David Gauke: Sunak – the Anywhere Chancellor in a Somewhere Government

11 Apr

David Gauke is a former Justice Secretary, and was an independent candidate in South-West Hertfordshire at the 2019 general election.

Wednesday, 8 April 2015 was the day the Conservatives’ general election campaign could have gone horribly wrong.

Up until then, Labour had said very little on the subject of non-doms. The concept of non-doms – people who are resident in the UK but ultimately intend to return to their place of domicile and who could elect to pay UK income tax only on their income arising in the UK but not from elsewhere – was a well-established part of the tax system. Now Labour planned to abolish the status.

Their announcement had taken us by surprise. We could be painted as being on the side of the wealthy and although we could explain the reasons for the existence of non-dom status, during a General Election campaign it is generally the case that when you are explaining you are losing.

The Conservatives had a record for tightening the rules on non-doms. George Osborne announced in 2007 that a Conservative Government would introduce a fee for non-doms not paying tax on their worldwide income. The Labour Government unashamedly copied the idea and introduced such a fee. In the Autumn Statement of 2014, George Osborne had increased the fees.

I was the tax minister at the time and, rather than spend the tax campaigning in Watford, I was soon summoned into CCHQ. It was whilst travelling into London that – to our relief – a recording had emerged of someone pithily explaining three months earlier why it might be a bad idea to abolish non-dom status altogether. “If you abolish the whole status it will end up costing Britain money because some people will leave the country.” Thank goodness for Ed Balls, I thought to myself for the first time in my life.

Labour’s announcement caused us some difficulties but it did not result in the transformative moment that we feared. After returning to office, we further tightened the non-dom regime ensuring that those who have been resident here for 17 out of 19 years can no longer claim the status.

Almost exactly seven years after Labour’s announcement, non-doms returned to the front pages after it emerged that Rishi Sunak’s wife, Akshata Murty, was a non-dom.

It is a policy area about which I know a little so will set out a few thoughts. Before doing so, I should declare an interest. Since leaving politics, I have returned to my previous City law firm which has a strong private client practice. This has not changed my views on the appropriate policy towards non-doms but these things are, ahem, best declared.

On the substance of the policy, there are conflicting objectives. We should seek to raise revenue from the wealthiest in society and we should have a tax system that is seen as being fair. We also, in my view, want to offer a competitive tax environment to ensure that talent and capital comes to the UK, recognising that there are plenty of other options available. The uncertainty here is that no one can be completely sure what the behavioural response to changes in the tax regime will be.

Some non-doms contribute a lot of tax to the UK and if they decide to move elsewhere this may more than outweigh any additional revenue from taxing the worldwide income of those non-doms who stay. Back in January 2015, Ed Balls was raising a fair concern.

I would also add that the non-dom regime makes the UK an attractive location for many successful people in the financial services sector and has contributed to the City of London being the international success that it is. At a time when we are making life more difficult than we need to for the City because of Brexit, I would tread carefully here.

Broadly – subject to new evidence emerging – I think the reforms announced in 2015 mean we have the balance about right.

We should also acknowledge that the non-dom regime is a policy choice – one that successive governments have made. Making use of the regime does not automatically constitute “tax avoidance”, any more than investing in an ISA or a pension constitutes tax avoidance. To constitute tax avoidance, I would argue, involves acting in a way which is contrary to Parliament’s intentions.

I have never met Ms Murty but the current scrutiny of her financial affairs must be grim for someone who has not herself entered public life. On the evidence in the public domain, her behaviour does not appear to be contrary to Parliament’s intentions and, therefore, does not appear to constitute tax avoidance.

As for her husband, I do not know Rishi Sunak particularly well but he has always struck me as decent, intelligent, thoughtful and well-intentioned. I certainly do not always agree with him (my previous column here criticised his spring statement) but, were he to become Prime Minister, I would be more sympathetic to the Government than is currently the case. If, as has been suggested, he gives up politics, I think that would be a significant loss to the Government, the Conservative Party and British public life as a whole.

So, in summary, I think it is sensible that we have a non-dom regime; using it does not automatically constitute tax avoidance and it is not clear that it does here; I like Rishi Sunak and feel sympathy for his wife.

Given that Ms Murty has announced that she will now pay UK tax on her worldwide income, does this mean that Sunak’s problems are behind him? I am afraid the answer is no.

In addition to the broad question about the Chancellor’s political judgement, I think the Sunaks face three specific problems.

First, in order to be domiciled in India, Ms Murty must have the intention of returning there. This means that either the Sunaks are going to be resident in two different countries or Sunak – after holding high office in the UK – plans to emigrate. The former is unconventional and the latter raises the question of how committed Sunak is to the UK.

