Summer headlines on “de-banking”, the shunning of defence companies by investors, and executives at firms debating the finer detail of diversity and inclusion policy with regulators are arguably not the contribution to the post-Covid economy anyone would seek from the City.
Instead, we look to the financial services industry to provide enormous positive impacts to society in the ways they always have: the statistical magic of pooling and sharing risks between a wide group, for example – an innovation following the Great Fire of London – so that payment of a small premium insures against an event that might otherwise wipe out a family’s finances for generations. Or the benefits of savings and investment, allowing people to build financial resilience and to shift their resources from when they are earned to when they may be most needed. Not for nothing did Albert Einstein say, when asked what the most powerful force in the universe was, “compound interest”.
Nor should we fall into the trap of thinking that financial services are only for those who already have wealth. Most financial products help those on modest incomes. Credit, used well, provides a vital ladder of opportunity, allowing households to achieve their future plans and ambitions, perhaps to secure a home, build a business or to smooth out the costs of some of life’s more expensive moments.
A high-performing financial services sector is part of our social infrastructure, providing life-enhancing benefits to its users – even before we consider the wider benefits to the economy, with an estimated 12 per cent of GDP from financial and related professional services. The financial services sector’s contribution to the Exchequer is equivalent to around half of the NHS’s budget, which is something to think about next time you see your GP, visit a hospital, or watch an ambulance pass you in the street.
The caricature of the typical financial services employee working in the City of London is a jaded stereotype which New Statesman readers would not tolerate elsewhere. In reality, two thirds of financial services jobs lie outside of London and it is a sector that, through the competition for talent, has long since “levelled up”, with notable financial service clusters in Glasgow, Greater Manchester, Leeds, Cardiff, Belfast and Bristol.
So, we all have a stake in the continued success of the UK’s financial services.
Of late I have seen several misjudged assertions about the financial services industry, that post-2008 there has been an irreversible rise in risk aversion. I don’t accept any of this for one moment, but such talk should, and does, spur us on. It remains a competitive world in which other nations wistfully eye up the formidable natural advantages that the UK still offers. This is not to say that we should become a “Singapore-on-Thames”, (a moniker that always undersold the sheer depth and breadth of the financial services industry here) but to be the best possible version of ourselves. Our vision for the UK is to be the place that the world comes to do business – as we’ve seen recently with decisions by leading investors Andreessen Horowitz of the US and the Australian Super superfund to do more business here.
That is why we have such an ambitious programme of financial services reforms: reforms that will ultimately benefit the users of financial products through lower costs and better returns. The recently passed Financial Services and Markets Act 2023 is a seminal moment. It’s more rolling thunder than a single big bang, but with the ambition that every part of the sector – from credit unions to car insurers – will benefit from greater agility, more proportionate application of existing regulations, and a rule book that is itself tailored for the UK.
While playing a leading role in internationally aligned rule-making at the G20 and OECD, we are repealing, and where appropriate replacing, the mass of retained law that we have inherited from the EU – removing barriers and streamlining processes to open us up to international markets and businesses. And the new act will help to deliver a shift in priorities, to ensure that the work of our financial services regulators aligns with the Prime Minister’s growth agenda, by giving them an additional objective in law to promote growth and international competitiveness.
We have also set in motion a new approach to pensions, which aims to improve returns for retirees while boosting investment in high-growth businesses. In July, nine of the largest UK workplace-pension providers committed to allocate at least 5 per cent of their investments to high-growth companies, including some of the UK’s most exciting and innovative businesses – unlocking up to £50 billion of investment by 2030 if the rest of the sector follows suit.
The long and short of it is that businesses should find it easier to raise the capital to grow, while, according to government analysis, these and other changes will mean that someone on average earnings who enrols into a defined-contribution pension at 18 could increase their income in retirement by more than £1,000 a year. This all builds on an ambitious agenda to help firms grow and list in the UK, seize opportunities presented by new technologies and markets, and deliver better outcomes for investors and savers.
As well as setting ourselves up for another century of success – as the Chancellor said at Mansion House in July – our hard work is already having an impact here and now, and our financial sector will continue to be a vital part of the UK economy.
[See also: TUC Chief: Tax wealth to fix broken Britain]