London whatever Dubai residents might imagine.
In addition, in order to stay competitive in terms of salaries then why not offer tax-free remuneration in Dubai as a lure to keep and retain the best staff? This costs financial firms setting up in Dubai nothing, and yet it is a major competitive advantage in any people business.
This is another reason for the UK to be fearful of competition from the DIFC. The UK has just clamped down on its tax breaks for non-domiciled foreigners working in the financial sector. Tax-free salaries are very attractive to financial staff. They generally have high salaries and pay a lot of tax in Britain.
In Dubai that money can be saved and also stay free of capital gains tax as well.
But most importantly in a recession cutting costs is the key to market survival and the big beasts of the financial jungle know that only too well, and that is why they are all planning expansion in Dubai.
London is therefore right to fear this new competition with Dubai's inevitable success coming partly at its expense.