Contribution
Yes, I can, from having been on the Treasury Committee from 2010 to 2016, when we looked at creating the Financial Conduct Authority and the Prudential Regulatory Authority, and, more relevantly, on the parliamentary commission on banking standards. Our report recommended that we introduce the measures in the Davies review, which was bringing ringfencing in. The hon. Member may remember that, at the time, the Liikanen review in the European Union looked at ringfences. The subtle difference between our ringfencing and theirs is that it was described as caging the tigers in Europe and as putting a fence around the deer park in the UK. Our retail banks were ringfenced. The problem we have found is that it has become increasingly complex to operate the regime, and the Europeans did not bring it in; as a result the resolution regime on banks—the recent Bank Resolution (Recapitalisation) Act 2025 looked at this—actually means that we now have an awful lot of other stuff in place and do not necessarily need the ringfencing.
The problem with ringfencing is that banks end up with a cliff edge, where their customers are traversing from the ringfenced bank to the commercial and investment banks, and it becomes very difficult. Only one bank has managed to satisfy itself that it is okay, and it has set that ringfence limit at £100 million worth of turnover; all other banks have been at the lower end, which is close to £5 million or £10 million in turnover.
It is costing us more and becoming less internationally competitive to have a ringfencing regime that other countries did not adopt. When we adopted it we were the first mover, but we were not followed. International competitiveness is the key point, as well as the bank resolution. There are MRELs, bullion bonds and a lot of stuff out there that makes up for that, brought in since the financial crisis. It just looks like we have too much. I hope that answers the question from the hon. Member for Carshalton and Wallington (Bobby Dean).
Analysis shows that the annual cost to the UK’s banking sector of ringfencing alone is £1.5 billion. At the same time, reports from industry are clear that ringfencing is duplicated and is not responsible for post-crisis improvements. In 2022, the independent review of ringfencing and proprietary trading said that
“the reduction in the implicit government guarantee and progress in ending too-big-to-fail was not found to be attributable to ring-fencing.”
We understand that the Government are looking at this, and at reforming the ringfencing regime through the Financial Services and Markets Bill. The Economic Secretary to the Treasury and I will be spending a lot of time in the coming months going through the minutiae of banks’ balance sheets—frankly, I find it fascinating; I hope she does too. However, like most of the Bill, while welcome, we feel that the Government are not fully utilising the opportunities that the Bill will provide, and that they could go much further. As I say, I will not delve into too much of the detail because we have a long time to go through all this, but I hope that the hon. Member for Buckingham and Bletchley will throw his weight behind the Financial Services and Markets Bill when it comes to the House of Commons.
I have a second point on taxation. If we are to unlock the future of UK financial services, the other area we have to look at is the level of taxation. In a world where capital, talent and business activity are highly mobile, the UK needs to remain an attractive place to do business. That is especially important given the international nature of the UK’s markets. While our competitors such as the US have a high domestic focus, the UK is the exact opposite: the London Stock Exchange Group found that more than four fifths of the revenues of FTSE 100 constituents now stem from outside the UK. Despite that, data from across the industry shows that the UK is an outlier when it comes to the level of taxation on our financial services sector.
Taking the banks as an example, data from UK Finance and PwC in 2025 suggests that the total tax rate on banks in London is 46.5%, which is significantly higher than in other financial centres such as Amsterdam, Frankfurt, Dublin and New York, as we have already heard. In fact, compared with the US, our banks are paying 60% higher tax than theirs are. Another example is the insurance sector. Data from the Association of British Insurers shows that their membership’s total tax contribution increased by 77% between 2014 and 2024. Analysis suggests that that has mainly been driven by increases in the insurance premium tax.