I beg to move,
That this House recognises the importance of financial services to the UK economy; and calls on the Government to provide adequate support to help create the right regulatory and operational environment for that industry to ensure that the UK is able to retain its competitiveness on the world stage.
It is a pleasure to lead this debate on the future of the UK’s leading industry: financial services. The arguments about its importance are well known and well rehearsed. The financial services sector is the UK’s biggest export industry by far, with a £78 billion a year trade surplus. In fact, the UK is the biggest net exporter of financial services in the world; we export more financial services than any other country on the planet, including the US, Singapore and all of the EU combined. That means that, as a country, we can afford to import all the smartphones, flatscreen TVs and other manufactured goods that we are so keen on, particularly at this time of year.
The financial services sector adds £194 billion gross value added—that is, it contributes £10 in every £100 of all the UK’s economic output. One in 14 UK workers is in financial services. That is 2.3 million employees, two thirds of whom are outside London. Indeed, this industry really is spread across the country. Scotland has less than a tenth of the population of France, but exports about half the amount of financial services that France does. The financial services sector pays more tax in a year than any other sector—£76 billion in the last year. As the Chancellor pointed out in his Mansion House speech in the summer, that is enough to pay for the entire national police force and school system combined.
During this hideous pandemic, I am glad to say that the financial services sector stepped up to the plate and played a crucial role in keeping the economy going. It lent more than £75 billion in emergency finance to nearly 2 million businesses. Indeed, it lent £101 million to more than 2,000 businesses in my constituency of South Cambridgeshire. To help homeowners, lenders also gave nearly 3 million mortgage deferrals during the pandemic. The financial services sector certainly has played its part in ensuring that the economy has bounced back so quickly. Now, guided by the Government, it is also increasingly playing a critical role in ensuring that we reach net zero carbon dioxide emissions by 2050. From green bonds to climate-related financial disclosures to carbon markets, the financial services sector will help, rather than hinder, in the biggest challenge facing humankind: stopping climate change.
Although we all recognise the importance of financial services, it is not a popular sector. A leading German politician once said to me that it was the great British tragedy—that we do not like our most successful industry. It has often brought that unpopularity upon itself; we all know the reasons, so I will not rehearse them here. It is one of the few industries in which we are genuinely world leaders, but regular surveys of international financial centres show that our crown is starting to slip: London is now usually ranked second to New York; our lead over Singapore and Hong Kong shows signs of shrinking; and our global market share in some sectors, such as insurance and bank lending, is trending down. That is a cause for concern, but not alarm. We can turn the tide, but we need to have a clear strategic objective that the UK should be the world’s leading international financial centre.
The industry is at a major turning point. Financial services policy in the next decade will be very different from financial services policy in the last decade. We are at the beginning of a new era. There are two major reasons for this, and both represent major opportunities. The first is that the wide-ranging reform and reconstruction of the industry in the wake of the 2008 financial crisis has, by and large, been completed. Almost the entire regulation of the industry was rewritten in a tsunami of reforms from both the EU and UK. This absolutely needed to be done to ensure that the crisis could not happen again—to protect taxpayers and consumers—but that regulatory repair job is now largely behind us. We must not forget any of the lessons from it, but we can now pursue a more forward-looking agenda. The Government have set this out in their document, “A new chapter for financial services”, which was published earlier this year and which I very much welcome. It sets out a vision for the UK as a leading financial centre that is open, innovative, competitive, and green.
The second reason that we are at a turning point is that we have left the EU. Clearly, leaving the single market represented a major challenge for many financial services companies—and I think that I am right in saying that not everyone in the industry fully supported Brexit. But leaving the EU has created opportunities to ensure that regulation and legislation is tailored to our national circumstances. We do not have an equivalence deal with the EU, nor, indeed, that promised memorandum of understanding. I actually never thought that such a deal or memorandum was that necessary; it was more a “nice to have”, rather than a “must have”.
