Lindsay Hoyle
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The Economic Secretary to the Treasury (Emma Reynolds)
With permission, Mr Speaker, I shall update the House on the content of the Leeds reforms.
The reforms encompass the Government’s financial services growth and competitiveness strategy, which is our 10-year plan for financial services. This plan will make the UK the global centre of choice for financial services investment by 2035, with all parts of the country benefiting from its success, building on our thriving regional financial services clusters around the country.
The financial services sector is one of this country’s largest and most productive sectors. It is worth 9% of total economic output and provides 1.2 million jobs across the UK’s nations and regions. Our strategy will unleash the potential of the sector to catalyse growth, enterprise and opportunity in the rest of the economy. That will mean that working people will get better returns on their savings, that home ownership will be unlocked for tens of thousands more people, and that more businesses will get access to the capital that they need to grow.
The Secretary of State for Business and Trade recently presented to this House our modern industrial strategy in which financial services was identified as one of the key eight growth driving sectors on which the Government will focus. This builds on the successes of our first year in office, which I am proud to highlight: the fastest growth in the G7 in the first quarter of this year; four interest rate cuts; faster wage growth in the past 10 months than the previous 10 years of the last Government; the FTSE100 yesterday at a record high; and business confidence at its highest in nine years. [Interruption.] I will not take lectures from the Conservatives, who presided over inflation at 11% and debt rising year after year.
Our vision is of an active state working in partnership with business, and the Leeds reforms were co-designed with industry. The Chancellor and I undertook extensive engagement in its preparation, and I was pleased to see financial services firms across the country and the Confederation of Business Industry welcome our reforms publicly. The reforms reintroduce informed risk taking into our financial services system to deliver prosperity for working people. We will always ensure that financial stability is a prerequisite for economic growth, and we continue to uphold our commitment to the high international standards that underpin the resilience of the global financial system.
I will briefly set out the details of our package to the House. First, the Government are delivering a competitive regulatory environment to attract investment and drive growth. We have set out plans to deliver the most significant reform to the Financial Ombudsman Service since its inception, ensuring that it no longer acts as a quasi-regulator and returning it to its original purpose as an independent, impartial dispute resolution service for complaints between consumers and financial services firms.
We are also streamlining the senior managers and certification regime to reduce the burdens imposed on firms by 50% and to reduce approval times. We have tasked the Financial Conduct Authority to report back by September on how it plans to address concerns about the application of the consumer duty for firms primarily engaged in wholesale activity.
Secondly, our reforms unlock capital for investment into our infrastructure and businesses. We are doing this by supporting the Bank of England’s changes to MREL—the minimum requirement for own funds and eligible liabilities—and by confirming our approach to Basel 3.1, implementing lower capital requirements for domestically focused banks from January 2027 while preserving flexibility in our approach for international banks to ensure that the UK remains competitive and aligned with international standards.
We are also committing to meaningful reform to ringfencing, while maintaining the aspects of the regime that support financial stability and protect customer deposits. We welcome the Financial Policy Committee’s review of the overall bank capital levels needed for UK financial stability and its decision to ease its loan-to-income restriction on mortgage lending. I am delighted that this decision will enable up to 36,000 additional first-time buyers to access mortgages in the first year.
Thirdly, we are making the UK the location of choice for fintechs to start up, scale and list, and we want the wider financial services sector to embrace innovation too. The FCA and the Prudential Regulation Authority will launch a scale-up unit to ensure that fast-growing businesses have the support they need to grow. The regulators will also introduce a new streamlined authorisation regime that will enable innovative firms to start operating while they await full approval. We are modernising and future-proofing the regulatory framework for payments and e-money, including stablecoin, and we are establishing a new model to deliver next-generation retail payments infrastructure.
Fourthly, we are seizing opportunities in key areas of UK leadership, from speciality insurance and asset management to sustainable finance. Our insurance sector has been world-leading for centuries, and we are committed to staying at the front of the pack by creating a new captive insurance framework and holding an industry showcase event later this year to sell the sector globally. We are also future-proofing the regulatory regime for our asset management sector, which is the second largest in the world, and we will publish draft legislation on that early next year.
The UK is already a leading global hub for sustainable finance. We have set out plans for a stable regulatory framework, and we are giving industry clarity by deciding not to pursue a green taxonomy and by focusing instead on ambitious policies that support investors to invest in the transition. I look forward to continuing to work with Lord Alok Sharma and the Transition Finance Council, which he chairs, to make the UK the leading international hub for raising transition finance.
