In discreet offices that occupy the elegant Georgian buildings of Mayfair and Belgravia, the heartlands of London’s hedge fund industry, there are a lot of nervous people.

But its not the state of the markets or their exposure that’s making them nervous. No they’re nervous because Gordon Brown refuses to see just how important these financial institutions are to the British economy.

Not only is Brown not fighting their corner as European legislation tries to clamp down on their activities, but recent British tax hikes have also spurred funds to consider leaving the city that has long been Europe’s undisputed financial capital.

The hedge fund industry is worth $250 billion ($377 billion) in Europe, and has boomed in recent years largely free of government regulation.

The sector didn’t cause the global financial crisis, but it has caught the eye of European governments and regulators looking to clamp down on the excessive risk-taking that brought many Western banks to the verge of collapse last year.

European union proposals would require hedge funds and private equity funds to register in Europe and to inform regulators about their trades and strategy.

EU lawmakers and governments are also suggesting that hedge fund managers be subject to the same kind of restrictions and bonuses currently being imposed on regular banks to limit rewards for short-term success.

Criticising the governments actions Shadow Foreign Secretary William Hague said: “[The] financial services are a vital British economic interest and, while we want to coordinate regulation internationally, the European Commission’s proposals have the potential to do serious harm to our financial services industry.”

Now some funds are considering swapping London for the less-regulated alpine air of Switzerland or the emerging markets of Asia. If this were allowed to happen it would be disastrous not only for London’s status as the financial capital of Europe, but also Treasury coffers.

The hedge fund industry says nearly half of the 40,000 people it employs in Europe are based in the British capital, along with 80 percent of the continent’s hedge fund assets.

International Financial Services London, a government-backed body, says London’s share of the hedge fund market doubled between 2002 and 2008, to 18 percent of the global total. The industry says it pays 5.3 billion pounds in tax to the British government every year.

There have already been signs of flight since Alistair Darling announced the higher rate of tax for people earning more than £150,000 would increase from 40 percent to 50 percent in April 2010.

Anthony Bolton, one of London’s most distinguished fund managers, this week announced he plans to move to Hong Kong to focus on the Chinese market.

Brown may have wanted his man to become the EU’s first High Representative for Foreign Affairs, but the real prize was the post of economic and monetary affairs commissioner. Instead of campaigning to get David Miliband into a senior European post, Brown should have been more concerned with protecting Britain’s economic interests.

Instead we now have Finland’s Olli Rehn in charge of reviving Europe’s economy.

Im sure Rehn is competent and will do a good job, but one thing is for sure – the British economy will not be at the forefront of his mind. And unlike Brown or Darling the Finnish finance minister Jyrki Katainen sees the power that this high-profile position gives his country.

Speaking to the Finnish News Agency Katainen said: “Finland’s voice will be heard better than before through Rehn,” adding “”The better the shape of EU countries’ economies the more Finnish products [they] can buy. That has a direct impact on Finland in the shape of tax revenue and jobs.”

Commenting on the appointment of Rehn and the UK’s lack of representation when it comes to the formulation of European economic policy Hague said: “We repeatedly warned the Government that going for the High Representative post and not a senior economic brief in the Commission could have worrying results. Once again Gordon Brown has put the next day’s headlines ahead of the long-term British national interest.