There are many other existing legal routes for UK-based financial services companies to sell to clients in the EU, as we are currently seeing. The no-deal scenario that we had in financial services does have the advantage of giving us full regulatory control. There are three fundamental problems with the EU financial services regulation, from a UK perspective. The first is that the necessity of getting agreement from 27 or 28 countries means that it is very inflexible; once a law is made, it is very difficult to change it. Secondly, the EU tends to focus on competition between its members rather than global competition. It is more worried about competition between London, Paris and Frankfurt than between London, New York and Singapore. Thirdly, the EU necessarily assumes a one-size-fits-all approach even though markets in different EU countries often have incredibly different dynamics. In contrast, when we had the chairman and chief executive of the Financial Conduct Authority in front of the Select Committee yesterday, they talked about how we can now have a very agile policy regime.
When we left the EU, the Government ensured legal continuity, as they had to, by incorporating all European financial services legislation wholesale into UK law. Now, though, we can take our time to consider what reforms we want both to EU-originated laws and to laws that we adopted unilaterally when we were part of the EU. We must of course abide by global regulatory principles, as set out by international bodies such as the Basel Committee on Banking Supervision, the Financial Stability Board, the International Organisation of Securities Commissions, and the Financial Action Task Force. However, those various principles are at a high level and below them lies an awful lot of detail—and we know where the devil lies. We must continue being a beacon of high regulatory standards and resist any temptation of a race to the bottom, but we should also get the details right and ensure that they are appropriate, proportionate, and do not have unintended consequences. There is no conflict between abiding by globally high standards and being globally competitive.
Reform of imported EU legislation will take many years, if not decades, but the Government have made a start. They have completed the Lord Hill review of stock market listings and the Kalifa review of financial technology and adopted their recommendations, which now need to be implemented. We need to ensure that the prospectus directive is made more proportionate. I personally support allowing two classes of shares to encourage investment in start-up companies. The Government are now consulting on regulatory reform of wholesale financial markets, particularly the second markets in financial instruments directive, MiFID II, and the rules on the capitalisation of the insurance market—Solvency II. If we get the reforms of Solvency II right, that promises to unleash productive investment across the UK, especially in high-growth firms. MiFID II and the European market infrastructure regulation are extraordinarily detailed and prescriptive, and could be simplified without harm. Excessive detail can prevent beneficial innovation. We should avoid gold-plating international standards, unless there are clear reasons to do so. Rules on pre-trade transparency can be counterproductive. The share trading obligation can be safely removed.
Some retail legislation, such as on PRIIPS—packaged retail investment and insurance products—is applied to wholesale markets for little purpose. This week on the Treasury Committee, we heard from representatives of the commodities exchange, ICE Futures Europe, that they are required to produce countless retail key information documents for institutional investors who do not want them and will never read them. It was, they said, a pointless waste of time. Retail and wholesale markets are different and need to be treated differently. We should avoid making our rules extraterritorial unless there is a clear reason to do so. The EU often requires all EU-headquartered financial services companies to abide by EU rules wherever they operate in the world, in a deliberate attempt to set global regulation, but the UK should start with the presumption that UK-headquartered financial institutions need only abide by the rules in the markets where they are actually operating, as long as those markets operate by global standards. For example, when trading in the US, the presumption should be that UK financial services companies just need to abide by US rules.
The Government should also consider reforms to the capital requirements directive and regulation. These are the rules that implement the Basel capital rules for banks into EU and then into UK law. The Basel rules are designed for international banks operating across borders, not domestic banks operating just within one country, but the requirements of the single market meant that the EU ensured that the same capital rules were applied to domestic banks operating just in one country as were applied to international banks operating around the world. The UK should consider following the US rather than the EU and not require non-systemically-important domestic banks, such as challenger banks, to abide by inappropriate global capital rules. This could improve competition among banks without affecting prudential stability.
There is also domestic legislation that the UK could usefully revisit. The Treasury is currently reviewing the ringfencing rules separating retail and wholesale banks, which, in part, duplicates imported EU regulation on bank recovery and resolution. The ringfencing rules can lead to very complex and inappropriate governance structures for retail banks that do not have any significant investment banking operations, and it is certainly worth looking at whether that can be changed.
