(3 years, 5 months ago)
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Bim Afolami (Hitchin and Harpenden) (Con)
It is a pleasure to speak with you in the Chair, Madam Deputy Speaker, as always.
I am delighted to speak about the UK’s greatest success story and one of our most vibrant and innovative sectors, financial services. I am proud to champion it in Parliament through my role as chair of the all-party parliamentary group on financial markets and services. I speak as a former corporate lawyer at Freshfields Bruckhaus Deringer, and Simpson Thacher & Bartlett. I have also worked in strategy and restructuring at HSBC, so I have experience in the sector. I would like to use this debate to set out my vision for the future path of our financial services sector at a very critical time, to ensure that it delivers benefits to constituents and businesses across our great country.
As the Minister I know appreciates, it is difficult to overstate the importance of financial services to the UK economy. It accounts for almost 7% of the UK’s total economic output. The sector employs over 1 million people, two thirds of whom work outside of London, contrary to what many believe, providing benefits that extend well beyond the historic walls of the City square mile, to bustling financial hubs such as Edinburgh, Belfast, Cardiff and Leeds. Financial services are also a major contributor to the Exchequer, accounting for more than £1 in every £20 of total UK tax receipts, which go to support our public finances and important services such as the NHS. At the same time as having that domestic focus, the UK leads the world as an internationally competitive financial centre. Financial services are an advert for global Britain, attracting international investment.
Jim Shannon (Strangford) (DUP)
Does the hon. Member agree that the potential of Brexit to allow for the regulation of our financial services has not yet been realised and that there is more to do in legislating appropriately to ensure a balance, so that growth and the regulation of practice and outcome go hand in hand? We can do better; the potential is there.
Bim Afolami
I thank the hon. Gentleman for his intervention. Indeed, he is right, and I will comment later on ways in which we can use our new freedoms to improve the output of the financial services sector.
Some say that we should not speak too much about financial services, lest it upset certain people in the country or is alienating in some way. I suppose that is a hangover from the financial crisis, but I completely reject that view. We are at a new moment now. We have a fantastic financial services industry; it is world leading, and we need to be proud of it. Indeed, in the face of the unprecedented economic uncertainty created by the pandemic, our financial services industry stood up to the challenge. The financial system remained resilient and responded to customers’ needs, demonstrating the central role that it plays in facilitating and protecting our economy.
When corporates were strapped for cash, there was no liquidity failure in the banking system. Instead, bank lending surged. Working in partnership with the Government, the Treasury and the Bank of England, the sector was able to provide a comprehensive package of support, which included facilitating over £75 billion in emergency finance to 1.6 million businesses. I am pleased to announce to the House that more than £100 million of that support went to my constituency of Hitchin and Harpenden to support more than 2,400 fantastic local businesses through covid and the lockdown. That was on top of an array of forbearance measures for personal customers, including 2.75 million mortgage payment deferrals, 1.8 million credit card and loan payment holidays, and 27 million interest-free overdrafts to customers. In short, our financial system did its job. When there was a crisis, it provided a safety net for the constituents and businesses of Members on both sides of the House.
However, now we need to look forward and build back better from coronavirus. Our financial services industry is at a crossroads. Brexit and the return of rule-making powers to the UK for the first time in decades has created a unique chance, as the hon. Member for Strangford (Jim Shannon) remarked, to refit our financial services sector in a way that is better suited to our domestic needs and even more internationally competitive. Parliament, Government, regulators and the industry now have the opportunity to ask fresh questions about what the future of financial services in the UK should look like and how we should fine-tune the rules that govern the sector to provide the right conditions for it to thrive.
At the same time, the UK faces huge international competition. Across the Atlantic, New York is cementing itself as a leading international financial centre. In Asia, financial hubs are catching up with us fast, whether it be Hong Kong, Singapore or other cities. The ambitions of our European friends and neighbours to create onshore financial centres within the European Union bloc at the expense of London—let us not kid ourselves about that—is becoming increasingly apparent. If we are to continue to reap the benefits from this world-leading sector based here in the UK, it is crucial that we get our regulatory changes right in the next period, ensuring that the UK remains an attractive location for both domestic and international firms in the years to come.
