Sitting in the Mansion House on Wednesday evening, it was welcome to hear the Chancellor unveil a suite of proposed measures aimed at boosting the attractiveness of the City and its relevance for the UK economy. Some of these include areas that the Centre for Policy Studies (CPS) has been at the forefront of advocating, not least the case for a concierge service for investors looking at the UK as well as measures to boost retail investing.
Over the years, the annual Mansion House speech has seen many changes. When I first attended, it was a white-tie affair, heavy with formality and ceremony. Soon enough, black tie became the norm. This year, it was business suit – for now with ties. Thankfully, the modernity of the City was also evident in the large number of women present, which far exceeded the handful at this event just a few decades ago.
Modernity is visible in language. too. What was once known, with some grandeur, as the Lord Mayor’s Banquet for Bankers and Merchants of the City of London is now called, ‘The Financial and Professional Services Dinner’, reflecting the diversity of the City.
The focus, of course, are the speeches by The Chancellor and Governor of the Bank of England. While other aspects of the event may have changed, these speeches have always fallen into one of two camps: a focus on the domestic economy or on the City itself, and how to boost its competitiveness or how it can help Main Street, as the Americans would say.
Perhaps unsurprisingly, the Chancellor and Governor steered clear of domestic economic policy this year – apart that is from Rachel Reeves’ passing reference to a cast iron commitment to her fiscal rules. The Governor, meanwhile, spoke about multilateral policy and the payments system. With inflation so sticky, the economy so weak and economic policy leaving much to be desired it is easy to imagine what those speeches may have sounded like. Chancellor: I am going to raise taxes and interfere more in already successful sectors through industrial policies. Governor: if that’s the case, we will need to cut rates even more than planned, if only inflation would let us.
The state of the economy, though, should serve as a health warning to the Chancellor’s speech. Outcomes need to be judged by what they do, not just what they say.
The first year of this Government has been marked by constant talk of a pro-growth strategy, but rhetoric has not been matched by policy. It also seemed a touch ironic for the Chancellor to open her speech with a reaffirmation of her commitment to stability. Taxes have risen, regulation has expanded and the signals sent to business have often been muddled at best.
In a moment that felt more Trumpian than technocratic, she cited the strength of the stock market as proof of economic success. Try telling that to those navigating a cooling labour market.
At least on Wednesday there was much for the City to welcome in the Chancellor’s address – but execution is key.
The Chancellor announced a ‘Financial Services Growth and Competitiveness Strategy’, including the pro-business Leeds Reforms she had unveiled the previous evening. We’ve been here before and witnessed little meaningful impact. In the twilight of the Conservative government, the City heard bold promises with the Edinburgh Reforms and – at this dinner a few years ago – the Mansion House Accord, with funds saying they would invest more in the UK. Of course, political uncertainty and economic malaise are never helpful, which is why growth and confidence about prospects matters so much.
The Chancellor announced four key reforms: a shift towards more risk-tolerant regulation, targeted support for globally strong sectors like fintech and asset management, changes to capital rules for banks to unlock investment and a push to boost retail participation in UK growth.
A new concierge service will launch by October to support firms setting up or expanding in the UK. That’s welcome.
Reeves welcomed the EU’s Financial Services Commissioner to the dinner, noting, ‘we met earlier today to discuss our continued cooperation on financial services, and I look forward to working more closely with you’. That may sound like pragmatism, but to some at the dinner it sounded like something else: a warning that more alignment with Brussels may be on the way.
It was welcome to hear Reeves talk of the regulatory pendulum moving from one extreme to another; language used in the City, including by myself, for a number of years. Ahead of the financial crisis the regulatory pendulum was at one extreme, with self-regulation. Then it swung to the other extreme, becoming too intrusive. Pendulums though have to settle, and Reeves has nudged it further in that direction with her focus on pro-growth, as opposed to risk aversion.
However, it may not rest easily with members of her own Party. Many Labour MPs see regulation as costless and financial services as needing to be reined in, while our independent regulators are focused primarily on financial stability. As with her advocacy for planning reform over the last year she should be congratulated for this approach.
To their credit, both this and the previous government have engaged in deep consultation with the financial sector. Many of the City’s concerns have clearly landed. There were multiple signs, such as the review of the Senior Managers and Certification Regime. a framework long criticised for its complexity. Banks, too, will be happy that as part of her pro-growth agenda, their capital requirements will be eased. Whether this results in more lending, as she wishes, remains to be seen. The Macmillan gap, after all, which identified the lack of bank lending to small and medium-sized firms was identified in 1931 and has yet to be closed. More recent years have seen the lack of patient and growth capital identified as economic hindrances. If her measures can help close those then it would be positive.
Both CapX and the CPS’s research have long called for measures to boost popular capitalism. We are a long way from that but boosting retail investing is a step in the right direction.
The Chancellor’s announcement of a major advertising campaign with the City to boost share ownership has already rekindled talk of the Tell Sid campaign of the late 80s. That, though, was a different time. Government policy was pro-business, confidence in the UK was high, employment strong and people had money to spend. The message from Wednesday was that as welcome as the messages were, execution is key and economic growth is needed. The City can play its part, but so too must government policy. Let’s see what the Autumn Budget brings.
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