Critical to the continuing success of financial services will be the process by which we make new rules, which the Government are also reviewing. Our financial services rules will no longer go through the EU policy-making machinery. They will no longer be scrutinised in extraordinary depth and amended at length by the European Parliament’s formidable Committee on Economic and Monetary Affairs, which I wrestled with many times, and which was once admirably chaired by the UK’s own Baroness Bowles. There is no way that the UK Parliament has the capacity to replicate that function. Parliament must set the objectives and principles of future financial services regulation, but the details should be determined by the regulators, particularly the FCA and the Bank of England.
I agree that, as we are currently set up, the UK Parliament could not even begin to replicate what the European Parliament did with regard to oversight of regulation, but surely, if we, as a Parliament, were properly geared up with appropriate support, we could.
This is a really important point that we discussed in the debate last November prior to the Financial Services Act 2021, which came into force earlier this year. The key point is that we are giving the regulator huge increases of power with almost no appropriate increase in parliamentary scrutiny of those powers.
I thank my hon. Friend. That is exactly the point I was about to come to.
This will give the regulators more power, as my hon. Friend said, over issues that will directly affect the lives of voters. That means that they must be made more accountable to voters’ representatives—that is, to Parliament. The Government and the Treasury Committee are considering how that might work, and the Committee has held various hearings on the issue.
One proposed solution is a stand-alone financial services committee such as exists in Washington—the US House Committee on Financial Services, a stand-alone committee that just considers financial services. However, there is a real risk that that would tread on the toes of and undermine the existing Treasury Committee, which must retain oversight of all the Treasury’s functions. Another alternative is a full Committee of both Houses—the House of Commons and the House of Lords—but that would be unmanageable on an ongoing basis. It has worked as a task and finish group, such as the Parliamentary Commission on Banking Standards, but it would be very difficult on an ongoing basis. I am coming to the conclusion that the Treasury Committee needs—I totally agree with the hon. Member for Wallasey (Dame Angela Eagle) on this—a well-supported sub-Committee, or secretariat, that can do the work in focusing on financial services regulation and holding the newly empowered regulators to account. It could include appointed expert advisers, as well as members from the House of Lords, on an appropriate basis.
Obviously, we would need to agree the governance around that. As the Government have made clear, this is an issue properly for Parliament itself to decide. The Treasury Committee will make its own recommendations in due course. Indeed, if any Members here have other thoughts on it, I would be very interested to hear them.
The regulators themselves are also changing. The Government have proposed giving them international competitiveness objectives, but that must be very much secondary to their principal objectives of financial stability and consumer protection. They must not lose focus on their principal objectives.
My hon. Friend is right that we must not move away from the primary focus, but does he agree—he made the point earlier on the difference between wholesale and retail—that there ought to be a more balanced view between wholesale regulation and those two objectives if we are to remain a global centre internationally?
I agree. I support having a secondary objective of international competitiveness and growth. A regulator could decide on policy A or policy B and, from a UK perspective, it could make no difference in terms of consumer protection or prudential stability, but one could mean that we were more able to compete internationally. We asked the chief executive and chair of the Financial Conduct Authority about this in the Treasury Committee yesterday and they went through the details on how that might affect their thinking. But we absolutely must not lose sight of prudential stability. We have had a crisis once and we do not want it again.
We must maintain our support for innovation in financial services, as long as it brings real consumer and economic benefits. We must ensure that the fintech sector thrives. Creating a digital identity ecosystem, which the Government are looking at, will certainly help. As cryptocurrencies grow, it is inevitable that they will need some form of regulation to protect consumers, but it must be done in a proportionate way that focuses on tackling any harms. It is absolutely right that the Bank of England is exploring central bank digital currencies. We do not know whether retail customers want direct access to central bank funding, but it is absolutely right that we try to find out.