Fifthly, we want to go further in building a new retail investment culture and boosting our capital markets’ competitiveness. We have taken great strides to reform our pensions system, led by the Parliamentary Secretary to the Treasury, my hon. Friend the Member for Swansea West (Torsten Bell), so that people can have better savings in retirement. We want savers to get the best returns on their savings. For too many their money is not working hard enough, and for too long advice on investments has been the preserve of only the wealthiest in society. To address this, the Chancellor has announced the biggest reform of the financial advice and guidance landscape in more than a decade and the introduction of targeted support in time for the new tax year. The Chancellor and I welcome the steps being taken by industry to help consumers engage with investing. I particularly thank Chris Cummings of the Investment Association for the work he is leading on that.
We are also considering reforming the individual savings account system to ensure better outcomes for both savers and the UK economy. We are allowing long-term asset funds to be held in stocks and shares ISAs next year. This will allow more individuals to invest in assets that will support the UK’s success while seeing better returns on their savings. To ensure that our capital markets support British business, we are announcing a new listings taskforce with the Office for Investment to attract world-leading businesses towards initial public offering in the UK. We are publishing a wholesale financial markets digital strategy to harness innovation as well as our ambitious design for the digital gilt instrument pilot.
Finally, we are taking steps to enhance the UK’s leadership in financial services, ensuring that the UK remains the most open and connected financial centre in the world. We will launch a concierge service—the Office for Investment: Financial Services—to attract international financial services firms to invest in the UK and grow their business. We are further facilitating cross-border activity with the publication of guidance on our overseas recognition regimes and a memorandum of understanding with UK regulators, a copy of which I will place in the Library in both Houses.
Through these steps, the Government have placed financial services at the heart of our growth mission. Our 10-year strategy is ambitious, includes the most far-reaching reforms to financial services for a decade, and will unleash the fantastic potential of our world-leading financial services sector. We are backing British businesses, unlocking home ownership for tens of thousands of people across the country, supporting savers to get better returns, and investing in our shared future. I commend this statement to the House.
Emma Reynolds
Well, half of that was all right, I suppose. I do want to start constructively and thank the hon. Member for his welcome for some of the reforms. I will answer some of his specific questions before I come to the wider points.
On the Financial Ombudsman Service, we have set out in great detail what we will do. As he will be aware, some of the changes require primary legislation. We are proposing an absolute time limit of 10 years, but with discretion for the FCA to give longer periods in the case of products with a longer lifetime. I cannot comment on the ongoing car finance issue, which as he knows is working its way through the courts.
The hon. Member talked about the regulators’ different objectives. We have been very clear with the regulators that we expect them to embed their secondary objective to facilitate economic growth and competitiveness while obviously complying with their other objectives. He will see that in the remit letters that the Chancellor sent to the regulators at the last Mansion House speech last November.
On ISAs, I welcome what the hon. Member said about long-term asset funds, which we think will unlock great opportunities for savers. We continue to consider reform to ISAs. We would like to ensure that more people have the opportunity and confidence to invest, which is why we hope that targeted support, which will be introduced by firms by the end of this tax year—we have worked at pace on this—will really shift the dial and give people that confidence to invest.
I think the hon. Member said he was in favour of what we are doing on MREL, and I know that he agreed with the Bank Resolution (Recapitalisation) Act, which we put through the House and is coming into force today. I thank him for his support on that.
On ringfencing, we have detailed which areas we will look at. I am happy to write to him further on that, but one area, for example, is sharing resources across the ringfenced and non-ringfenced parts of banks. We want to ensure that we strike the right balance between growth and stability.
I turn to the hon. Member’s points about economic stability. I will take no lessons from the Conservatives—I hate to say it. We had inflation at 11%, people paying extremely high mortgage rates and debt rising year after year. The only thing that was stable under their Government was wages, which were flatlining.
Dame Meg Hillier (Hackney South and Shoreditch) (Lab/Co-op)
I thank the Minister for the statement and look forward to the Treasury Committee talking to—or interrogating—her, and indeed the Chancellor, about the detail as it emerges. Since the election, one of the things the Government have been talking about, leading on from the previous Government, is the secondary remit letters to the regulators about encouraging growth as a secondary objective. Can she tell us when the Government will be clear about their own appetite for risk in the sector so that both firms and the regulators know how far the Government will be prepared to go? She and I know from our experience in this place that if too many consumers suffer under any changes, this place is where that will be raised, and then there is a tendency for the Government to turn around and say, “Well, you went too far.” For the sake of the sector, the regulator and our constituents, will she tell us—or will she tell us when she can—where the Government’s line on risk will fall?