Let me now turn to the steps on how we can achieve this. I am glad to say that the Government are wasting no time in realising their ambition to strengthen the UK’s position as a global financial hub. The Prime Minister met financial services leaders on this precise issue only a few weeks ago. Central to the Government’s ambition is the landmark Financial Services Act 2021, on which I spoke in this House and served in the Committee, as the Minister will remember. I once again commend him and his team for their hard work in achieving this vital piece of legislation, which already puts down much of the groundwork on which we can build. Alongside that, I commend the findings from the Government-commissioned reviews from Lord Hill and Ron Kalifa on, respectively, listings and FinTech. I appreciate the work the Government are doing to implement their recommendations without hesitation. I have been checking on this. When one engages with what the Government are actually doing, it is clear that they are more than exceeding expectations in really looking at these reviews to see what can be done as quickly as possible.
In the longer term, the Treasury is undertaking a wide-ranging review of the future regulatory framework for financial services. It is important to be clear that this is not—I repeat, not—a regulatory race to the bottom, as many would suggest. The Chancellor rightly stated, when setting out his vision for the sector in this House, that the UK will maintain the highest, most effective global standards as we look to shape the future of the industry. Indeed, there is no future of the industry with poor-quality, bargain-basement regulation; the future of the industry is high-quality, high global standards. However, we should take the opportunity to fine-tune this regulation, where it benefits the UK, to make it simpler and more responsive to the industry. The future framework should also be more proportionate, particularly to mid-tier providers—I have them in my own constituency in certain areas—that are currently saddled with disproportionate regulatory costs compared with many larger financial institutions that have armies of lawyers and accountants and various other people to help to deal with that regulation. Frankly, Brexit makes sense if we can take the opportunities available to us to do things better and more flexibly in areas where we have a real advantage. Financial services is one of the key areas in which we can do this.
As our powers are returned from the European Union, we must strengthen the political accountability to which regulators will be subject given their enhanced responsibilities. We have given them enormous power to make rules that have a huge impact on the livelihoods of literally millions of people. That power needs to be properly scrutinised and checked by Parliament and indeed this House. However, this House is not currently best equipped to carry out this role in terms of our structures. Scrutiny of the sector currently lies with the Treasury Committee, but its remit is incredibly broad in dealing with everything that the Treasury deals with. Therefore, having sustained and detailed oversight of technical regulations and aspects of financial services is going to be difficult. I encourage the Minister to consider the conclusions of the recent report by the all-party parliamentary group on financial markets and services. Ah, there it is—he has it in his hand; he has read it, which is good. It calls for a new specialist Joint Committee of both Houses to be established with a specific remit for overseeing not the Treasury, which already has the Treasury Committee, but our regulators and the financial services sector in particular. That would ensure that Parliament could take a central role in helping guide and scrutinise regulators while balancing the needs of the sector with the wider public policy aims that we all know.
Looking abroad, we need to promote international trade in financial services. As we review our framework, we need to understand that the Government’s work on trade agreements is vital but, frankly, whether it be within this House, outside this House or in the press or the media, too rarely do people think of trade as including services. I urge the Government to ensure that we apply the same level of focus in our trade agreements on services as we do on any goods. The Government must prioritise financial services in their trade deals and their emerging trade agenda more broadly and be explicit about their key importance to our country. In economic terms, the opportunities for financial services with our international trade are huge.
Promoting international trade is also about ensuring that we attract the best international talent to the UK. The new global talent visa and the new Office for Talent will be very important steps in helping achieve that ambition. I commend the Government on bringing them into force. It is also worth saying that, on the international agenda, our emerging partnership with Switzerland is very promising. I ask the Minister for his reflections on how that partnership could help really strengthen our financial services sector and, indeed, our industry.
One key area in which the UK risks falling behind its international competition is getting the right levels of taxation for the banking sector. At present, the UK’s banking industry is burdened with a number of sector-specific taxes such as the bank levy and irrevocable VAT that are not dependent on profits and represent a fixed cost to firms each year. Indeed, almost half of total tax receipts are made up of such sector-specific payments, taking the UK’s taxation rate for banks well above financial centres such as New York and Frankfurt. I therefore agree with the Government’s view that the planned increase in the main corporation tax rate to 25% would make the UK’s bank taxation system uncompetitive. To help address that, I support the Chancellor in his Budget announcement of a review to the bank surcharge, which is an additional 8% charge that banks pay on their profits that dates from the aftermath of the financial crisis. It is my view that the time has come to get rid of that surcharge. This is not about giving tax cuts to bankers: it is about the UK remaining a competitive place for firms to do business so that the public can continue to benefit from the success of the sector in this country.