Finally, I want to cast our eyes across the world, and look at international partnerships. We are no longer part of the EU, and we do not know what our future relationship with it will be. As I said earlier, I consider any memorandum of understanding as a “nice to have” rather than a “must have”, and it certainly must not shackle the UK’s new regulatory regime. Any partnership would require both sides to agree it, and there seems little political desire for that at the moment on the other side of the channel. Rather, UK-based banks are worried that the EU is considering ways deliberately to make it more difficult to offer services to their EU-based clients, and we have to keep an eye out for that. That makes it all the more important that the UK forms meaningful partnerships with other international financial centres. I have long advocated a close financial services partnership between the UK and Switzerland, a major financial centre. We share a common approach, a global outlook and pragmatism.
Does my hon. Friend agree that in addition to the importance of financial services in trade deals, it is important that we are aware of supporting other professional services that go with them, such as law and accountancy? The legal underpinning and enforceability of our financial services deals is critical going forward.
I fully agree with my hon. Friend. I have been focusing obviously on financial services, but there is the wider concept of financial and related professional services, including legal services. As he knows far better than me, London and the UK are a global centre for legal services. That is a huge export industry in its own right and we should do what we can to promote that internationally.
I was just talking about the importance of the relationship between the UK and Switzerland. We have a lot to gain by working more closely together. That is why I am delighted that the Government are working towards an outcomes-based mutual recognition agreement with Switzerland. I emphasise that it is outcomes-based because it is pragmatic and we share that pragmatism. Similarly, we can have an ambitious agreement with Singapore and other jurisdictions, such as Japan and South Korea.
I am pleased that the Government are working closely with the United States to remove barriers to financial services trade between us. We have some agreements and we could have more. The Government are doing the same with Australia, Canada and New Zealand. Coming to the point about trade agreements that my hon. Friend the Member for Bromley and Chislehurst (Sir Robert Neill) raised, I welcome the agreement in principle on the UK-New Zealand free trade deal, which facilitates cross-border data transfer and recognises the importance of allowing firms to offshore back-office functions. Those are both important for financial services.
We can promote financial services through trade agreements and mutual recognition agreements between regulators to the benefit of both sides. The Government must continue to work closely with our partners through the G7, the G20 and the Financial Stability Board to ensure consistent international standards. As the most globalised of all international financial centres, we are more impacted by global inconsistencies on standards than other jurisdictions.
My hon. Friend makes an important point about co-operation between regulators and agreements between regulators. Does he agree that that is particularly important in the context of dealing with the United States, where much of the regulation takes place at the state, rather than federal level? Therefore, it is not easily embraced in a straightforward, normal type of free trade agreement.
My hon. Friend makes an incredibly valid point. I know that the UK Treasury has spent a lot of time wrestling with the relationships with the United States, which is in many ways almost unmanageable, because it has 50 different state regulators, and the federal regulators answer to Congress, rather than to the Government, so agreements between Governments may not have an impact on the regulators themselves.
In conclusion, we are at a turning point for Britain’s financial services industry. In the past decade, we have faced the major challenges of the global financial crisis and Brexit, and we took the steps necessary to forge through both of those. We can now look forward to a new era of financial services, with new opportunities. We need to make sure that the UK is the undisputed leading international financial centre, both globally competitive and serving communities and consumers across our country, and exporting more, creating more jobs, funding more businesses and paying more tax. That is something we should all welcome.
It is a pleasure to follow the hon. Member for South Cambridgeshire (Anthony Browne), who has opened this Backbench Business debate and is a fellow member of the Treasury Committee. He has given us a grand tour of a large and diverse sector of the economy that is, as he pointed out, very important. He also pointed out that it is affected by a range of issues at the moment.
The hon. Gentleman gave us some of his ideas on what should be happening post Brexit with some of the more complex of the EU directives that have been onshored—in particular, MiFID—which have been against the grain of how the UK financial services and insurance industries have always tended to work. He hinted at the philosophical difference between EU regulation in these areas and how the UK more traditionally did it; it is the difference between having principles-based regulation, which is not so specific, and the EU way of doing regulation, which tends to be so specific and puts a lot of those specifics in legislation. When I was in the Treasury and in the Department for Work and Pensions as Pensions Minister, it was a battle that we constantly had with the EU in the Council of Ministers and with the Commission.
