UK’s Financial Services Industry

John Glen Excerpts

Monday 21st June 2021 Commons Chamber

[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.