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The Financial Secretary to the Treasury (Mr Mark Hoban)
I congratulate my hon. Friend the Member for Cities of London and Westminster (Mr Field) on securing this debate. He made some important points that I will address. I think that we all recognise that our financial and professional services industry is world-class and that the UK can rightly be proud of it. It affects every constituency in the country. For example, my constituency has more than 2,000 people who work in financial services and related professions—1,600 of them are in financial services—and Fareham is not the centre of the global financial sector. As my hon. Friend mentioned, the sector contributes to employment in regional centres. Belfast, Birmingham and Bournemouth all host processing centres that support the work of international financial businesses based in London and headquartered overseas.
For centuries, the UK has been at the heart of international finance. Our openness is an asset to our economy that we are keen to maintain. The recent global financial centres index once again ranked London as the most competitive financial capital in the world. We should seek to preserve and enhance that competitiveness, but it is also important that we do not lose sight of the other areas of our economy that make the UK an excellent place to do business.
It is right that we should support investment in areas of our country where it has been absent during the past decade. That is why, as part of the spending review, my right hon. Friend the Chancellor introduced the £1.4 billion regional growth fund to tackle the gap that opened during the last Government between the south-east and the rest of the country. The money is designed to lever in long-term investment in the capacity of our transport system, science and green energy across all parts of the UK.
I share the sentiment expressed in an intervention by my hon. Friend the Member for Stroud (Neil Carmichael). Many people, including me, have called for a rebalancing of the economy, but we will not achieve that by cutting down the tallest flowers; we need to make others grow taller and faster. I believe that we can have a more diverse economy and be home to the world’s leading financial centre. Indeed, the fact that the UK is home to a global financial centre can help us develop that more diverse economy.
Going back to the roots of the City and its success, the City flourished because it supported trade through insurance of trade finance. It found capital to invest in new enterprise and developed new and innovative ideas to provide security and certainty for businesses and households. It is an important part of the process of restoring confidence in financial services for the City to reconnect with commerce. We need banks to lend to businesses if they are to take advantage of new investment and trading opportunities, but it is not only banks that need to do so. That is an important priority for this Government.
We welcome the work done by the British Bankers Association on that issue, involving commitments to improved data, greater transparency and an army of business mentors to get businesses ready for finance. However, we also need to broaden the sources of finance available beyond banks. We need sources of new equity. Banks will be contributing to a £1.5 billion equity fund to support growth, but we know that there are other sources of capital from equity, such as business angels. Insurers have raised funds to invest in debt for businesses. We need to lever the skills, enterprise and success of London’s global financial centre to help businesses grow.
My hon. Friend the Member for Cities of London and Westminster referred to the opportunities emerging in the far east and South America. Again, the City has an important role to play, not only by exporting its own services to emerging and growing economies but by supporting other businesses in their attempt to exploit those markets.
However, support for the financial sector cannot be uncritical. As my hon. Friend recognised, there were flaws in City practices in the run-up to the financial crisis, as well as a failure of the regulatory architecture. We need to resolve those issues if we are to provide a stable foundation for the financial services sector to grow. That is why the reforms that we have set out since the formation of the coalition Government in May are rooted in economic and financial stability, not the size of the financial services sector. That is an important distinction to draw. We want a stronger, more stable structure. That will require a reform of regulation, but it is not about the size of the sector.
We have been clear in the reforms that we have introduced that we want more effective supervision and a new structure to tackle emerging threats to financial stability. That is why we are setting up a Financial Policy Committee as part of the Bank of England to consider emerging threats to our financial stability and determine what response is needed to enhance the stability and resilience of the UK financial sector.
David Mowat
Does the Minister agree with the comments made last week by the Governor of the Bank of England vis-à-vis the current structure of the banking sector in the UK?
Mr Hoban
It is an important debate, and there is no clear consensus on what structure the banking sector in the UK should have. That is why we decided to set up the Independent Commission on Banking, under the chairmanship of Sir John Vickers, to consider structure as well as competition in financial services. Over the course of the financial crisis, we have seen a significant concentration of financial services and the banking sector—there are fewer banks from overseas operating in the small and medium-sized enterprises sector, and Lloyds has taken control of HBOS—and we want the independent commission to consider that and decide whether structural changes are needed to improve the resilience and strength of the banking sector, and whether we can introduce measures to improve the competitive landscape and provide greater choice for businesses and consumers looking for financial services products, whether they are loans, current accounts, business accounts or other products. We need to consider the structure carefully, which is why we set up the Independent Commission on Banking.
To return to the point about regulation, we recognise that there were flaws in the structure of regulation; that is one reason why we set up the Financial Policy Committee. We also want to examine how the Financial Services Authority operated under its dual mandate to consider prudential supervision and consumer protection. We decided to create two new regulatory bodies to replace the FSA. One is the Prudential Regulation Authority, which will be a subsidiary of the Bank of England and will focus on the strength and resilience of banks and insurance companies particularly; the other is the Consumer Protection and Markets Authority, which will ensure that consumer markets in the UK work effectively to support the long-term aspirations of consumers as well as considering how wholesale markets in the UK work. That is an important aspect of the financial services sector; a great deal of work on that issue is going on at an international or regional level through the EU, and it is important that the UK takes a strong lead in ensuring that those markets are regulated effectively. If we get the regulation of the financial services sector right—if we take steps to improve markets’ transparency, resilience and strength—I believe that it will provide a firm foundation for the continued growth of the sector in the years to come.
On the diversity of the economy, we must recognise that there is more to our economy than financial services. We have strengths in other areas, partly as a consequence of language, time zone and other aspects of the UK. My hon. Friend the Member for Newton Abbot (Anne Marie Morris) referred to the legal system, which is a huge asset for businesses seeking to work here due to the legal certainty that comes from our world-class legal framework. We have a deep and highly skilled talent pool and strengths in pharmaceuticals, construction and business services.
We need all those sectors to grow, but their growth does not mean that we should diminish the size of the financial services sector. A strong financial services sector can help develop the diversity the UK economy needs to demonstrate that we have learned the lessons from the financial crisis. We cannot have an unreformed financial sector, given the scale of the crisis that we have been through. Reform has been introduced to help the sector’s stability and resilience and produce a better outcome for businesses and households.