Contribution
It is a pleasure to speak under your chairmanship, Mr Twigg. I speak today as chairman of the all-party parliamentary group for financial markets and services. I refer hon. Members to my entry in the Register of Members’ Financial Interests, which states that I accept speaking engagements from financial services companies.
I thank the hon. Member for Buckingham and Bletchley (Callum Anderson) not just for securing this debate, but for an excellent opening speech. He has a background in the City—in the stock exchange and working for the City of London corporation—which is probably unusual in his party. I thank him for deploying his expertise, because it is incredibly important for UK financial services that the world sees that there are experts in financial services on both sides of the House. I particularly welcome his comments today.
I welcome the Economic Secretary to the Treasury back to her role, which she carried out previously with great distinction. She has always engaged extremely constructively when it comes to the interests of the City and financial services. I know that her return to that post was widely welcomed. It is also a pleasure to speak alongside my hon. Friend the Member for Wyre Forest (Mark Garnier)—an old friend—who himself has a background in the London stock exchange.
After the financial crisis in 2008, financial services had a pretty bad name. The Government had to put up around £1 trillion to support the sector. Chief executives of banks made very ill-judged decisions to continue paying themselves large bonuses at a time when the rest of the country was suffering, and the country suffered a longer and deeper recession at that time as a result of our exposure to the financial services sector, which was much greater than that of our peers. We learned many painful lessons in that period.
As well as the financial crisis, the sector had to deal with the loss of passporting rights post-Brexit. Despite those body blows, the sector employs 2.5 million people—more than at the time of Brexit—and two thirds of the jobs are outside London. It is worth around 11% of our national output. It generates more than £110 billion in tax revenues, which is more than any other single sector. Put another way, it funds more than half the cost of running the NHS.
Whatever one’s interest in financial services, from a fiscal perspective alone they simply cannot be ignored. The sector is also thriving today in very challenging circumstances. The City think-tank Z/Yen tracks the competitiveness of global financial service hubs. In 2020, London trailed New York. Now it has caught back up. It remains the world’s premier centre for foreign exchange and specialist insurance. It helps to make the UK the world’s second largest services exporter.
When I was Chancellor, I introduced the Edinburgh and Mansion House reforms to support this important sector. Regulations, including listing rules, were simplified and the mighty task of making our pension fund industry fit for purpose was started. To their credit, this Government have built on those reforms with the Leeds reforms, the Pension Schemes Act 2026 and the forthcoming Financial Services and Markets Bill, all of which are extremely welcome. But, as the hon. Member for Buckingham and Bletchley said, our competitors are not standing still.
With smart policies, our financial services sector could do even more for growth in the UK. Easy access to finance, alongside having the most respected universities in the world outside the United States, has helped to create, for example, the world’s third-largest tech ecosystem. In artificial intelligence, the UK has the potential to be the world’s next silicon valley. If we get there, easy access to finance will have played a major role in making that possible.
What needs to happen next? The first thing is to do no harm—in particular, to do no harm with additional taxes in October’s Budget that could potentially damage the sector. Uniquely, the UK already charges higher corporation tax to banks. Total bank taxes are about 45% here, compared with 32% in Dublin and 28% in New York. I totally understand the temptation—finances are extremely tight, and the banks have few friends—but international capital is mobile, and hiking taxes further will mean that the sector ultimately generates less tax revenue, not more, for the Chancellor.
Secondly, we need to make regulation in UK financial services more proportionate. Consumer protection really matters, but we cannot eliminate all risk, which is what our regulators sometimes appear to be trying to do. Compliance now costs the sector more than £39 billion a year—about 13% of operating costs. We should aim to at least halve that using the new international competitiveness and growth objectives, which the Financial Conduct Authority should apply to authorisation, supervision and enforcement decisions.