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.

Anthony Browne: Post-Brexit Britain. Now we’ve taken back control, here’s what we can do with our new powers.

31 Dec

Anthony Browne is MP for South Cambridgeshire and a former Europe Editor of the Times.

When I worked for Boris Johnson during his first term as Mayor of London, I led on devolving powers to City Hall, and went through it with Oliver Letwin, David Cameron’s policy honcho. One idea was to devolve VAT to London, copying regional sales taxes in North America. “We can’t. It is against EU rules. Not sure why,” said Letwin.

With our agreement with the EU, arguably the biggest change is not individual policy areas, but the sense of empowerment. Throughout government, naysayers and those suffering excessive status-quo bias have been able to stop any initiative saying: “you can’t. It is against EU rules.”

Sometimes – like the abolition of the tampon tax and banning live animal exports – it was a correct interpretation of EU law. But often it was just a general prohibition. It would end the matter, because no one really understood the EU rules, they were too difficult to challenge, and basically impossible to change. It bred throughout the UK government machinery an intellectual dependency on the EU that led to a pervasive “can’t do” attitude.

But from January 1, no longer will anyone be able to say: “you can’t – EU rules”. We have jumped from the passenger seat to the pilot seat. Can’t do becomes can do. So – what should we do?

Eighteen months ago, at the depth of our Brexit political paralysis, ConservativeHome asked me to write a series of 10 articles highlighting potential “Policy Gains from Brexit” – things we might want to do and would be able to do once we had left the EU. So how are we doing?

On most of the issues, we are making great headway. Across much of government, the new empowerment has led to a renaissance of democracy and policy making. The Department of Environment, Food and Rural Affairs used to be a body for transposing EU rules, with a bureaucracy that had gone native.

But under Michael Gove, Liz Truss and George Eustice, civil servants have transformed from passive recipients to enlightened creators, giving the department a buzz of excitement.

The Agriculture Bill – the first time we have had an agricultural policy for over 40 years – scraps the dysfunctional Common Agricultural Policy, and replaces it with environmental subsidies (it was a pleasure to do my maiden speech on it).

The Environment Bill (which I sat on the Bill Committee of) doesn’t just replace EU environmental law, but enhances it and tailors it for the UK, much to the delight of green groups.

The Fisheries Bill gives us our own, more sustainable, fisheries policy (subject to quotas agreed with the EU).

The Government is consulting on banning the export of live animals for slaughter, which the impotent Labour government was unable to do when it wanted to.

We now have a Department for International Trade, with our own trade negotiators, giving us a trade policy for the first time in forty years, and pumping out our own trade agreements. Agriculture and environment groups have been enthusiastically debating how we protect standards in our trade policy, something nobody discussed before because we had no power to deliver it.

The Treasury is reviewing the whole framework of financial services regulation, with the aim of setting out an ambitious financial services strategy. Previous strategies for financial services (which I played my part in, as chief executive of the British Bankers’ Association) were rather optimistic exercises – the UK government didn’t have the power to do very much. Almost all our financial services regulation we have inherited from the EU, but we need to ensure it is proportionate, and supports innovation and competition, as well as international competitiveness and high standards.

The Treasury has scrapped the hated tax on tampons, which EU rules had prevented George Osborne from doing. The popular duty free from EU countries is coming back after a 20 year absence – with the ferries from Holyhead to Dublin offering it from Friday. The Government is launching freeports to boost trade and regeneration of more deprived parts of the UK. The Home Office has scrapped the much-hated freedom of movement, and replaced it with a global immigration policy making sure we can get the talent that our economy needs.

But now that we have this empowerment, what else could we do now we have left the EU? Here are some other possibilities:

  • Reform public procurement (under the OJEU rules), to make it fit for purpose and give small businesses more opportunities.
  • Promote competition among retail banks by reforming EU inherited capital rules.
  • Remove VAT on housing insulation and other environmental products, and reform the biofuels regime.
  • Transform our waste and recycling regime, so it is not an exercise in hitting EU targets.
  • Reform the EU’s second company directive to reduce pointless red tape for public companies.
  • Reform the General Data Protection Regulation to protect privacy while reducing burdens on small charities and businesses.
  • Reform Solvency II so our insurance companies can compete globally.
  • Promote collaboration programmes with the Commonwealth, rather than just the EU.

It has been obscured by the dramas around Brexit and Covid, but the policy arena is the most exciting it has been for a generation. Say goodbye to can’t do. Say hello to the new “can do” Britain.

Michael Dugher: Covid-19 is a lesson in the three Rs for the government

7 Aug

Michael Dugher is CEO of the Betting and Gaming Council (BGC). This is a sponsored post by the BGC.

