Jayne Adye: It’s time to move beyond Brussels on financial services

26 Jul

Jayne Adye is the Director of the leading grassroots, cross-Party, Eurosceptic campaign Get Britain Out.

Since the UK finally left the EU at the end of 2020, there has been an almost universal focus on the problems created by the Northern Ireland Protocol, as well as the abandonment of UK fishing communities. However, despite being this country’s single biggest export to both the EU and the rest of the world, the financial services industry has seemingly been entirely ignored.

In the last month Rishi Sunak, Lord Frost, and Andrew Bailey, the Governor of the Bank of England, have all confirmed a deal on financial services equivalence with the EU somehow appears to be dead in the water.

The EU’s justification for the lack of progress is the UK’s refusal to commit to “dynamic alignment with EU regulatory changes” for years to come. Why should we accept these demands when this is not a requisite which the EU has forced on any other countries they have equivalence deals with – for example the USA, China and Singapore – so why single out the UK?

Despite this clear pattern of unreasonable rejection, the UK Government has been unwilling to take any real action to move beyond this stalemate, leaving businesses and investors unable to properly plan for our future.

Yes, the Chancellor tried to get the ball rolling this month with his speech at Mansion House, announcing the world’s first Green Bond (a fixed-income instrument designed to support specific climate-related or environmental projects) ahead of the ahead of the COP26 Climate Conference, scheduled to be held in Glasgow from October 31 – November 12 this year.

Unfortunately, the Chancellor’s detail was limited, with interest rates for the bonds not announced and a greater focus on making sure businesses report the impact they have on the environment. While this is a good start, it barely scratches the surface of the possibilities available to the UK and the Chancellor does not seem to be making any substantial attempts to change the regulations enforced on us by the EU.

Thankfully, because the City of London is such a significant player on the world stage, the stalemate and lack of cooperation from the EU is never going to end the dominance which the UK has enjoyed for so long. To use the mainstream media’s favourite term, “Despite Brexit…”, London is still the top financial services hub in Europe and has even reclaimed the top spot for European share trading which was held by Amsterdam for a short time recently – in spite of the EU attempting to block London-based firms doing business in the EU.

In other words, even though some additional barriers have been created, companies and individuals still want to choose the expertise and experience which exists in London, rather than move to the EU – contrary to what many had claimed.

So, with the UK’s advantages over the EU being so clear, why do we seem stuck in the mud when it comes to implementing the advantages of Brexit? Right now the Government appears to be unwilling to diverge from the EU, seemingly for no other reason than “not rocking the boat” and “upsetting the EU” while we negotiate other areas of concern – primarily Northern Ireland, as the Government announced last week with their ambitious call for a total renegotiation of the NI Protocol.

This tip-toeing over glass on these issues simply cannot continue. Yes, London has maintained its position in the world, but if the Government wants to reach the full potential of Brexit, then this must mean bringing about serious change and not simply accepting the status quo. Nobody stays at the top by doing nothing. As an independent country, we cannot deprive ourselves of opportunities to thrive because it might annoy the European Union.

Quite frankly, anyone who makes this argument for the Government’s lack of action has not been paying attention. We currently seem to be sitting idly by, wasting time by continuing to abide by EU legislation, and in return the EU is not showing us any leniency or “goodwill”. Instead, it is trying to carve off Northern Ireland from this country – recently rejecting our proposals for renegotiation in just three hours; hitting us with multiple legal threats; and now it is demanding an extra £2 billion as part of a “Divorce Bill” (which was only agreed because of the UK’s desire to show goodwill).

The EU clearly has no interest in “playing nicely”, so it is about time we stopped the charades and got on with putting out own interests first – whether that be triggering Article 16 of the NI Protocol or slashing EU financial services regulation.

Companies have flocked to the UK for decades because of their trust in our economic system and the “light-touch” regulation which drives it. This has been diluted through our EU Membership, but it is something we can recover from.

There are swathes of EU regulations governing financial services and investment which we actually opposed at the time of their creation – such as the Solvency 2 laws on investment risks; and the Alternative Investment Fund Managers Directive – both of these create swathes of bureaucracy which stymie innovation and try to remove any chance of businesses taking risks – risks which help drive an economy forward at a higher rate and create more competition.