I have already mentioned Ron Kalifa’s FinTech review. Without repeating all its requirements or recommendations, I bring the Minister’s attention to four key things about how we navigate the new world in which we find ourselves, the world of FinTech and how the Government should address them. First, in relation to policy and regulation, we need dynamic leadership that protects consumers yet nurtures FinTech activity and encourages competition. Secondly, on skills, we need to ensure that FinTech has a sufficient supply of domestic and international talent and the means to train and upskill our current and future workforce. My personal view is that we need to retrain and upskill adults in support of UK FinTech by ensuring access to short courses from high-quality providers at low cost. We should support the establishment of new coding schools all over the country, with two-year courses and admission on aptitude, raw ability and potential only. Such a measure could be a real benefit. Indeed, we need investment in FinTech. We need to help complete the funding ladder from start-ups right the way through to the initial public offering. Indeed, we also need national connectivity. We should not just accept where FinTechs are in the UK, whether it be in London or anywhere else. We need to strengthen their connections across all four nations.
For domestic customers, saving and investing should be simplified. At a time when the complexities and choices facing consumers are ever more complex, we need to make it all much easier for people. It is currently vastly easier to spend online today than it is to save and invest for tomorrow. We need to help harness technology to drive investment.
Turning this picture round will require thinking about financial services regulation, and it is good to see a number of regulatory barriers to financial services customer journeys under scrutiny. The Financial Conduct Authority’s support for an open finance agenda is a key example of that, and more opportunities will become available to UK policy makers as we build our regulatory framework. In turn, that will enable us to bring the UK’s regulatory agenda closer to the saving and investment needs of UK citizens. For that to work, trust will be key. Existing brands such as Fidelity are already working hard in that space.
I have considered a number of topics in this speech, but I will draw my remarks to a close. To echo the Chancellor’s words, financial services are a jewel in the crown of the UK economy. The sector is one of the engines of Britain’s economic prosperity, and it should be put front and centre of any future trade deals, and in our regulatory changes. My specific questions to the Minister are these. First, will he update the House on the Treasury’s plans for the 8% surcharge and whether it can be scrapped? Secondly, will he provide an update on implementing the recommendations from the Hill and Kalifa reviews? Thirdly, what is the Government’s emerging view on how Parliament should scrutinise the regulators that implement so many financial services rules? Finally, what opportunities does the Minister see with our trade agenda, and in particular our deepening relationship with Switzerland?
As we look to build back better from the pandemic and level up every corner of the UK, we have a once-in-a-generation opportunity to restructure the way our financial services sector works. We must take that opportunity and help to set Britain’s financial services sector up for a new global future.
The Economic Secretary to the Treasury (John Glen)
I congratulate my hon. Friend the Member for Hitchin and Harpenden (Bim Afolami) on securing this debate, and I thank him for the many insightful and constructive contributions he has made on financial services-related matters in this House. I welcome the opportunity to discuss the sector’s future. As he rightly noted, the financial services industry is incredibly important to the UK, and the huge support it has provided to the economy over the past 16 months is testimony to that. Its work with the Government has meant that businesses across the UK could borrow more than £75 billion to help them through the pandemic.
There is no doubt that the sector has an equally important role to play in our economic recovery and long-term future, by boosting our competitiveness and spreading opportunity and prosperity throughout the United Kingdom. As Members will recall, in November the Chancellor set out the Government’s vision for the future of financial services in a post-pandemic, post-Brexit world. The goal is simple: we want to help ensure that the sector is even more open, technologically advanced, and greener than ever before.
How will we do that? On openness, we are building new and deeper relationships with countries around the world. As my hon. Friend acknowledged, we have a clear opportunity to strengthen ties with markets beyond Europe, from the US to Japan, and ensure that we build new links with fast-growing markets in the east, including India and China. In particular, he mentioned the exciting possibilities from the ambitious mutual recognition agreement that we are pursuing with Switzerland. That will facilitate a broad range of wholesale financial services between the UK and Switzerland, on the basis of co-operation and high standards of regulation. It will also recognise that jurisdictions can achieve similarly high standards of regulation in different ways.
Our objective for the mutual recognition agreement is to improve cross-border financial services provision between the UK and Switzerland across insurance, banking, asset management, capital markets and market infrastructure. We now have the freedom to build new, deeper financial services relationships with like-minded global financial centres. The share trading obligation decision, which came into force earlier this year and allows UK shares to be traded on Swiss exchanges, is a good example of that freedom.