I can see the Minister is nodding, possibly because he recognises some of those tensions, which always existed when we were in the EU.
When we were in the EU, because of the size of the influence of the UK financial services industry as part of that bloc, we had a very good and effective way of pulling at least a lot of the regulation that went on more towards our way of doing things. One of the worries I have post Brexit, which I suppose is a philosophical and practical worry, is that the EU will now go off and do a lot more of the things that we were able to persuade it not to do when we were a member. The divergence between how EU regulation works and how we may wish our future regulation of financial services to work is likely to grow larger.
It has not been a very friendly divorce to date, and there may well be implications to that, too, in terms of competition for business. We have seen some of that in the wholesale markets for euros and we will doubtless see more of it. The outcome of our way of leaving the EU will challenge some of the agreements that we came to and the influence we were able to have when we were inside the Council chambers, the European Parliament and the European Commission, rather than the situation we find ourselves in now. As the hon. Member for South Cambridgeshire said, that can be an advantage, but it can also be a disadvantage. It is an opportunity, but there are also threats and issues that we have to deal with. We have a sharp disjunction with the recent past, after 40 years of that kind of influence, that we will have to deal with in the coming period. We have the inadequacies of the non-existent deal on financial services, which was part of the EU-UK so-called trade agreement, and those are already having an effect.
The hon. Gentleman was right to say that we are in a period of rapid regulatory change, which would have been the case regardless of whether we left the European Union. The fact that we have, and the fact that we have onshored all this regulatory machinery, means that we now have to start looking at how we wish to change all of it.
Even thinking about the sheer weight of work and oversight that will have to be done by the Treasury Committee is quite overwhelming, as the hon. Gentleman acknowledged in the exchange we had during his speech. The Minister must go weak at the knees when he thinks of the detailed work that he will have to put in to deal with the onshoring in the aftermath of Brexit, and whether we want to move quickly or slowly to adapt the laws and regulations that we have imported.
Members of the Treasury Committee have also gone weak at the knees thinking about how they might have some oversight, because of the highly technical nature of much of that regulation. We certainly need to be significantly more tooled up than we have been if we are to have proper oversight of what the regulators are tasked with doing, what philosophical direction the Government wish to go in, and what the practical aspects of that method will mean for our financial services industry and, of course—they have not been mentioned much—for consumers in the UK and for financial stability.
We should not lose sight of those two basic reasons why we have to get regulation right. Consumer protection is a huge issue in financial services, as the hon. Gentleman touched on when he said that financial services are not always the most popular sector of our economy. Perhaps some of those who supply and form part of the industry ought to stop and think about why that is they case and do some self-reflection about it.
Clearly, financial stability is also crucial in an era when markets are becoming more rapid and more global. In the context of highly rapid technical change, financial stability becomes even more important, because innovation outruns the capacity of many regulators to keep up with what on earth is going on in some markets. Those two important issues have to underpin all regulation; the future of the entire financial services industry rests on them.
Regulatory change in a rapidly evolving situation with a lot of flux is inevitably difficult for those who participate in the market and for those who wish to regulate it. It is also difficult for those such as the Minister who want to see how it can be properly harnessed and allowed to be beneficial to our economy while being safe. It is a period of big uncertainty and flex. New technology has the capacity to change things and lead to innovation, some of which might be fantastic and some of which might be awful. That structural issue has hit us greatly through the innovations of digital currencies.
The systems that control financial services have to deal with the practical and philosophical issues that arise, such as whether digital coins are ever stable, what central banks ought to be doing to deal with that, and whether the wild west of Bitcoin and the rest should be left as a gambling thing on the side. Those markets can be volatile—the wild west—but the capacity of software such as open registers and blockchain, and their potential for transparency and in-time and open trading of all sorts of things, could be harnessed for good purposes as well as for the more nefarious ones that feature on the darker edges of the net. On top of that, the demands of climate change will cause a systemic change in the way that things are valued, priced and assessed for value.