No, this doesn’t mean financial services should be an industry devoid of scrutiny or regulation. This is about shaping a system which encourages new businesses and is prepared for the future, rather than being stuck in the past, tied to a sclerotic EU legislative process which lags behind the rest of the world.

The UK has the chance to cement itself “as the most advanced and exciting country for financial services in the world”, as Sunak described at Mansion House. However, the Government must have the courage to reach out, grab this chance and bring about real regulatory change quickly. Whether this is by encouraging FinTech, green investment or digital trade, our exit from the European Union has come at an opportune time when fresh thinking and a new regulatory approach can allow the United Kingdom to reach its full economic potential.

It is clear a “good deal” with the EU is not on the cards anytime soon, so the Chancellor must not lose this opportunity to push forward and really Get Britain Out of the mindset where we worry about how our every move might affect the relationship we already have with the EU. We are now an independent sovereign nation, and it is time this Government started acting like we want to forge ahead to really explore the advantages of a truly Global Britain.

Daniel Hannan: London was always going to be fine post-Brexit. But now we must cut EU rules and allow it to prosper.

7 Jul

Lord Hannan of Kingsclere is a Conservative peer, writer and columnist. He was a Conservative MEP from 1999 to 2020, and is now President of the Initiative for Free Trade.

Brexit was never going to kill the City. It is a measure of how demented our culture war became after 2016 that that notion was ever seriously entertained. London gained the top spot through strong property rights, incorruptible courts, secure contracts, light-touch regulation and low taxes. Everyone understood that the system was impartial, that the rules would not be rigged against foreign companies, that all were equal under the law.

Those features allowed London to retain its pre-eminence despite the decline of sterling as a global currency, despite the Second World War, and despite the economic collapse of the 1970s. Companies from around the world recognised that the best and cheapest money markets were disproportionately concentrated in the Square Mile. EEC membership had little to do with it.

Eurocrats never saw things that way, of course. In their eyes, London was a parasite, moving money around while honest Europeans did the more “real” work of making cars, producing chemicals and ploughing fields. Brexit, they believed, was an opportunity to shift jobs to Paris, Frankfurt and Milan, and to divert the accompanying tax revenues to their own coffers.

Emmanuel Macron came to London and pitched directly for companies to relocate. His ministers set up offices to advise on the transition. Frankfurt expanded its English-language schools.

Meanwhile, Brussels set out to be as bellicose as possible. UK-based firms found that the letter of the law was suddenly being forced on them with a perversity that their Japanese or American rivals were spared. At the same time, the EU refused to grant equivalence to British financial services providers.

Equivalence – essentially an agreement to trust each other’s regulators – is a normal courtesy among advanced economies. The EU offers it to Brazilian, Chinese and Mexican companies. Britain, naturally, offers it to the EU. But the EU evidently believed that refusing to reciprocate might somehow asphyxiate London.

It didn’t work. This would have been obvious had it not been for the hysterical tone of Britain’s Europhile broadcasters, determined as they were to show that Brexit had been a catastrophe.

Every relocation of a UK job to the Continent was drooled over with a kind of excited despair, while almost no attention was paid to jobs moving the other way – or, indeed, new jobs being created. When, as a result of EU restrictions, Amsterdam briefly overtook London in the volume of shares being traded, there was terrific excitement; when London reclaimed its place last week, coverage was muted.

The EU’s strategy is self-harming. Protectionism always makes the state applying it poorer. Making it harder for continental firms to access London finance does more damage to the continental firms than to London. It also signals to the world that Brussels discriminates on the basis of nationality, subordinating prosperity to prejudice.

Had the EU been more adroit, it might have sought to make itself more attractive. Instead of denying Britain equivalence, it would have looked for ways to lower its own taxes and to reassure the world that it would not tilt the scales against foreign companies. But, for whatever reason, it cannot bring itself to think that way.

Don’t imagine for a moment, though, that London’s dominance is guaranteed. The City has no automatic right to the top slot. It must earn that place anew every day. Brexit doesn’t just allow the City to make its regulatory regime more competitive; it obliges it to do so.

As Andrew Bailey, the Governor of the Bank of England, put it earlier this year: “I’m afraid a world in which the EU dictates and determines what rules and standards we have in the UK is not going to work”.