Second, Ms Murty has told us she will remain a non-dom. This means that inheritance tax will not be charged on the whole of her estate as the law currently stands. Again, I do not think this is tax avoidance. When we reformed non-dom status in 2015, we were conscious that imposing inheritance tax on the entirety of a non-dom’s estate (including on assets that had nothing to do with the UK) would have a significant behavioural impact resulting in many non-doms ceasing to be resident here. But this particular policy issue will now become contentious (Labour will see to that).

One would hope and expect that the point at which the taxation of Ms Murty’s estate becomes a real time issue is many years hence (at least a dozen Chancellors are likely to have the chance to change the law in the interim) but Sunak will be under immediate pressure to close a so-called “loophole”.

Third, many of the arguments in favour of him and the non-dom regime – we should be an open economy attracting wealthy people here, we want the City to thrive, this is all part of the “global race” – sound rather unfashionable in the country as a whole and the Conservative Party in particular. To use David Goodhart’s distinction, the country can be divided into the “somewheres” – those rooted in a particular place – and the “anywheres” – those who have “portable” identities. As the last week has revealed, Sunak is the “anywhere” Chancellor in a Government appealing to “somewheres”.

It is an uncomfortable position.

Gerry Lyons: What are the economic and policy implications of the war in Ukraine – and what do they mean for the UK?

8 Mar

Dr Gerard Lyons is a senior fellow at Policy Exchange. He was Chief Economic Adviser to Boris Johnson during his second term as Mayor of London.

Russia is not an economic super-power. It is the world’s largest country by landmass. Its population is large, at 145 million, but is falling. Ahead of this crisis, it was the eleventh biggest economy in the world, while the UK is fifth. Russia’s income per head is low. Its military (defence) spending is similar in dollar terms to the UK’s, although higher in relation to the size of its economy. In addition to being a military power, with nuclear capabilities, Russia is a major commodity and energy producer.

According to the International Energy Agency (IEA), Russia produced 10.72 million barrels per day (mbpd) of oil in 2021, second only to the US, at 16.39 mbpd. Russia produces more than Saudi Arabia, but exports less than her. Russia’s importance in terms of gas is even more significant, accounting for 45 per cent of the EU’s gas imports and 40 per cent of its consumption last year.

The most significant economic impact of the war will be contagion through higher energy prices. Ahead of the conflict, gas prices were already elevated and oil prices had been trending higher. War adds a risk premium into the prices of both.

Other commodity prices are already higher, particularly wheat, given Ukraine’s importance as a wheat producer. In 2019, I gave the keynote speech at the annual Ukrainian Financial Forum in Kiev, and it was noteworthy then how the economy was reforming, with a range of key exports including metals, minerals, agricultural products, a shift into digital exports, and also that roughly two-thirds of its public debt was foreign-owned. It is depressing that this move towards openness has been stopped in its tracks.

For many countries – including the UK – this rise in energy and food prices is occurring in an environment of rising inflation, not helped by lax monetary policy last year. Now, UK inflation will peak higher, possibly breaching 10 per cent, and persist for far longer, casting light on how low the Bank of England’s policy rate of 0.5 per cent is.

Financial markets are selling off sharply. This both reflects uncertainty about where the war might lead militarily and concern about future growth.

While high energy prices add to inflation, they also sharply squeeze peoples’ disposal incomes and add to firms’ costs. Also, while higher interest rates may be needed to curb inflation, these may slow the world economy later this year and early next. Recession is even possible for the UK.

Financial markets have repriced the outlook for interest rates: the direction has not changed, but the pace and scale of expected tightening has. Markets now see rates rising less rapidly than previously expected.

Another impact from the war is via sanctions. The scale of sanctions will see a deep recession in Russia. As Russia’s military spending is fiscally led, this may dampen its ability to spend more in this area. But there is little historical evidence of economic sanctions halting an aggressor’s military plans.

How will these sanctions impact the UK? Russia is the UK’s nineteenth largest trading partner with total annual bilateral trade of £15.9 billion. Russia is our 26th biggest export market and 15th in countries we import from.

Russia as an export market for luxury goods will be closed. Annual UK exports are £4.3 billion: cars being the largest item at £386 million, medicines and pharmaceuticals £272 million and capital machinery £199 million. Annual imports are £11.6 billion, with the largest items being: oil £3.6 billion, non-ferrous metals £1.3 billion, and gas £559 million, plus a vast array of other goods.

