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Labour’s Vision for Financial Services and the UK Economy

Public Affairs
Labour’s Vision for Financial Services and the UK Economy

This article, written by Associate Director Matthew Whitbread, provides insightful analysis enriched by Matthew’s perspectives and opinions.

Labour’s recently launched plan for the financial services sector is an extensive and ambitious vision to boost investment, make the industry more internationally competitive and help deliver a wider policy agenda. There is certainly too much to cover in one article but here Matthew Whitbread takes a look at the big picture.

Is Labour’s woo of the City enough for the private sector to support its vision?

It is quite the transformation from 2017, when the Labour Party and its previous leader were focused on making big banks public enemy number one. Financial services businesses were labelled by some in the party at the time as speculators and gamblers, and that they shouldn’t be involved in running the country.

Today, a Labour Party intent on winning the next general election has significantly changed its tone to one that will “unashamedly champion” the sector. Capping bankers’ bonuses and even a windfall tax have been ruled out by shadow chancellor Rachel Reeves, as she laid out the Party’s vision for the financial services sector.

Why the change in tone?

London is overwhelmingly a Labour city, there aren’t many more votes and seats to be won here. However, the power that the City can wield is still up for grabs in supporting their economic vision for the UK.

Here, Labour is increasingly realising that its vision for the UK economy and investment plans can’t be achieved by Government alone and that banks and investors, both in the UK and internationally, will be needed to support in delivering its vision.

At a recent Labour business engagement event that I attended the message to the room was clear: delivering certainty for financial institutions is a key commitment and Labour is keen for a close, working partnership to drive investment. As the paper coins the phrase “securonomics”. That investment must be spread out across the country though, with untapped regional growth a key strategy for Labours FS vision and revitalising the UK economy. I feel this message could also land with some of the swing voters, who were been lost during the Corbyn years but could be brought back by a serious-looking party.

Can Labour’s approach unlock innovation and growth?

Its vision for the financial services sector makes the claim for a thorough and deep cut to red-tape to drive innovation. The scrapping of overlapping rules between the FCA, BoE and the CMA, as well as setting up a “Regulatory Innovation Office” would be a welcome move for many in the City.

Labour MPs have noted that the financial services industry waits too long for regulations to be in place to support innovation. The lack of fast-paced regulatory progress means that innovation in the City was being stifled. Perhaps one signal of this is the recent analysis from Mathys & Squire which revealed that over the last ten years, the UK’s top five banks had filed 290 patents, while the top three US banks applied for 5,027 over the same period.

Has the City lost its spark or have innovators given up against the tide of regulatory blockers? Whichever it is, financial companies must now look at ways to engage with Labour and put their case for red tape cuts but most importantly, fast-paced regulations to support their innovations coming to the market.

While unleashing an environment for innovation in the financial services sector may be the easier task on paper, securing investment in the UK economy and British businesses will be far tougher. Driving investment into UK businesses and infrastructure from pension schemes and reigniting UK listings are areas that have been pushed by the current Chancellor, with Reeves set to take over the baton, especially with a UK “Tibi” scheme. This is another key signal of Labour in that it is not looking to radically change economic policy for the sake of it – if there is a good idea they like, they will stick with it.

Labour is keen to go further in this support for UK Plc by encouraging consumers to buy shares in UK businesses in a modern “Tell Sid” campaign. Sure, there could be a new innovative product to help facilitate this. My question on this policy is; if “smarter” professional investors are investing abroad for value, will Labour be challenged to encourage UK consumers to invest in UK shares?.

Here, Labour needs to tie up financial services with their bigger vision for the UK economy and how business as a whole and society can all benefit. I do not doubt that the financial services sector can innovate to create investment platforms to encourage consumers to invest in UK businesses. But how does Labour then support wider business growth and deliver value and returns to consumers? An ISA investment alone won’t determine the success or failure of those businesses growing.

The financial services review and the plans outlined provide ample opportunities for the private sector to engage with the Party before the general election. It also signals that if Labour does form the next Government, there will be plenty of policies for businesses to get their teeth stuck into. Not only will these ambitions serve the financial services sector, but they will also have an impact across the wider economy, opening a door for businesses to engage with Labour.

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