There was an argument – a weak argument, in my view, but an argument – for matching some EU standards for the sake of equivalence. But when Brussels won’t recognise even our current rules, which are identical to its own, there is no argument whatever for holding back.

We should begin by repealing those EU rules which were opposed by the industry when they were brought in, even if, having now assimilated the compliance costs, some established actors have lost interest in repeal. We need to think of future businesses as well as existing ones. We should undo the parts of the EU’s MiFID 2 and Solvency 2 regimes that we opposed at the time, and scrap the Alternative Investment Fund Managers Directive and the short-selling ban.

More broadly, we need lighter-touch regulation. Many of our rules are still aimed at preventing the 2008 crash, rather than at facilitating future growth in fintech, green investment and digital trade. At the very least, we should make competitiveness an explicit part of the regulators’ mandate – certainly no less than stability, confidence or consumer protection. Other regulators, such as Singapore’s, take it for granted that boosting competitiveness is part of their role.

And let’s not be shy about cutting taxes in ways that will attract investment and so, over time, increase revenue. It is hard, on Laffer curve grounds, to justify the bank corporation tax surcharge or stamp duty on share trading. We also need to end the absurd rule which limits bonuses – thus whacking up bankers’ basic salaries and reducing the link between performance and pay.

Some of these reforms might be unpopular. But, with our public finances in the state they are in, we can’t afford to subordinate our recovery to the prejudices of focus groups. Financial services are, to Britain, what tourism is to the Maldives. As our mediaeval wealth rested on wool, so our modern wealth rests on banking, insurance and investment. I’m not asking you to like bankers and hedgies; I’m just asking you to recognise that they pay 10 per cent of Britain’s taxes.

The PM wants to show that Brexit has tangible benefits, and commissioned Iain Duncan Smith, George Freeman and Theresa Villiers to look at ways to raise our competitiveness. Their report in May set out a measured and realistic plan to do precisely this.

But, as anyone who has worked in politics will tell you, the real challenge is turning your vision into hard policies over the head of an often change-averse civil service. “Between the idea and the reality,” wrote T S Eliot, “Between the motion and the act falls the Shadow”. Between the speech and the implementation, between the report and the legislation, between the ambition and the deregulation – falls the Shadow.

Robert Palmer: To support the levelling up agenda, the Government should follow Biden’s plan to tackle corporate tax avoidance

19 Apr

Robert Palmer is the Executive Director of Tax Justice UK.

Few issues annoy Conservative voters more than Facebook, Google and other global companies paying ultra-low levels of tax in the UK.

Whether it’s pensioners, Brexiteers, Red Wallers, people with degrees or those who failed to get a single GCSE, polling shows that they all unite in frustration at companies that avoid their obligations on tax.

Conservatives like Kevin Hollinrake, the MP for Thirsk and Malton, and Anthony Browne, who represents South Cambridgeshire, understand these frustrations. Companies like Netflix have been hauled over the coals in parliament, with MPs across parties demanding it explain why it paid so little UK tax.

Netflix, famous for box sets like The Crown, hit boom times during the pandemic. Even before Covid, the entertainment tech giant booked £860 million in subscriptions from UK customers alone via its Amsterdam-based subsidiary, but paid very little tax here. MPs are understandably concerned to make sure the likes of Netflix pay a fair share in the UK.

In a parliamentary debate last year, Browne said: “What any fair-minded person objects to is aggressive tax avoidance which results in companies or people paying less tax than is clearly their fair share.”

In its 2019 manifesto, the Conservative Party pledged to continue to lead “the international fight against aggressive tax avoidance and offshore tax havens”.

Last week President Joe Biden announced a plan that could end the “race to the bottom” on corporate tax. It comes just a month after Rishi Sunak pledged in the March Budget to increase corporation tax to 25 per cent by 2023.

The US President is proposing that companies should pay at least 21 per cent on their profits as part of a package of global reforms. This would make it much harder for global companies, like Amazon, to get away with paying very low rates of tax by stashing their profits in offshore tax havens.

Far from stifling UK businesses, the Biden plan would give companies a chance to compete fairly against the global giants and their clever accounting.

Areas of the UK that lost out under globalisation, could reap the rewards from the overdue reform of the way global multinationals are taxed. There’s nothing buccaneering about keeping our antiquated global tax system in place.

Research shows that the plan for a global minimum corporation tax could raise £13.5 billion a year in the UK.