There will be an impact on financial flows. The UK has invested heavily in Russia and many firms may have to write-off these investments. By 2020, the stock of UK direct investment into Russia was £11.2 billion. By contrast, total foreign direct investment from Russia into the UK was £681 million. Although this is only 0.7 per cent of the total stock it may understate the Russian influence. The phrase “Londongrad” has been attributed to the City since the introduction of the golden visa in 2008 and the continuation of Russian involvement ever since.

This is an association we should seek to ditch – while bearing in mind the importance to differentiate between Russia and the Putin regime. Being open, transparent, non-discriminatory, not retrospective, and abiding by the supremacy of English Common Law are important in ensuring there are no unintended consequences from actions we take now. That is, we should punish the Putin regime whilst enhancing the reputation of the City.

In terms of wider financial flows, the UK financial sector does not appear heavily exposed to Russia. The Bank for International Settlements shows total international bank lending to Russia of $121.5 billion, of which the largest was $25.3 billion from Italy, $25.2 billion from France and $17.5 billion from Italy. The UK’s exposure was $3 billion, so relatively low.

The exclusion of Russia from international capital markets should have a profound impact on its economy. London’s role as a global financial centre should not be impacted.

A critical component of the sanctions was to cut many Russian banks off from the west’s global payments system: SWIFT. The impact of this, however, was slightly diluted because of Western Europe’s dependency upon Russian gas and the need to still be able to pay for this; hence some Russian banks are still able to access the system.

Critically, though, a key decision was taken to exclude the Russian central bank and thus limit its ability to access the large amount of foreign exchange reserves it had accumulated, over previous years, the bulk of which are housed in central banks outside Russia. This measure, like crossing the Rubicon, could have profound longer-term consequences. There is little doubt it adds to the financial and economic pressure on Russia.

It could accelerate the move towards a global currency system not dominated by the dollar and a payments system not dominated by the west. China, in particular, is keen for an alternative to the dollar dominated system. Also, Russia and China have both developed their own versions of SWIFT in recent years. Furthermore, we are already in an environment where, regardless of this war or wider geopolitical issues, there is a race underway across countries to develop new global central bank digital currencies.

Another aspect is global defence spending. The war strengthens the case for increased military spending, illustrated most vividly by Germany’s announcement it will increase defence spending to NATO’s target of two per cent expenditure of GDP. The UK already achieves this target, but may yet decide to boost defence spending further. The war also shows the importance of soft power and controlling the narrative, with the BBC being an important tool internationally in tackling disinformation from Russia

Many countries will be impacted by the humanitarian fall-out. The recent UN World Migration Report noted that there are 281 million international migrants. This represents an increase of, on average, six million per year globally over the last decade. Thus, if as some fear, there are five million migrants from Ukraine (population 44 million) it would be huge.

The war, plus sanctions, will trigger an implosion in both the Russian and Ukrainian economies. There will, however, be significant contagion too, via higher energy prices. The UK will witness higher inflation now and an economic slowdown – and possible recession – over the next year.

John C. Hulsman: Defence and security. If the Germans can now rid themselves of their strategic cows, then so can the British.

8 Mar

Dr John C. Hulsman is the Founder and Managing Partner of John C. Hulsman Enterprises, a global political risk firm. He is also a life member of the US Council on Foreign Relations.

In The Sun Also Rises, Ernest Hemingway famously said that people go broke “gradually, then suddenly.” History works like this, too. For long periods of time, things continue along a well-travelled analytical path, where little happens, and little changes. Then in a bolt from the blue – gradually, then suddenly – more is altered in days and weeks than has been the case for months and years.

So it is with the Ukraine crisis, as the tectonic plates underlying how the world works are shifting quickly. The EU and Germany are a case in point. For decades, by far the easiest political risk call I made involved Brussels and the major European states over-promising and under-delivering.

That was due to the basic structural fact that, despite having one of the world’s largest economic markets, the EU perpetually punched below its potential strategic weight. Economically sclerotic, militarily impotent, and strategically confused, Brussels almost always amounted to less than the sum of its parts. As I often said during political risk speeches to my clients, my predictive call record has never been hurt by betting against the European Union.

Germany, as ever, lay at the root of Europe’s problems. As Henry Kissinger has sagely pointed out, the structural tragedy for Germany is that it is too important a country merely to be one of a series of great European powers, and too small a power to dominate the whole of the continent. After World War II, this old German problem manifested itself in a new, intractable form. Germany, following the abject horrors of Nazism, simply took a holiday from history, one that the other exhausted European powers initially encouraged.

But, as generations passed, and the continent’s economic motor showed no signs of waking from its strategic slumber, what had provided a respite for the world increasingly became a very large problem, as without real German strategic engagement in the wider world any sort of common EU foreign and security policy was bound to be stillborn.