On the broader topic of international competitiveness, my hon. Friend asks for an update on the review of the level of the bank surcharge announced in the Budget earlier this year. It is critical that the UK’s bank taxes are set at a level that does not compromise our objective for a strong and competitive banking sector. That is precisely why, in the light of the changes to the headline rate of corporation tax, the Government will review the appropriate level of the bank surcharge with a view to making an announcement in the autumn on how we will ensure that the combined rate of taxes on banks’ profits does not increase substantially from its current level.
Let me stress that the Government recognise the value of certainty to financial services. The changes resulting from the review will therefore be legislated for in the Finance Bill 2021-22 and will have effect from the same time as the increase to the main rate of corporation tax. At no point will the banks be subject to a tax rate on their profits at or near 33%.
As well as working to ensure international competitiveness, we also have an extremely busy domestic agenda. Among our main areas of focus is getting the right regulation in place to take advantage of our new position outside the institutional frameworks of the EU. We are committed to upholding the UK’s high regulatory standards while ensuring that we maintain our position as a global financial hub, but we have an opportunity to do things differently. My hon. Friend rightly highlighted the importance of our future regulatory framework review; I welcome the important contribution of his all-party group and its recent report to this important debate. Let me remind the House of the details of the Government’s review: it explores the reforms needed to tailor our regulations to life outside the EU, and aims to establish an approach to financial services regulation that meets the specific needs of UK firms, markets and consumers.
I stress that Parliament will continue to have a vital role in shaping the financial services regulatory landscape. We believe that appropriate democratic accountability and scrutiny of the regulators is vital for an effective and legitimate regulatory framework. We agree that greater responsibility for regulators should be balanced with appropriate democratic policy input and oversight from Government and Parliament.
I turn to FinTech. When it comes to our vision for a more technologically advanced financial services sector, we are focused on helping our FinTech industry to stay at the cutting edge of global innovation. My hon. Friend asked about the implementation of the Kalifa review’s recommendations. As I outlined in my written ministerial statement in April, the Government and the regulators have confirmed a number of actions in response, including help for FinTech firms to recruit the best talent through our new scale-up visa scheme to attract global talent and boost the FinTech workforce; a regulatory scalebox that will enhance support for early-stage FinTech firms and allow them to grow as quickly as possible; the Treasury and the Bank of England’s new central bank digital currency taskforce to co-ordinate the exploration of a potential UK CBDC; Government support for an industry-led centre for finance, innovation and technology; and an initiative from the Department for International Trade to support UK FinTech firms to expand internationally and encourage overseas firms to establish a presence in the UK.
I fully recognise my hon. Friend’s interest in capital and wholesale markets. We want to help businesses to list and grow on stock markets in the UK when they are ready. We have therefore announced how we will take forward each of the recommendations addressed to the Treasury in Lord Hill’s recent listings review. I thank Jonathan Hill, my constituent, for the enormous amount of work that he put into that review.
We expect to consult on detailed policy proposals in the summer, including proposals to delete the share trading obligation and double volume cap, but rest assured, we will aim to deliver a rulebook that is fair, outcomes-based and supports competitiveness, while ensuring that the UK maintains the highest regulatory standards. Undoubtedly, the future of the UK financial services sector is linked to the future of our planet, and that connection is clearer than ever as we prepare to host COP26 in November.
I mentioned earlier that building a greener industry is a key element of our vision for financial services, and that is why a central focus of the COP26 finance campaign will be to ensure that every professional financial decision takes climate change into account. Furthermore, we believe that financial services have an important part to play in helping us to level up the country by generating jobs and growth, and we are focused on unlocking the hundreds of billions of pounds sitting with UK institutional investors to drive our country forward.
I thank my hon. Friend the Member for Hitchin and Harpenden and the hon. Member for Strangford (Jim Shannon) for contributing to a wide-ranging discussion of the issues facing this country’s financial services sector. Clearly, engagement will be crucial to help the UK financial services sector fulfil its full potential. I have been meeting industry actors very regularly and will continue to do so, so that I can understand how this Government can support them to achieve their goals, and I look forward to pursuing that work further. I am very grateful to my hon. Friend for raising the points that he has this evening.
Question put and agreed to.