Raising corporation tax is popular among Conservative voters and the rest of the voting population. Bringing in more money from companies is also compatible with the levelling up agenda.

The centre-right think tank Onward, recently called for the Government to level up the tax system. Its research highlights that corporation tax receipts are concentrated in the wealthy South East of the country. This is partly skewed by the fact that many companies are headquartered in London. However, even with this factored in, over the last decade the corporate tax take has declined in the North and Scotland, while it has risen in the South.

Red Wall voters are desperate to see investment in their communities. The £13.5 billion that could be raised through adopting Biden’s plan, much of it likely to be paid by tech giants, would help us invest in things like broadband to bridge the gap between rural and urban areas.

It’s clear that the Conservatives’ new electoral coalition is more left wing on economic issues. This is in part driven by increasing support in the Red Wall constituencies in the North and Midlands. These voters want to see higher levels of public investment and support tax increase to help deliver this.

So far there’s been some indication that the UK government is interested in the idea of a global minimum corporate tax rate, but won’t yet sign up to Biden’s proposed 21 per cent rate.

On Wednesday, the Treasury Minister Lord Agnew responded to a question in the House of Lords about Biden’s plan from the Green Party’s Baroness Bennett. The Minister said that “the UK was at the forefront of initiating global action on international tax”. He backed global efforts to reform the global corporate tax rules and said that the Treasury was looking at the US proposals.

In June, Johnson will show leadership to the world as the UK plays host to the world’s richest countries at the G7 summit. Getting global agreement for a global minimum corporation tax will be near the top of the agenda for the US President.

The 2013 G8 summit in Northern Ireland saw a Conservative-led government push through a global agreement to tackle tax evasion and avoidance. Those changes have made a real difference and ended some of the more egregious practices.

A G7 summit in our own backyard will be front page news in the UK. It’s in this government’s interests to support President Biden’s plans to tackle corporate tax avoidance. This would be good politics given the popularity of cracking down on tax loopholes and the billions that could be raised to support levelling up.

Daniel Hannan: A tribute to Jens-Peter Bonde. A devastatingly able campaigner and giant of the Eurosceptic movement.

14 Apr

Lord Hannan of Kingsclere is a Conservative peer, writer and columnist. He was a Conservative MEP from 1999 to 2020, and is now President of the Initiative for Free Trade.

A giant of the Eurosceptic movement died last week, unreported and largely unremarked. Jens-Peter Bonde, who spent 29 years in the European Parliament and was, for much of that time, the closest thing it had to a Leader of the Opposition, passed away at his home near Copenhagen, aged 73.

There has, of course, been a more newsworthy death grabbing our attention. But, even without the passing of the Duke of Edinburgh, we would not have heard much about the cheerful, detail-obsessed Danish campaigner.

This is partly because Brexit has short-circuited the arguments about the decentralisation of power. I have written more than my share of papers on how a looser, more flexible EU might have worked. But all that is over now. Eurocrats responded to Britain’s withdrawal by pushing ahead with the integrationist schemes that had previously been held up by our veto – tax harmonisation, an EU army, the lot. A country can either get with that programme or leave. A Europe of nations is no longer on the agenda, if ever it was.

There is another reason, though, that Bonde faded from public consciousness. He might have been the moving spirit behind the Euro-critical movement, but he does not fit the popular image of the anti-Brussels campaigner. Thoughtful, polite and Left-of-Centre, he was the Eurosceptic whom federalists found it hardest to dislike. He worked on various projects with Romano Prodi, Guy Verhofstadt and Jean-Claude Juncker, who remarked on hearing of Bonde’s death that their clashes over the burgeoning EU budget “didn’t take away from the friendship I had with him”.

Bonde began as a revolutionary and ended as a reformer. He had campaigned against EEC membership in Denmark’s referendum in 1972 – a campaign at that time dominated, like its British equivalent, by the Bennite Left – and was elected as an MEP for the People’s Movement Against the EEC in 1979. After Denmark voted against the Maastricht Treaty in June 1992, he established the June Movement, reaching out to those Danes who had been happy enough with the EEC, but who disliked the new push for political and economic amalgamation.