Over the past 20 years, during my time running my own global political risk firm, I have headed to Germany literally scores of times. Arrestingly, during these two decades, the issues discussed with its governments have never changed. In the case of Germany, rather than solving problems, bringing them up became a sort of fruitless mantra, a repetitive catechism that was merely invoked, but absolutely never acted upon.

‘Could you spend an appropriate level of GDP on defence?”

“Impossible, given our peculiar history and the pacifist leanings of our people.”

‘Can you lessen your addiction to Russian natural gas, which accounts for a debilitating 35 percent of your total–skyrocketing to over 70 percent if the mammoth Nord Stream 2 pipeline comes online?

“Impossible, our gas imports are an economic, not a strategic, concern, and we have a shared and tragic history with the Russians.”

‘(Sigh) Let’s meet next year.’

And so the intellectual merry-go-round went round and round, a string of reasonable strategic questions being unfailingly met with the word ‘impossible.’ Betting against Germany and Europe was the easiest strategic call out there. Until, all of a sudden, everything changed.

For German strategic culture has altered more in the past ten days than in the past 20 years. Suddenly every strategic ‘ask’ I ever made has all come to pass, with the newly-minted Prime Minister, Olaf Scholz, obliterating 16 years of do-nothing Merkellism in a blink of an eye. At last alerted to the longstanding fact that Vladimir Putin’s Russia is a revolutionary power, intent on undoing the post-Cold War strategic outcome, Germany acted, and with wholly uncharacteristic speed.

Nord Stream 2 has been suspended, and is de facto dead. Germany (it wasn’t impossible after all) has agreed to spend the NATO-required two percent of GDP on defense, and has allocated a 100 billion euro defence budget to upgrade its antiquated weapons systems. Every European now finally sees that the purpose of NATO remains vital and unchanging, life insurance in an historically dangerous world. With strong German backing, the EU has agreed to collectively buy defensive weapons, and then given them to the hard-pressed Ukrainians. Germany (and thus, Europe) has awoken from its long strategic nap.

Conclusion: the UK Must Follow

Brexit freed the UK from the clutches of a strategically clueless EU. But what has it done with its newfound independence? John Bew’s analysis for Boris Johnson got the country off to the correct geo-strategic start; the new era is indeed going to be characterized by great power competition.

But speed and strategic clarity also matter. In the time it took Bew and Johnson to recognize the glaringly obvious, drilling down to the operational level (the tactics informed by an overall strategy) has proceeded at a glacial pace.

It is not nearly enough to say that great power competition characterizes our age. The next vital step is to name who the great powers on the chessboard are, and what the arena is that the contest will be played in.

Again, Bew and Johnson are correct in that the Sino-American Cold War – a superpower competition for primacy – is the overriding strategic fact of our age. They are also correct in that the Indo-Pacific is rapidly transforming itself into the world’s pivotal region, where most of the world’s future economic growth as well as much of the world’s political risk come from.

So far, so good, but not enough. For the great powers just beneath the superpowers – who maintain a great deal of room for independent strategic manoeuvre – must also be taken into analytical account. Here is the hidden good news for both the West and the UK, particularly after the momentous events in Ukraine, which have seen a hardening of this evolving strategic picture.

While a wounded, vengeful Russia is now firmly a stooge to superpower China, Robin to Beijing’s Batman, all the other great powers line up firmly in the western-dominated order. Russia and China must contend with the US, India, Japan, and a repurposed EU, as well as Britain and the other Anglosphere countries. The very good news is that the emerging basic power structure of the world favors the UK and an order we can all happily live in.

Practically, this more accurate look at geo-strategy lends itself organically to some practical policy outputs. If even the EU can throw off its shibboleths in a matter of days, now is the time for the Johnson government to do so in the matter of hosting and cosseting Russian oligarchs, as London has shamefully built a pin-striped ecosystem of lawyers, accountants, and PR consultants who allowed the de facto laundering of pilfered Russian money as well as the laundering of reputations for Putin’s cronies.

It is not for nothing that the capital is nicknamed ‘Londongrad.’ This must come to a stop, not in six months, but immediately. If the Germans can throw off their sacred cows, so can the British. It is not impossible.

But at a deeper level, what is required is a rapid change in British strategic thinking. Britain’s calling is to lead the Anglosphere, a great power almost no one has given nearly enough thought about. It must shift its gaze to the dominant Indo-Pacific region. Britain can become a vital player on the world stage, the closest ally of the world’s ordering superpower. If Britain does all this quickly and decisively it will emerge as a major force in the dominant new great power coalition. It is all in Britain’s grasp, but it must do that hardest of things; it must act fast and keep up with history.

