UK Financial Services

Debate between Bobby Dean and Mark Garnier

Tuesday 1st September 2026 Westminster Hall

[Mark Garnier (Wyre Forest) (Con)]

It is a pleasure to serve under your stewardship, Mr Twigg. I thank the hon. Member for Buckingham and Bletchley (Callum Anderson) for securing this debate. He speaks with great authority, and it is refreshing to hear a positive vision of the financial services sector, especially given his experience working for the London Stock Exchange Group. He raised a number of points, some of which I will deal with in my speech.

The hon. Member raised some interesting points that are strongly related. The first was the lack of growth capital and the fact that we are not seeing a huge amount of money invested into the UK by UK pension funds. Companies looking for growth capital seem to go to places such as America, where they can do better. He also talked about the undervaluation of the UK stock market, which is part of that problem, as well as clean energy and the fantastic opportunity it provides for investment in long-term patient capital. It is interesting that, during the passage of the Pension Schemes Act, one complaint thrown up by a very large annuity asset manager was that it wanted to invest in the equity of wind farms, where there is a predictable income because of contracts for difference, but the Pensions Regulator would not allow it because it had to be invested in bonds, which have a more liquid market.

Although the Conservatives completely support the Mansion House compact and the Mansion House accord, there is too much stuff getting in the way. We had a long debate on this during the passage of the Pension Schemes Bill, now an Act. We are trying to work with the Government on how not just to force more money into the UK equity market, but to clear away the clag that gets in the way of investments. That comes to the point about regulation and the regulatory environment. I will discuss more of the hon. Member’s points in the main thrust of my speech, but I wanted to get that point over early on.

As we heard from my right hon. Friend the Member for Godalming and Ash (Sir Jeremy Hunt), the financial services sector matters hugely to the UK. It is often described as the engine room of our economy, for two good reasons. The first is that the banking sector provides the plumbing that moves finance around our economy, making sure that money, where it is accumulated through wealth, is distributed to people who need it. The second is our international position: the financial services sector generates 11% of national economic output and contributes £12 in every £100 of tax paid—it pays for a lot of the NHS. As we heard, the sector makes up more than 3% of all jobs in the UK, with 2.5 million people employed in it, and we have the most unicorns in Europe. The sector here is the second-largest asset sector globally, the third-largest insurance market globally and the fifth-largest domestic banking market globally. I could go on, but the point is that the UK is absolutely a world leader in financial services, and we need to continue to be that. It is vital that we get this right.

It is worth comparing London to New York. New York is the biggest financial services centre in the world and London is the second biggest, but in New York, 80% of the turnover is driven by the domestic market of America, while just 20% is international; those numbers are reversed in the UK, where 80% of the activity is international. International competitiveness is four times as important for us as it is for those in America. The Conservative party recognises that, and that is why the Leader of the Opposition has promised to deliver a new economic revolution and to create conditions that will allow the financial services sector to innovate, take risks and be an economic powerhouse.

Before discussing the future of UK financial services, we need to understand the past. The City of London has been innovating and leading the way for a few hundred years now. The Knights Templar issuing receipts to crusaders for their gold created the first ever bank notes. In the 17th century, Jonathan’s Coffee House—the hon. Member for Buckingham and Bletchley will be familiar with it—was the first to advertise share prices. From there the London stock exchange grew, setting the model for equity ownership the world over. Similarly, Lloyd’s Coffee House created the insurance market that we see today. By continually innovating, the UK led the way for centuries. It is vital that the UK continues that spirit of innovation to maintain its international lead.

Although we have enjoyed much success over the years, a recent report by TheCityUK and PwC shows that over the past decade growth has stalled. Technologies such as artificial intelligence and distributed ledger technology are fundamentally rewiring financial market infrastructure, and it is vital that the UK keeps up with the pace of change. Financial services firms are ready to do that, but they need policy makers to create the right conditions and then get out of the way, allowing them to innovate and take advantage of that.

That brings me to what we need to do to unlock the future of UK financial services. First, we need to look at regulation in the UK. Although it is important to recognise that the UK’s regulatory and legal frameworks make us an attractive destination—that is really important; our rule of law is vital to this—we believe that the UK has gone too far and that regulation has become too burdensome. Research from TheCityUK suggested that the cost of regulatory compliance across the financial services sector now exceeds £33.9 billion. That represents more than 13% of firms’ annual average operating cost.