That made him the de facto head of something that had not existed until that moment: a Europe-wide anti-federalist movement. As the leader of the tiny Eurosceptic bloc in Brussels, Bonde had the time and the resources to co-ordinate the efforts of new allies: Philippe de Villiers’ souverainiste movement in France, the successors to the various Scandinavian “No” campaigns from 1994 and, in Britain, Jimmy Goldsmith’s Referendum Party and Alan Sked’s UKIP.

I remember asking him, when I was first elected in 1999, whether he thought it was acceptable to use EU money that way. Then, as now, the European Parliament made resources available to individual MEPs and their parties for political projects. The idea, of course, was that the moolah would translate into greater support for the EU. But there was no way to draw up the rules so as explicitly to exclude Eurosceptics. Did he think it was okay to finance his projects with Brussels cash?

“I used to wonder the same thing when I arrived here 20 years ago, Daniel. In the end, I asked a man who had been one of my mentors. He was a partisan leader in the war, and he told me, ‘Jens-Peter, when we siphoned gas off German vehicles during the occupation, it wasn’t an act of theft – it was an act of legitimate resistance.’”

I laughed out loud at the mental picture the mild-mannered, bespectacled Bonde stealing petrol by moonlight. In truth, by then, he was already more interested in making the EU less intrusive than in taking his country out of it. But he remained a devastatingly able campaigner.

The following year, he and I worked together on the “No” campaign in Denmark’s single currency referendum. We started more than 20 points behind in the polls, but Bonde knew how to appeal to waverers. He block-booked advertising space with bus companies all over the country. A week before polling day, a question appeared on the side of almost every Danish bus: “Do you know enough to abolish the Crown forever yet?” It was the “yet” that did it, rallying undecideds to the status quo and carrying us to a surprise victory.

For all that they found him personally agreeable, the EU’s leaders could not forgive such behaviour. Had they been a bit cleverer, they would have treated Bonde and his allies as a kind of loyal opposition, engaging with his ideas on democracy and transparency, and using his presence to show that the EU was not an intolerant monolith. But, subject to their federalist purity-spiral, they could never bring themselves to do it.

As the EU pushed ahead with deeper and deeper union – Maastricht was followed by Amsterdam, Nice and Lisbon – the idea of devolving power fell away, leaving withdrawal as the only alternative. Bonde was replaced by Nigel Farage as leader of his group and, more broadly, as the voice of Euroscepticism. While he was shifting from secessionism to constructive criticism, the Eurosceptic movement was going the other way.

Bonde’s idea of a Europe of nations now survives only as a counterfactual, a might-have-been, like Gladstone’s Home Rule proposals or Pitt the Elder’s plan to conciliate America. The EU’s leaders may soon wish they had taken the well-mannered Dane more seriously.

Nick King: London is unlikely to have another “Big Bang” moment – but here’s how we can boost its potential post-Brexit

15 Jan

Nick King is a Research Fellow at the Centre for Policy Studies

When Rishi Sunak was recently asked whether the UKs departure from the European Union meant we should revisit the Big Bang Playbook for the City of London, what choice was there but to agree? After all, what self-respecting neo-Thatcherite Chancellor of the Exchequer could say anything else when such an enticing proposition is dangled in front of them by a newspaper editor (in this case, Andy Silvester, of CityAM)?

But the world were living in is not that of the mid-80s. The EU, for all its faults, does not have the equivalent of the Restrictive Practices Act which Nigel Lawson – another political hero of the Chancellors – worked so hard to overturn. The idea of another Big Bang moment, the kind of sudden, overnight liberation which occurred on October 27, 1986, is unlikely to materialise.

But that doesn’t mean that there isn’t huge scope to use Brexit to boost the City, and the British economy – especially if we learn the right lessons from those Thatcher-era reforms.

As well as sweeping away anachronistic, inefficient practices, the Big Bang served to introduce three vital new operating principles to the City of London, turning it from a relatively sleepy, parochial industry into a global powerhouse. Those principles remain as valid today as they were in the 1980s.

The first was to open the City up to the world. For generations, the institutions of the City had been highly clubbable places, populated mainly by members of the British establishment. The Big Bang introduced competition – and global competition at that – which led to drastic changes in attitude and performance. In time, that led to London becoming one of the important financial hubs in the world alongside New York, in either first or second place for insurance, investment banking, asset management, FX trading and more.