John Glen: We want high standards for financial services. That’s not the same as derailing our competitiveness agenda.

9 Feb

John Glen is Economic Secretary to the Treasury and City Minister, and is MP for Salisbury.

When I was appointed Economic Secretary and City Minister in January 2018, the world looked very different to now. Back then, the fundamental trajectory of post-Brexit Britain was still contested across the country, and across the Conservative Party.

However, I have always been crystal clear in my conversations with Treasury officials that we had to deliver a Brexit for financial services that enabled us to remain global leaders in this industry. It therefore came as somewhat of a surprise to see Daniel Hannan argue on these pages last week, that he had been most disappointed by a failure to distance ourselves from the EU in financial services.

It’s important, right at the outset, to highlight that despite the numerous forecasts of woe – massive job losses, capital flight, loss of competitiveness – our financial services sector remains in robust health. Just last week, the City of London Corporation produced research showing that London was clear of the international field for its attractiveness to the financial services industry.

London scored 61 in analysis of 95 different metrics, ahead of New York (58) and Singapore (53), and far clear of other European centres which had been much talked about as future rivals. Frankfurt trailed in fourth place with a score of 45, while Paris was even lower down at 41.

Last July the Chancellor outlined his vision for an open, technology embracing, green, and globally competitive industry. Having previously worked in financial services, he understands the importance of creating an agile and dynamic sector that works in tandem with a world-leading regulatory framework.

We are not interested in a race to the bottom, where we seek to attract the world’s best companies and nurture start-ups on the basis of creating a Wild West for financial services judging success by how many regulations we have disposed of. The key to the future success of the industry is competitiveness. High standards and robust but reliable regulators enhance that and should not be framed as derailing our competitiveness agenda.

The Government’s response last year to Sir Iain Duncan Smith’s Taskforce on Innovation, Growth and Regulatory Reform (TIGRR) showed very clearly how we plan to maximise the benefits of leaving the European Union. We are repealing all retained EU law and giving the domestic UK regulators, the Prudential Regulation Authority (PRA) and Financial Conduct Authority (FCA), powers to regulate the financial services sector.

Following the Future Regulatory Framework the regulators’ action will be underpinned by a growth and competitiveness objective and clear accountability to our elected representatives at Westminster. This is not an EU-lite approach at all. We are pursuing the most fundamental reset and changes in our financial services architecture for many generations, and the Treasury is working at pace to develop the legislation needed to deliver these changes.

We have also had the Ron Kalifa Review of UK Fintech and Lord Hill’s UK Listings Review. This has led to prompt changes in listing rules and the setting up of a Centre for Finance, Innovation and Technology to drive further growth in FinTech across the UK. By avoiding complacency but responding to the findings of independent reviews Government is delivering a radical reform agenda and executing fundamental changes.

Many of the legacies of EU directives are embedded in cost structures and corporate thinking. Our job is to enable the swift rightsizing of such rules in a way that industry finds helpful (e.g. reforming the UK prospectus regime to make access to our deep capital markets easier; creating a new Long-Term Asset Fund structure to allow investors access to better returns or removing the Share Trading Obligation and Double Volume Cap to promote greater choice and better outcome for investors). We aim to do this in ways that minimise disruption and new costs as global growth opportunities abound.

It is a very exciting time to be the minister responsible for financial services. There is enormous opportunity across the UK, not just in London, especially with our innovative, world-leading fintech industry. Increased regulatory agility post-Brexit will also help us to better enable new prospects in cryptocurrency and blockchain. We have an ongoing leadership role to play in the Green Finance arena, and in wholesale markets we continue to move swiftly to maintain the UK’s status as a global financial centre and deliver for large and small UK companies, as well as international businesses who want to raise money and manage risk.

Domestically we intend to legislate imminently to secure access to cash for citizens up and down the country and introduce reforms to Credit Unions so more products can be offered – again building on a deep dialogue with that sector over recent years. I welcome the progress on the No-Interest Loans Scheme which will test whether No-Interest loans can sustainably provide a vital option for those excluded from credit.

We are most certainly living in an unprecedented moment of innovation in the industry, and the space and autonomy that Brexit has created will serve us well to continue capitalising on our unique financial services ecosystem and drive us forward in the years ahead.

Gerard Lyons: We must rise to the challenge of dealing with China. Here’s a strategy for doing so.

14 Dec

Dr Gerard Lyons is a senior fellow at Policy Exchange. He was Chief Economic Adviser to Boris Johnson during his second term as Mayor of London.

