Financial Services: UK Economy — House of Commons, 2021-12-09
Topic: Domestic Commerce
Stephen William Hammond (Independent, Unknown): It is an honour and a privilege to follow the two speeches from my hon. Friend the Member for South Cambridgeshire (Anthony Browne) and the hon. Member for Wallasey (Dame Angela Eagle). Both of them gave us philosophical, intelligent and really interesting speeches, and I noted that both of them made the point that financial services as an industry perhaps do not get the respect or the renown they probably should have I was reflecting on that when I heard the remark my hon. Friend the Member for South Cambridgeshire made about the German who said financial services are not recognised. Why is that? I think it is probably for three particular reasons, yet when we look at the contribution to the UK economy, we should really be shouting out against that. The first point is that, for all too many, when we say financial services, they think of banking. They forget all the related professional services, notwithstanding the subdivisions—indeed, financial services themselves are more tightly defined—and just concentrate on banking. They think back to the financial crisis and all the attendant problems that my hon. Friend so rightly pointed out The second point is that, when we say financial services, people may expect the hon. Member for Wimbledon to stand up, but they should expect the hon. Member for Wallasey to stand up as well. Although, understandably, financial services account for 16% of London’s total gross value added, the reality is that in the north-west the industry is 6% of the regional economy, in the south-west it is 6%, in the west midlands it is 6% and in Yorkshire and Humberside it is 6%. The smallest contribution of financial services anywhere in the country is actually the east midlands, and that is 3%, but it is none the less 3% of that regional economy. So we should be standing up and saying that this is a UK-wide industry The third point—with complete respect to my hon. Friend on the Front Bench, who is establishing his reputation for being perhaps the best City Minister we have ever had—is that there are one or two at the top of this Government who have occasionally thought that fishing was more important than financial services. If one says that the total contribution to the UK economy of financial services was £67.4 billion last year, and for fishing the number is so small it is not worth talking about, correcting that and looking to that in the future would underline the point about the power of financial services. As has already been stated, there is a huge trade surplus. My hon. Friend the Member for South Cambridgeshire talked about the opportunities and the hon. Member for Wallasey talked about the threats from the EU. It is none the less true that during our membership of the EU we established ourselves as the world’s global financial centre, and whether we like it or not 40% of UK financial services exports still go there. So my hon. Friend the Economic Secretary to the Treasury will know that in those very complex negotiations—I will not repeat what has already been said about them—we must have a sensible, diplomatic and economically viable dialogue with our nearest and dearest neighbours The tax contribution has already been mentioned several times, and the hon. Lady made the point that PwC estimates that £75.5 billion, or 11% of Government receipts, come from the wider financial and associated professional services sector, including insurance and legal. So there cannot be any doubt that this is a hugely important industry and a powerful industry for the UK, and if we want a globally successful Britain we need a globally successful, renowned and well-regulated industry. It is noticeable that in the last few years we have very slightly slipped in the global financial centres index to second place and we must recognise that there are threats as well as opportunities from leaving the EU. It is of significance that on the first trading day of this year we lost £6 billion of activity out of London, and that is a continual threat. So I say yet again not only that we need those important negotiations to be conducted in a manner that is to London’s benefit but that we equally need to recognise of course that the threat is also now once again from New York, Switzerland, Singapore and Hong Kong. In the global alliances that we strike in financial services it is perfectly possible to recognise that, with some economic diplomacy put into deepening regulatory engagement, we could find ourselves in a powerful international regulatory alliance with the Americans, the Swiss and some of the far-east countries. Andrew Bailey some years ago when I was serving on the Treasury Committee raised this as an opportunity we should consider. Building those new trade and investment ties, and underpinning international agreements with financial services, is key to a globally successful Britain I want to briefly talk about two other points. First, as has been said, there is a difference between wholesale regulation and retail regulation. The Financial Services Act 2021 says that the Financial Conduct Authority must have regard to the relevant international standards and the effect of the rules on the UK’s international standing. That is hugely important, particularly in wholesale regulation where we hope to ensure that the UK is an international powerhouse. I accept that that will always be a secondary objective of the rules and the obligations on the regulator, but it must not be deviated from. I hope that my hon. Friend the Economic Secretary will set that in place. In terms of the history of regulation in the UK, a large number of people think the system, while rightly seeking to ensure extensive consumer protection, has come at the cost of overspecification for the wholesale markets to no benefit at all and to the diminution of our standing The other point has also been raised, but it is important. The 2021 Act has given a huge increase in power to the regulators in a way that we have seen with very few other regulators, by which I mean the lack of scrutiny in this House. I note that the financial services document "Future Regulatory Framework (FRP) review" has come out and it talks about this, and my hon. Friend the Member for South Cambridgeshire referred to evidence to the Treasury Committee. Because of the importance of this industry to the country, I urge the House to consider very carefully establishing a Select Committee of both Houses or indeed a standing sub-committee of the Treasury Committee. I do not accept the argument that several have put that there is not the expertise or capability within this House, or that this House is not able to get the necessary resources and capability brought into it to undertake that proper and appropriate parliamentary scrutiny Finally, in the last minute of my speech I want to talk about two other matters. We have talked a lot about the past and what financial services has done, but it could do a lot more to help in what this Government and this country want to achieve. If levelling up means anything, it means bringing opportunity to the regions of this country. Financial services is already a powerful industry in the regions of this country, and bringing in those high-paid, high-value jobs also brings in skills. We should be doing all sorts of things to encourage that, not necessarily just within Government; universities should specialise in master’s degrees in financial capabilities and regulation. We should be focusing heavily on developing the UK as a centre of financial skills. That way we would not only drive UK levelling up but bring the talent to make London and the other global centres of this country into the powerhouse of financial services Finally, the Government have done a huge amount of good work already in delivering the net-zero economy from financial services. Financial services can do much more in that area; all sorts of things, particularly using the tax system, have been done already, but we can do much more, and the financial services sector must play its role to deliver that objective.