N.Rock, tax plan hit London's edge over NY: report

LONDON (Reuters) - London is losing its lead as the world's top financial center, hit by the crisis at bank Northern Rock NRK.L and the government's proposed levy on wealthy foreigners, a report said.

London is still the world's leading financial centre ahead of New York, but the gap has narrowed to 9 points from the previous 19, according to a report published by the City of London Corporation.

The City of London financial district has led Britain's economic growth as deregulation in 1986 propelled the finance industry to grow faster than the economy as a whole.

London's financial sector, home to global banking, securities, insurance and hedge funds, made up 9.4 percent of the economy in 2006, compensating for a falling contribution from manufacturing.

"London has halved its lead over New York, possibly reflecting the run on the UK bank Northern Rock and prospective changes in the UK non-domiciled taxation system," the report said on Thursday.

Britain plans to introduce a charge on wealthy foreigners who live in Britain but are non-domiciled for tax purposes.

Under the proposal, after seven years non-domiciled residents must pay 30,000 pounds ($59,480) a year if they wanted their overseas income to remain outside the UK tax net, or become a normal UK tax payer.

The Global Financial Centres Index, compiled from questionnaires completed by 1,200 financial services workers around the world, showed that London scored 795 points, ahead of New York's 786 points and third-ranked Hong Kong, which scored 695.

The City of London Corporation provides local government services for the capital's financial district.

The index was first published in March 2007 to rank and rate global financial centres in terms of competitiveness.

(Reporting by Miyoung Kim; Editing by Erica Billingham)