Last week, the Foreign Secretary gave a powerful speech at Chatham House on “Building the Network of Liberty.” One of its central theme was that “now is the time for the free world to fight back, and to use the power of economics and technology to promote freedom not fear.”

It was the prelude to a successful meeting in Liverpool of G7 foreign ministers and those from other democratic countries.  What then is the ‘power of economics’ referred to and its implications?

The UK can have a global influence through its own actions and via global institutions. This can include its hard power, namely defence spending or sanctions; soft power through speeches, wider diplomacy; and participation in global institutions and foreign aid, all of which shape global perceptions of the UK, as well as help it take a leading role in framing the terms of debate on specific issues; and then there is sheer economic clout, particularly in terms of bilateral relationships with other countries or regions.

This is of utmost importance as the UK repositions itself globally post-Brexit, and is of immediate relevance for our relationship with China.

The UK is the fifth biggest economy in the world. The largest seventeen are each more than $1 trillion dollars in size, and of these it is China (second) and Russia (11th) which are most visibly in the G7’s focus, not just in terms of their size, or how free their societies are, but also because of their manoeuvres regarding Taiwan and Ukraine respectively. Others in focus include Saudi Arabia (19th), Turkey (20th), and Iran (26th).

While the Government can’t micro-manage bilateral economic relationships, it can set parameters and incentives that influence behaviour.

Our relationship with China has cooled since President Xi’s state visit in 2015. The UK has rightly opted to highlight human rights abuses, notably with the treatment of the Uyghurs, and has become wary of China’s increasing military might and actions in Hong Kong.

Yet, at the same time, our economic ties with China remain significant and cannot be ignored. It is now one of our biggest trading partners, and has invested heavily in a broad range of UK assets.

Equally, China has a huge presence in the City of London, which the UK should be keen to grow to further cement the capitals’s position as one of the world’s top two global financial centres. Notably, the Chinese continue to rate the UK’s education and university sectors highly.

What then should we do? How to deal with China is not a challenge unique to us. The EU has described the country as a ‘cooperative partner, a negotiating partner, an economic competitor and a systemic rival.’ Furthermore, no one doubts the US’s tough stance on China regarding defence and security, but this is not at the expense of US firms doing business with China. Such stances are not contradictory.

The UK needs a fresh, robust template in its relationship with China. The Government should outline its red lines, so that business and finance can continue to operate. Central to this should be a differentiation between strategic and non-strategic areas.

Strategic areas could include those in which we perceive China as a threat to national security, including defence, intelligence and telecommunications. This might require clarity over the scope of the National Security and Investment Act, and a fresh look at the relationship that certain universities have. Non-strategic areas would be those parts of the economy in which firms and the City can interact and compete with China, freed from politics.

China is also viewed as being ahead of the race towards a central bank digital currency, likely to aid its global influence.  As it seeks to grow its economy and move up the value-curve, there will be opportunities for UK business.

For example, there are areas, such as the green agenda, in which we can be partners. China may be building more coal fired stations, but it is a global leader on renewables.

Equally, globalisation has boosted interdependencies with links across countries and regions. Indeed, we should ask ourselves in the West why it is that the technology for giga factories, which many European governments have been subsidising to attract this year, lies with China, South Korea and Japan. The lesson is to focus on research into the next generation of batteries.

Recent developments suggest a shift in strategic thinking across the globe. For instance, as part of its “dual circulation” economic policy, China is seeking to reduce its dependency upon imports of food, fuel and technology. In contrast, recent months have highlighted the EU’s dependency upon imports of Russian gas.

Strategic dependency on other countries has thus become an important consideration to address, without undermining economic growth and future cross-border investment flows.

Working with others at the World Trade Organisation, we should ensure that protection of intellectual property and fair trade.

The West has been somewhat slow to rival China’s Belt Road Initiative (BRI), and it will take them to see if the G7 can provide an alternative with enough financial power. Positively, the UK recognises the need to act and has revamped its British finance development institution. For many countries the BRI has triggered significant investment and economic growth but at the same time, it has been dubbed a form of financial colonialism with many countries incurring debts.

Last year, the UK announced a temporary cut to its overseas aid from 0.7 per cent to 0.5 per cent of GDP. While understandable given the fiscal hit from the pandemic, reversing this cut as soon as possible makes sense. Not only will it make a much needed difference on the ground, but it will give weight and credibility to the UK’s rhetoric on the global stage.

Indeed, prior to this, the UK had been the only country in western Europe to meet the two international commitments of spending two per cent of GDP on defence and 0.7 per cent on overseas aid.

We should also continue to cement stronger economic and financial ties across the wider Indo-Pacific region, stretching from India in the West to the US in the East. This region is set to be the dominant driver of future global growth. This shift in the balance of economic power to the Indo Pacific is one of two pre-pandemic trends likely to dominate in the future.

