Economic Growth

Baroness Swinburne Excerpts

Thursday 23rd January 2025 Lords Chamber

[Baroness Swinburne (Con)]

My Lords, financial and professional services contribute 12% of total UK economic output and employ more than 2.4 million people, two-thirds of whom are outside London. The sector pays more tax than any other sector and is the UK’s biggest net exporting industry, and therefore a significant contributor to economic growth. I therefore welcome the fact that both financial and professional services are included in the Government’s industrial strategy—and I also welcome my former CityUK colleague Emma Reynolds MP to her new role as Economic Secretary to the Treasury. I trust that her experience at TheCityUK will be invaluable in moving forward some of these ideas to implementation.

The City, especially in the wholesale financial markets, has always been an early adopter of technology. In its quest for improved productivity and increased competitiveness, it has always invested in technology and striven for growth. It is in its DNA. I am therefore immensely proud of the work that the UK-based financial sector has done of late to try to help successive Governments to identify barriers to economic growth, whether that has been in the work of the IRSG, which I used to chair, or its parent entities, the City of London Corporation or TheCityUK, or indeed the many trade bodies, such as UK Finance, ABI, the IA or GDF—there are too many to mention today. They are all working tirelessly to help HMT and the financial regulators, via numerous task forces and working groups, to identify the best way forwards to unlock growth.

The financial regulators, the FCA, the PRA, the Bank of England and others, have been actively involved in this stakeholder endeavour for the past four to five years, including via various sector reviews, such as the Hill, Austin and Kalifa reviews, and indeed a lot of task forces. I commend that collaboration. I will highlight a few of those initiatives that could yield results if we implement quickly. The work of the Capital Markets Industry Taskforce, led by Dame Julia Hoggett, and numerous other groups, contributes to ongoing UK pension reform. However, waiting until all our pension funds consolidate will take years. Although necessary, we need to find ways now to incentivise domestic capital to invest in UK equity and opportunities, including via pension tax credits, where firms are perhaps rewarded for participating in UK risk assets, whether they are listed, quoted, private or critical infrastructure, and then we taper the pension tax credit, for example, if they are not.

That could also extend to initiatives for the retail market, where we need to incentivise some of those savers to become investors. Reducing the cash ISA allowance in favour of an investment ISA could be a valuable tool to incentivise this shift. According to the Centre for Policy Studies, the UK has around £1.8 trillion sitting in idle savings accounts. The UK needs scale-up capital. Small businesses represent 99% of our UK business population. The Government therefore need to continue to support—if not better support—investors in start-up capital. We need to put that saving capital to work as investment.

Allowing retail investors to participate in IPOs is another way in which we might be able to facilitate some of these initiatives. Investors, including retail, need easy access to investment in growth companies. Some disruptor firms, such as Aquis Exchange, are making headway, but as its chief executive, Alasdair Haynes, has said, there needs to be an acceleration of progress. Why is UK equity investment still subject to stamp duty? It makes it more expensive for our pension funds and retail investors to invest in the UK rather than in global markets. Surely this could be a quick win.

I turn to the digitisation of capital markets and draw noble Lords’ attention to a phenomenal report that was published just this morning by TheCityUK and Hogan Lovells. It gives a blueprint and timeline for actions which, if taken up by His Majesty’s Government, could ensure that the UK’s position as a global financial centre remains and expands in the digitised world of future capital markets. This is about not just growing our economy but preserving our dominant position in global trading and financial markets. Any inaction or further delay will weaken our economy.

The reality is that speed, rather than perfection, is now of the essence. We need our framework for crypto assets, and digital assets generally, to be published immediately and implemented quickly. We really do need to assist our regulators in accelerating things, especially given the change of Administration in the US. Calibrated risk-taking can yield sustainable economic growth from this sector.