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Why we must maintain the highest standards in banking in the new political landscape

Like most people who grew up north of the M25, my cultural expectations of those money-making for banks in the square mile were set hard by the tone of the 1980s: wealth, decadence, and all the gentle subtlety of a chalk-stripe, double-breasted suit, with bright red tie and braces.  The culture of the City has, for many Brits, felt very far away.  It has felt like a different country, where different rules, different standards apply.

And yet, this is a view you come to if you consider only recent history.  Given where Britain’s industrial history began, the making of British financial services is as much a story of economic change in Liverpool, Manchester, Edinburgh and Glasgow as it is London. Factory owners and shipping lines needed bankers, and the centres of our northern cities bear witness to this past as the old bank buildings host the new trendy bars and restaurants. What’s more.  Financial services is not – even now - purely a business crucial to London or South East England.  Two thirds of the industry exists outside of London and the South East.  Credit card providers, insurers, pension funds. Companies doing this work provide employment for British people from all over. 

The industry is like a huge octopus.  Its tentacles reach everywhere, as its role in providing capital and credit to businesses and consumers determines the speed and volume of money moving round our country. From the credit lines that help people buy British made cars through to local government pension funds shaping town centre development, well functioning money matters to functions that are not obviously purely financial.

We found this out to our cost, as poor practices in the industry, and a get-rich-quick culture, lead to the death spiral of the 2008 banking crash.  This was a deep crisis, to which politics and the state was forced to respond before it led to total collapse.

Ironically, the Brexit vote has brought about something of the reverse situation.  A political crisis that has collapsed the value of sterling - and which could have done worse in the short-term - has been stemmed by the financial markets  successfully managing risk. We don’t yet know the longer term impact of Brexit, but we do know that business has valiantly kept the show on the road despite serious political upset.

What is the lesson here then?

Firstly, we should cease to think of financial services as impacting one part of the country or one part of our industry. The name The City is deeply unhelpful. Financial services is important to pretty much all our cities.  But that’s why we need a completely different policy debate that restores the role of regional financial institutions like building societies, and hopefully creates new ones to back regional businesses.

Diversity is good, but too often Westminster has responded to the needs of big banks close by, rather than to the diverse needs of our regional economies.

Secondly, given the pervasive nature of financial services, it is absolutely vital that despite the Brexit turbulence, we maintain clear unambiguous standards in our financial services industry. Now the UK has lived through the consequence of poor standards, not just in 2008, but before then. It is easy to overlook mis-selling scandals like endowment morgages or the failure of pension funds.

What is the consistent lesson from all of these scandals? Regulation is important. Powerful regulators can do a lot of good to maintain good practices, and substantially further consumer interests.

But by itself regulation can never deal with the worst offenders determined to shaft the public, and regulation will normally risk becoming over-bureaucratic and ineffective unless we maintain a culture of high standards in our financial services institutions.

What do I mean by culture? Essentially the values that a business lives by.  Is a company’s purpose to squeeze every penny out of their customers? Or to charge them a fair price for managing their money? Do businesses want to create new financial products just to undercut the next firm, or because it will genuinely help more companies succeed, or more Brits do well?

Companies have to answer these questions truthfully for themselves, but meanwhile, policy makers must prioritise maintaining stable standards despite the current political mess we are in.  The public will not thank us for even more uncertainty and opening them up to even greater risk.

Barclays has commissioned a report ‘‘What have the Capital Markets ever done for us? And how could they do it better?’ by New Financial with the hope to start a debate about the value of capital markets to the economy, especially in the UK. Many thanks go to those who joined us at our events with New Statesman so to examine the report’s findings in detail.

Alison McGovern is Labour MP for Wirral South and the co-chair of the all-party parliamentary group Friends of Syria. 

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The Brexit Beartraps, #2: Could dropping out of the open skies agreement cancel your holiday?

Flying to Europe is about to get a lot more difficult.

So what is it this time, eh? Brexit is going to wipe out every banana planet on the entire planet? Brexit will get the Last Night of the Proms cancelled? Brexit will bring about World War Three?

To be honest, I think we’re pretty well covered already on that last score, but no, this week it’s nothing so terrifying. It’s just that Brexit might get your holiday cancelled.

What are you blithering about now?

Well, only if you want to holiday in Europe, I suppose. If you’re going to Blackpool you’ll be fine. Or Pakistan, according to some people...

You’re making this up.

I’m honestly not, though we can’t entirely rule out the possibility somebody is. Last month Michael O’Leary, the Ryanair boss who attracts headlines the way certain other things attract flies, warned that, “There is a real prospect... that there are going to be no flights between the UK and Europe for a period of weeks, months beyond March 2019... We will be cancelling people’s holidays for summer of 2019.”

He’s just trying to block Brexit, the bloody saboteur.