The other is the fourth industrial revolution that is already underway. Both of these featured heavily in the Government’s Integrated Review earlier this year, and leveraging off both will make an important contribution to our future economic and diplomatic success.

Post-pandemic, the world will naturally change. This can be summarised by three G’s: grassroots, green and geopolitics. Grassroots goes to the heart of an ongoing debate about whether globalisation has reached its limit. I don’t think it has, but more firms will onshore some operations closer to home in light of supply-chain disruptions. The green agenda will continue to be at the fore of international fora as countries meet ambitious net-zero targets.

Alongside the need for a sensible future working relationship with the EU and delivering upon a pro-growth economic strategy, the UK has the ability to punch its global weight in strategic and economic terms.

Judith Barnes: Another fine standards mess – at the City of London Corporation

6 Dec

Judith Barnes was a co-opted member of the City of London Corporation’s Standards Committee until the Corporation abolished the Standards Committee earlier this year.

The government is not the only culprit when it comes to undermining standards in public life. The City of London Corporation paved the way, though without, unfortunately, the U-turn forced on the government by resistance in Parliament and the press. The sorry saga of the Corporation’s tussle over standards, detailed in a damning account by Lord Lisvane in his review of governance at the Corporation, may provide some useful pointers for Parliament in the fallout from the Owen Paterson affair.

The trouble started back in 2016 when, for the first time, a complaint about the conduct of a Member reached a hearing before the Corporation’s Standards Committee. The Committee ruled that he had breached the Corporation’s Code of Conduct. This caused consternation among the body of Members, who were particularly exercised by the iniquity of the Standards Committee in naming the Member in question in its annual report. It prompted a review by a QC who recommended a right of appeal (sound familiar?) to a committee of Members independent of the Standards Committee.

This did little to reconcile Members to the standards regime. When the same Member was found to have breached the Code of Conduct again, the new appeals committee dismissed his appeal. Members still refused to implement the proposed sanction (to suspend him from the new appeals committee, ironically).

By then, a head of steam was building to abolish the Standards Committee and outsource rulings on the conduct of Members. The Corporation turned to Lord Lisvane for a solution. Having concluded that Members were incapable of policing themselves, he recommended that the Corporation set up an independent panel to adjudicate on complaints about Members’ conduct. For legal reasons, determinations by the panel would need to be endorsed by the Corporation so, crucially, he said that any determination by the independent panel on a breach of the Code of Conduct, and recommended sanction, would need to be decided by Members without debate.

Predictably, Members, who had made great play of not wanting to be judged by their peers, then insisted on having some Members on the ‘independent’ panel when it considered appeals (to provide ‘internal context’ apparently). They threw out the need for a decision without debate which was Lord Lisvane’s attempt to put a stop to the Corporation’s repeated resistance to determinations on Members’ conduct. The upshot is that Members, who could not overturn determinations when they came from the Standards/Appeals Committees (only sanctions), are now at liberty to override any determination by the independent panel.

Events at the Corporation suggest improving the system can only do so much. Once there are appropriate safeguards in place, such as a right of appeal, an independent element, and the right procedures, elected members – at national or local level – need to recognise that verdicts delivered in accordance with the system will in the normal course merit support.

The rules governing conduct have to be right of course. The Committee on Standards in Public Life has recently decided to introduce a requirement for holders of public office to treat others with respect. Although at first glance this would appear uncontroversial, experience at the Corporation suggests it has its dangers. Along with the campaign to abolish the Standards Committee, there was a push to give Members a blanket dispensation for their term of office to speak and vote on local ward matters in which they had a financial interest, unless the matter in question affected the Member ‘uniquely or more than any of their constituents’.

One of the Members who applied for this dispensation owned his flat with his wife. In my capacity as a co-opted member of the Standards Committee, I pointed out by way of hypothetical example that, if he and his wife stood to profit from a planning application that benefitted no-one else in his ward, he would be able to vote for it.

He promptly complained that I was in breach of the Code of Conduct on the basis that I had shown a ‘lack of respect’, by slurring him and his wife as ‘hypothetical criminals’, and was ‘wrong’ (who knew being ‘wrong’ amounted to misconduct?). The second limb of this complaint was blown out of the water by a leading QC’s opinion which made it clear in no uncertain terms that such a dispensation would be unlawful. Nothing daunted, the Corporation, by some mental contortion that they have yet to explain, nevertheless concluded that my use of a hypothetical example to explain my objection to granting this unlawful dispensation could indeed constitute a ‘lack of respect’ and even ‘bring my office or authority into disrepute’.

