Financial Services: UK Economy

Margaret Ferrier Excerpts

Thursday 9th December 2021 Commons Chamber

[Margaret Ferrier (Rutherglen and Hamilton West) (Ind)]

It is a pleasure to follow the hon. Member for Wimbledon (Stephen Hammond).

I thank the Backbench Business Committee and the three sponsors of today’s debate for bringing this topic to the House for discussion. The UK’s financial services are a huge asset and truly world class. The UK’s sector is the third largest of the OECD countries in terms of its economic output. Recent rankings put London’s financial market as the second most competitive in the world, only narrowly beat out by New York. It is therefore unsurprising that even within the UK London holds the lion’s share of the glory. The city’s contribution to the UK economy for the sector accounts for 50% of the sector’s economic output, but, interestingly, Scotland ranks just behind London and the south-east; it is a very well-established financial centre. So while London might sit firmly centre-stage, contributions from across the UK should also be celebrated.

In fact, Scotland has a rich history as a thriving financial hub, one that spans over 300 years. The Institute of Chartered Accountants of Scotland was the world’s first professional accounting body, established in 1854. The Chartered Banker Institute—or as it was originally known the Institute of Bankers in Scotland—was established in 1875, making it the oldest banking institute in the world. Today there are around 84,000 jobs in the sector in Scotland, and around 2,000 businesses. The FinTech industry is growing too, with many firms looking to establish homes in Glasgow and Edinburgh. Many cite the excellent provision of local skill and talent as the reason for wanting to do so. It is attractive to foreign direct investment, too.

Like so many of the UK’s industries, the financial sector has not escaped unscathed from the realities of Brexit. Financial services were largely overlooked in the trade and co-operation agreement, so provisions are relatively sparse. According to the Financial Times, there are 90 mentions of financial services in the agreement, but variations of the word “fish” appear 368 times. In December last year the sector lost passporting rights and we moved into market access determined through equivalence. The deal we came away with was not a good one and, as expected, many businesses moved to other European financial centres where they have access to the single market. Jobs and business have been lost and perhaps still will be, but we will not know the true impact for a long while yet.

The sector’s economic contribution is substantial, as we know. A recent study showed that Scottish businesses had an average profit margin of 7.5%, above the UK average and second only to London. Financial services are a big part of the reason that average is so high. The sector’s profit margin in Scotland is 13.6%. Its tax contribution is impressive too, at £28.8 billion in income tax, national insurance, corporation tax, bank payroll tax and the banking levy last financial year. That is 4.1% of all taxes collected last year.

What is next? How do we build on what we have and mitigate the impact of leaving the single market? The Government’s answer seems to be deregulation, although industry experts seem to be not wholly in agreement about the impact that will have. I would be interested to hear what discussions the Minister has had with the sector about deregulation, and how that has informed the Government’s strategy. Have the Government considered the argument for reregulation—a reshaping of the current framework so that it is more suitable—rather than deregulation?

Financial services policy remains reserved to the UK Government, and I urge them not to overlook the sector’s prominent Scottish presence as they review and reform their policies in a post-Brexit context.