Regular readers of ConservativeHome may be surprised, even aghast, to see a former Labour MP, Shadow Secretary of State and adviser to Gordon Brown, writing in this forum. Corbynites, or the dregs of what is left of that calamitous project, will be less surprised, but certainly some of my former comrades on the Labour benches might raise an eyebrow too. But these are not normal times.

The Covid pandemic represents an unprecedented challenge for governments across the world. The human cost has been staggering, tragic and truly heartbreaking, with more than 18 million infected and 700,000 deaths worldwide.

The financial cost is still being calculated, but will likely have a bearing on the world’s economies for years to come.

To give the Government credit, its initial response to the economic challenges posed by Covid-19 was sure footed. The rescue package – from the furlough scheme to business rates support – was commensurate to the scale of the challenge. Not since the creation of the welfare state have we seen such an interventionist government – and a Conservative one at that. As I say, these are not normal times.

More recently, though, the Government has made a series of missteps that have begun to raise concerns in business circles like the one I represent now.

The latest example was the decision last week, announced at the last minute by the Prime Minister, to delay the piloting of certain live sport with attendances, plus reopening of some indoor entertainment venues such as casinos, bowling alleys and skating rinks that were due to open on August 1.

As someone who has worked at the heart of government, I know all too well that governing is a delicate balancing act, not least during a global pandemic that none of us have ever experienced. But there are certain core principles that should always inform government action – clarity and consistency. Both are in short supply.

Messages like “go on holiday”, “get back to work” and “eat out” have tangoed clumsily with parallel appeals to “avoid unnecessary travel”, “stay at home” and even “lose weight”.

The u-turn on casinos reopening is the latest example. The decision was all the more perplexing given that they had gone to extraordinary lengths and invested millions of pounds to ensure their venues were Covid-secure, with strict social distancing measures, hygiene protocols and sophisticated track and trace systems in place at venues across England.

The Government’s most senior health officials gave just over 100 casinos the green light, long after bingo halls and amusement arcades, never mind restaurants and 47,000 pubs, after their visit to a casino in London. The decision to reopen was announced by the Prime Minister on July 17.

The sense of relief was palpable across the industry. Staff, fearful of redundancy, were looking forward to returning to work for the first time in over four months and managers readied to give their businesses a go, even in the toughest of circumstances. Then, less than 12 hours before they were due to open their doors, England’s casinos were told they must remain shuttered in order to keep the virus under control.

We fully understand the Government’s determination to control the “R” infection rate, which is rising in parts of England. But public health officials and the Government’s scientific advisers have already confirmed that casinos pose what they described as a “negligible” risk to health, given their substantial investment in Covid safety protocols, and their relatively small number. What happened to “following the scientific advice?”

And a reminder again: there are 110 casinos in England, compared to 47,600 pubs. There are nearly nine times as many Wetherspoons alone as there are casinos.

In recent weeks, we have seen localised Covid spikes in parts of the North West of England and before that in Leicester. The right response was a localised lockdown, not a national shutdown. If there is a spike in Greater Manchester, why is it ok for pubs and restaurants to remain open in Greater Manchester but a casino in Bristol, where levels of Covid are low, must close?

In his July 17 statement, the Prime Minister ruled out the need for such a blanket national lockdown. Instead, the Government would control outbreaks of the virus through “targeted, local action.” By denying casinos the right to reopen, not for the first time, the Government is at odds with its own policy.

This illogical and inconsistent ruling will have a damaging – perhaps permanent – impact on casinos and the thousands of staff they employ. It couldn’t come at a worse time for an industry that is grappling with mounting and unsustainable costs.

A sector that contributes £140 million to the tourist economy and £300 million in taxes now stands on a cliff edge because of the Government’s decision to taper furlough payments and force employers to pay National Insurance and pension contributions, even though they remain closed. Some businesses may not survive. Around 6,000 workers – half of all casino industry jobs in England – are facing the dole.

While ministers are rightly focused on the health of the nation, no government can lose sight of the health economy. Remember when David Cameron and George Osborne used to say “a strong NHS depends on a strong economy?” The R infection rate has to be balanced against the two other Rs – recovery versus recession.

The consequences of getting this wrong are being felt in businesses across the country – stuck in a Covid no man’s land, forced to remain shuttered while bearing the everyday costs of business. What’s worse, it’s costing the Treasury around £5 million a week to keep casinos closed and their workers at home, when they could be raking in £5 million in much needed tax revenues.

Earlier this week, the decision to keep casinos closed was criticised by both Ed Miliband in the Guardian and Richard Littlejohn in the Daily Mail. I know these are not normal times, but seemingly uniting Miliband and Littlejohn in one common purpose is taking things too far.