The concept of ‘respect’ is all too open to abuse in this way. In the current climate it risks importing ‘cancel culture’ into political debate. That would undermine not only standards, but democracy itself.

Having my phone stolen was bad. But the bureaucracy that followed was almost worse.

5 Aug

On Saturday night I had an experience that has become all-too common among Londoners – and, indeed, other city dwellers. My phone got stolen.

I had been walking home, looking at my phone (stupidly), when a boy on his bicycle snatched it out of my hands. My brain took a second to process what had happened. And then my first instinct was to scream and shout for help.

Although the crime did not exactly warrant screaming – it is not the most serious – I was in effect trying to draw attention to him and encourage someone to come out, stop him and/ or call the police. “F**k you” I yelled down the street, interspersed with screams. I also sprinted after him for about 100 metres. I really, really didn’t want my phone to go.

Maybe the most disappointing thing about this experience was that no one did anything when I screamed. I wonder what if it had been a more serious crime? Victims get blamed when they don’t call for help. But nothing happened when I did.

My neighbourhood is a very woke area. It has signs boasting that it’s anti-fascist – and there are other symbols of social justice. Yet when it came to the crunch, no one was there. Perhaps a more sympathetic explanation is that people are desensitised to petty theft, so frequent has it become.

Afterwards some women stuck their heads out of their windows. “Are you okay?” One said. I clearly wasn’t and was crying. “I’m coming down”, said another. But she didn’t, and I just went home.

Luckily I have an amazing support network. I was able to get help quickly from my parents when I got home and was touched by everyone who checked I was okay. Despite this being such a “normal” crime, people were incredibly empathetic on Twitter and Facebook – and took it very seriously that I was upset.

Too many people replied that this crime had happened to them. They used the words “shaken up”, “gutting” and other terms I, through the hard way, now fully understood. I hate how accepted theft has become. It makes me feel that we’re too soppy about it, generally (“well if only we hadn’t made cuts to the youth club”), and it’s something I have resultantly become more interested in as a political matter.

Part Two

The second part of this piece is about the admin that followed – which was almost worse than the event. On Sunday the following morning I went to my phone store, thinking I could get mine replaced right there and then, in what turned out to be a very optimistic estimate.

When I went in and told the staff what had happened, they came across as nonchalant – as though they needed their morning coffee first – and got me to phone their insurance line. One of the most “catch 22” things about having your phone stolen is that you have to phone for help. As I live alone and cannot borrow a phone, I was reliant on using the shop’s.

Next problem. The phone line at the store was close to inaudible. When I pointed this out to the staff, they told me there was nothing they could do. “But you’re a phone shop,” I replied. For me to just about hear the line, the security guard had to close the store door, turn down the music and let me stand in a corridor next to the staff room.

I went to the phone shop three times in total. After my second trip, I emailed a claim, via my Gmail account, to the insurers. I got a receipt and learnt that it would take two days to process. Then I got a new problem: I got locked out of Gmail, as I have always used two-factor verification – and had no mobile to log in.

So off I went again to the shop – to phone the insurers and tell them to use another email (which I wasn’t logged out of). This time the phone line was even more inaudible, but I could make out the woman who answered telling me that they had not received my insurance claim (a day after I had sent it) – and could I send it again?

I am afraid, feeling very fed up with things, I cried. For the first time, the staff in the phone shop seemed to care. A staff member offered me a tissue and lent me her own phone for the insurers to call back on, which was slightly more audible.

During my time getting this sorted out, I had to listen to another stressed-out woman in the shop (as well as a preacher yelling outside!). I won’t go into too many details of the woman’s complaint, but she had been charged £400, and was – as you might imagine – upset, to the point of threatening she “wasn’t very nice” when she was in this state. Being in the shop for three days honestly made it look more like a counselling service – with customers constantly venting to despondent staff.

Even though I found the staff unhelpful – the man serving coffee outside was more sympathetic to my situation – I don’t blame them for being so checked out, as they were often middlemen/women between angry/sad customers and bureaucracy. So often these companies boast of their social justice credentials – their commitment to climate change and helping people and so forth – but the human aspect of their service has become non-existent.

We hear that banks end up “too big to fail”, but perhaps organisations have also become “too bureaucratic to help”, with staff that lack soft skills – because there is no incentive – and have little impact on the outcome for the customer. Central bureaucracy calls the shots, with the customer ever short of power to get what they need, and ever bewildered by their contracts. With the growth of big tech, I wonder how much further this imbalance will go.

Again, this made me think about matters bigger than my phone (a replacement of which I am still waiting for…).

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.