Well, yes, he’s been quite explicit about that, and says we should just ignore the referendum result. Honestly, he’s so Remainiac he makes me look like Dan Hannan.

But he’s not wrong that there are issues: please fasten your seatbelt, and brace yourself for some turbulence.

Not so long ago, aviation was a very national sort of a business: many of the big airports were owned by nation states, and the airline industry was dominated by the state-backed national flag carriers (British Airways, Air France and so on). Since governments set airline regulations too, that meant those airlines were given all sorts of competitive advantages in their own country, and pretty much everyone faced barriers to entry in others. 

The EU changed all that. Since 1994, the European Single Aviation Market (ESAM) has allowed free movement of people and cargo; established common rules over safety, security, the environment and so on; and ensured fair competition between European airlines. It also means that an AOC – an Air Operator Certificate, the bit of paper an airline needs to fly – from any European country would be enough to operate in all of them. 

Do we really need all these acronyms?

No, alas, we need more of them. There’s also ECAA, the European Common Aviation Area – that’s the area ESAM covers; basically, ESAM is the aviation bit of the single market, and ECAA the aviation bit of the European Economic Area, or EEA. Then there’s ESAA, the European Aviation Safety Agency, which regulates, well, you can probably guess what it regulates to be honest.

All this may sound a bit dry-

It is.

-it is a bit dry, yes. But it’s also the thing that made it much easier to travel around Europe. It made the European aviation industry much more competitive, which is where the whole cheap flights thing came from.

In a speech last December, Andrew Haines, the boss of Britain’s Civil Aviation Authority said that, since 2000, the number of destinations served from UK airports has doubled; since 1993, fares have dropped by a third. Which is brilliant.

Brexit, though, means we’re probably going to have to pull out of these arrangements.

Stop talking Britain down.

Don’t tell me, tell Brexit secretary David Davis. To monitor and enforce all these international agreements, you need an international court system. That’s the European Court of Justice, which ministers have repeatedly made clear that we’re leaving.

So: last March, when Davis was asked by a select committee whether the open skies system would persist, he replied: “One would presume that would not apply to us” – although he promised he’d fight for a successor, which is very reassuring. 

We can always holiday elsewhere. 

Perhaps you can – O’Leary also claimed (I’m still not making this up) that a senior Brexit minister had told him that lost European airline traffic could be made up for through a bilateral agreement with Pakistan. Which seems a bit optimistic to me, but what do I know.

Intercontinental flights are still likely to be more difficult, though. Since 2007, flights between Europe and the US have operated under a separate open skies agreement, and leaving the EU means we’re we’re about to fall out of that, too.  

Surely we’ll just revert to whatever rules there were before.

Apparently not. Airlines for America – a trade body for... well, you can probably guess that, too – has pointed out that, if we do, there are no historic rules to fall back on: there’s no aviation equivalent of the WTO.

The claim that flights are going to just stop is definitely a worst case scenario: in practice, we can probably negotiate a bunch of new agreements. But we’re already negotiating a lot of other things, and we’re on a deadline, so we’re tight for time.

In fact, we’re really tight for time. Airlines for America has also argued that – because so many tickets are sold a year or more in advance – airlines really need a new deal in place by March 2018, if they’re to have faith they can keep flying. So it’s asking for aviation to be prioritised in negotiations.

The only problem is, we can’t negotiate anything else until the EU decides we’ve made enough progress on the divorce bill and the rights of EU nationals. And the clock’s ticking.

This is just remoaning. Brexit will set us free.

A little bit, maybe. CAA’s Haines has also said he believes “talk of significant retrenchment is very much over-stated, and Brexit offers potential opportunities in other areas”. Falling out of Europe means falling out of European ownership rules, so itcould bring foreign capital into the UK aviation industry (assuming anyone still wants to invest, of course). It would also mean more flexibility on “slot rules”, by which airports have to hand out landing times, and which are I gather a source of some contention at the moment.

But Haines also pointed out that the UK has been one of the most influential contributors to European aviation regulations: leaving the European system will mean we lose that influence. And let’s not forget that it was European law that gave passengers the right to redress when things go wrong: if you’ve ever had a refund after long delays, you’ve got the EU to thank.

So: the planes may not stop flying. But the UK will have less influence over the future of aviation; passengers might have fewer consumer rights; and while it’s not clear that Brexit will mean vastly fewer flights, it’s hard to see how it will mean more, so between that and the slide in sterling, prices are likely to rise, too.

It’s not that Brexit is inevitably going to mean disaster. It’s just that it’ll take a lot of effort for very little obvious reward. Which is becoming something of a theme.

Still, we’ll be free of those bureaucrats at the ECJ, won’t be?

This’ll be a great comfort when we’re all holidaying in Grimsby.

Jonn Elledge edits the New Statesman's sister site CityMetric, and writes for the NS about subjects including politics, history and Brexit. You can find him on Twitter or Facebook.