Some worry that leaving the EU risks this preeminence. Certainly, ever since the Brexit vote, it has been clear that Paris, Amsterdam and Frankfurt (among others) have had more than one eye on the opportunity to knock London off its perch. Fortunately, for all the reports of 100,000+ jobs going, the impacts thus far have been limited. As one industry player put it to me, not even the Germans want to go to Frankfurt.

But the ability to access, and deploy, capital across the continent is clearly vital, and jeopardised by the fact we have left the European Single Market without a deal on services. It certainly does not make sense for the City to be regulated by Europe: given the relative size of our financial services industries, that would be the tail wagging the dog. But the Chancellor and the Treasury need to negotiate a Memorandum of Understanding that allows us to continue to operate in, and cooperate with, the EU as soon as possible.

Yet we must also turn that challenge into an opportunity – to not just maintain but enhance the UKs status as a global centre for capital and financial services.

Our equity markets are already some of the deepest in the world. But we need to remain world-class and be able to finance the industries of tomorrow. The Listings Review, being undertaken by Lord Hill, is fully focused on achieving precisely that by making the regime more competitive.

Already it is estimated that the UK investment management industry manages some £10 trillion of assets. But again, we need to work harder to attract more capital from South America, the Middle East and South East Asia.

Attracting more capital – and talent – while continuing to build our reputation as a global centre for financial services should a central pillar of the Global Britain agenda.

The second principle from the Big Bang is proportionate regulation. Just as those reforms were predicated on, and driven by, regulation that works, we now need to make sure that our regulatory regime is one which supports rather than stifles our financial services industry – and which is tailored to our needs.

Coming out of the Single Market there are few voices clamouring for a bonfire of regulations in financial services. But at the same time, there is no point in sticking rigidly to a set of rules which dont necessarily work for us or our markets. Other authors on this site have, rightly, pointed to changes which should be made around the Alternative Investment Fund Managers Directive and the Markets in Financial Instruments Directive II. The collapse of the financial advice industry, in particular, has been entirely been driven by overzealous, anti-competitive regulation.

Another set of regulations we should put in the crosshairs are the Basel capital requirements, which can treat a small bank or a building society in the same way as a large investment bank – which also damages competition by making it much harder for the new challenger banks to compete. By taking a more proportionate approach, and freeing up domestic lenders’ capital, UK regulators can create a more competitive market and immediately unlock more funding for domestic priorities like sustainability, net zero and levelling up. It is also striking that Britain’s regulators rarely have a duty to consider the growth impacts of their decisions: as George Osborne once said, we do not want the financial services industry to have the stability of the graveyard.

Proportionate regulation is linked to the third pillar that drove the Big Bang’s success: our absolute reliance on innovation. The reforms of the Thatcher era brought in new players, new instruments and new ways of doing things. That same willingness to embrace innovation is imperative if we are to thrive in the future.

Today, despite our world-leading fintech industry, much of the pioneering innovation in financial services happens in Singapore, Shanghai and other Asian markets. Industry insiders claim that an abundance of caution prevailsat the FCA. For all the successes of its innovation “sandbox” (a concept some claim was forced on it by Osborne), it is still not doing enough to support innovation or to open up new markets. These are issues I have written about before but those in the fintech industry tell me FCA authorisation still takes too long.

The tone for the regulators is set by the Treasury, of course – and the Treasury needs to back innovation now like never before. It must ensure its regulators lose the “gold plating” mentality of old, which has put us at a competitive disadvantage, and use the Future Regulatory Framework Review to help us capture the global opportunities which abound.

The fundamentals of our financial services industry remain strong, as the Chancellor himself said, but they cannot be taken for granted. Despite the fact we are blessed in our language, timezone, history and rule of law, the forces of competition are ever stronger – on the continent and beyond. To maintain London and the UKs preeminent status will take hard work and determination.

And that, I would argue, is the most important lesson of the Big Bang. The new entrants, innovation and subsequent global success came about because we had a government that was ready to back the industry as required. It was a Government that recognised that financial services, the profit motive and shareholder interest were fundamental goods – and spoke out on their behalf.

We might not be in line for another Big Bang but to help us make the most of Brexit we need the Government to be pro-business, pro-City and to offer financial services enduring political support. If those principles are in the Chancellors “Big Bank Playbook”, then sign me up.