An interesting number was presented to the Treasury Committee by Nationwide Building Society, which estimated that, as a result of over-regulation by the regulators and over-compliance by their own internal compliance department, their lending book was £35 billion smaller than it would have been, had they been complying with the original rules and regulations. That is an awful lot of money taken out of the economy, getting stuck in one building society—admittedly the biggest one, but none the less, that is an important measure that we need to consider. This money could have been better spent across the whole of the wider sector, but more worryingly, it has affected our international reputation. The chief executive officer of Marsh McLennan said that it cost six times more to comply with regulation in the UK than in any other country it operates in. That does not foster an attractive business environment. Something needs to change.

That is why the Conservatives recently announced three policies that would reduce the regulatory burden. First, we would remove the ringfencing on banks. Secondly, we would reduce bank capital requirements. Thirdly, we would replace the Financial Ombudsman Service with a financial adjudication service.

[Bobby Dean]

The description of the regulatory regime since 2008 is fair. There has been a degree of over-correction, particularly on things such as capital requirements, and the regulators themselves are saying that we could do with some tidying up, but abolishing the ringfencing regime—one of the fundamental protections put in place for everyday bank users in relation to the risks presented by investment banking—does not seem like addressing an over-correction. It seems like a revolution back to the 2008 regulatory regime. Can the hon. Gentleman defend that Conservative party proposal in that context?

[Mark Garnier]

Yes, I can, from having been on the Treasury Committee from 2010 to 2016, when we looked at creating the Financial Conduct Authority and the Prudential Regulatory Authority, and, more relevantly, on the parliamentary commission on banking standards. Our report recommended that we introduce the measures in the Davies review, which was bringing ringfencing in. The hon. Member may remember that, at the time, the Liikanen review in the European Union looked at ringfences. The subtle difference between our ringfencing and theirs is that it was described as caging the tigers in Europe and as putting a fence around the deer park in the UK. Our retail banks were ringfenced. The problem we have found is that it has become increasingly complex to operate the regime, and the Europeans did not bring it in; as a result the resolution regime on banks—the recent Bank Resolution (Recapitalisation) Act 2025 looked at this—actually means that we now have an awful lot of other stuff in place and do not necessarily need the ringfencing.

The problem with ringfencing is that banks end up with a cliff edge, where their customers are traversing from the ringfenced bank to the commercial and investment banks, and it becomes very difficult. Only one bank has managed to satisfy itself that it is okay, and it has set that ringfence limit at £100 million worth of turnover; all other banks have been at the lower end, which is close to £5 million or £10 million in turnover.

It is costing us more and becoming less internationally competitive to have a ringfencing regime that other countries did not adopt. When we adopted it we were the first mover, but we were not followed. International competitiveness is the key point, as well as the bank resolution. There are MRELs, bullion bonds and a lot of stuff out there that makes up for that, brought in since the financial crisis. It just looks like we have too much. I hope that answers the question from the hon. Member for Carshalton and Wallington (Bobby Dean).

Analysis shows that the annual cost to the UK’s banking sector of ringfencing alone is £1.5 billion. At the same time, reports from industry are clear that ringfencing is duplicated and is not responsible for post-crisis improvements. In 2022, the independent review of ringfencing and proprietary trading said that

“the reduction in the implicit government guarantee and progress in ending too-big-to-fail was not found to be attributable to ring-fencing.”

We understand that the Government are looking at this, and at reforming the ringfencing regime through the Financial Services and Markets Bill. The Economic Secretary to the Treasury and I will be spending a lot of time in the coming months going through the minutiae of banks’ balance sheets—frankly, I find it fascinating; I hope she does too. However, like most of the Bill, while welcome, we feel that the Government are not fully utilising the opportunities that the Bill will provide, and that they could go much further. As I say, I will not delve into too much of the detail because we have a long time to go through all this, but I hope that the hon. Member for Buckingham and Bletchley will throw his weight behind the Financial Services and Markets Bill when it comes to the House of Commons.

I have a second point on taxation. If we are to unlock the future of UK financial services, the other area we have to look at is the level of taxation. In a world where capital, talent and business activity are highly mobile, the UK needs to remain an attractive place to do business. That is especially important given the international nature of the UK’s markets. While our competitors such as the US have a high domestic focus, the UK is the exact opposite: the London Stock Exchange Group found that more than four fifths of the revenues of FTSE 100 constituents now stem from outside the UK. Despite that, data from across the industry shows that the UK is an outlier when it comes to the level of taxation on our financial services sector.

Taking the banks as an example, data from UK Finance and PwC in 2025 suggests that the total tax rate on banks in London is 46.5%, which is significantly higher than in other financial centres such as Amsterdam, Frankfurt, Dublin and New York, as we have already heard. In fact, compared with the US, our banks are paying 60% higher tax than theirs are. Another example is the insurance sector. Data from the Association of British Insurers shows that their membership’s total tax contribution increased by 77% between 2014 and 2024. Analysis suggests that that has mainly been driven by increases in the insurance premium tax.