That structural change will completely change the context in which the financial services industry has to exist. In the UK, which is one of the most open economies in the world and always has been, we know how important the financial services sector is, and not only to London as a global centre. In 2020, it was worth £164 billion to the UK economy, which is the third-largest sector by size in the OECD. That is 8.6% of economic output, half of which is generated in London but half of which is generated across our regions. Of the 1.1 million jobs, 91,000 are in my region of the north-west. As the hon. Member for South Cambridgeshire pointed out, it is one of the few sectors where we have a healthy trade surplus—£46 billion in 2020. It is the fifth-largest economic sector in our economy, and all the more important for that.
As the hon. Gentleman also pointed out, the sector is important for taxation, with £28.8 billion in tax taken from it. According to PwC, it makes up £75.6 billion, or 10% of the total receipts. In the face of such change—technological, structural or the disjunction of Brexit—any Government would want to see how they could remake the environment in which the financial sector can operate and flourish to benefit and protect the sector so that it can benefit and protect our economy. We certainly all have a stake in ensuring that that is the case.
In that area of flux, we have to remember that the regulators, although they could be powerful, are struggling with an increasingly complex and fast-moving environment that they are not always geared up to deal with in detail or to keep on top of. We have seen the travails of the Financial Conduct Authority and how it manages the perimeter, and philosophically the view of caveat emptor—that the buyer should beware in all circumstances. When things go wrong, the reputation of the entire financial services sector is at stake, so it is a difficult balance.
The Financial Conduct Authority gave evidence to the Treasury Committee yesterday, some of which reflected how difficult it is to try to remake a regulator after scandals such as London Capital & Finance, at the same time as operating within all the extra complexity and uncertainty. It has a formidable task. I suspect that being chair of the FCA is one of those jobs where people are told that, if they do a stint, they will get the diplomatic equivalent of the Washington embassy as a reward. The current Governor of the Bank of England is one example of that.
The FCA needs to be strengthened. We as policy makers, and the Minister in particular, have to think about how it can practically do the job. The job cannot be so big and complex that it is undoable. Sometimes, the way that the FCA has to cope means it is difficult for it to achieve a balance and be given a job that it can sensibly do. We know there is a big turnover of staff at the FCA at the moment, and that there is workplace stress and unrest. We know that the head of the FCA is trying to transform that organisation into what he calls a lean organisation that can respond very quickly to what is going on in the market and in the areas it has to regulate. I am not convinced that it has that balance right yet, and I am not even convinced that that job can sensibly be done without more support.
I want to deal with a couple of areas that the hon. Member for South Cambridgeshire did not touch on. These are what I would call threats to the reputation of the financial services industry in this country. First, I want to talk about economic crime, which I think poses a threat to the entire sector and its integrity if it is allowed to get out of hand. We know that there are rising levels of economic crime, fraud and scams that have been turbocharged during the lockdown. The sector itself has survived covid and the lockdown pretty well so far, because it could manage remotely—it does a lot of its work remotely in the first place—but one of the things we have all seen, unfortunately, is the rise in fraud and scams. We have also seen, and perhaps it is inevitable when it is one of the biggest global centres of financial services, that London has attracted the attention of international criminals and fraudsters who wish to launder their money through cities like London. We know that, as a major financial centre, it is a target for all of these kinds of people.
The Intelligence and Security Committee, in its Russia report, which was suppressed for far too long and was finally published after the 2019 general election, said that London is considered the “laundromat” for corrupt money. We have seen that kind of magnet effect, which is extremely disturbing, and I do not think that we have yet really got a handle on it. There are regulatory failings, there are legislative failings with the structures we have to try to deal with this, and there are certainly enforcement failings of the laws that we do have.
The hon. Lady makes some very important points, particularly that last one. Does she agree that now we have left the EU and therefore, regrettably, left some of the justice co-operation measures we had, it is all the more important that we seek, bilaterally and in a broader sphere, to improve and strengthen international judicial and legal co-operation on the admissibility of evidence, rendering of suspects and, above all, dealing with digital evidence being obtained in other jurisdictions and then made available to prosecutors and the courts in the United Kingdom?
I could not agree more with the hon. Gentleman, who is a distinguished Chair of the Select Committee on Justice. He is also a practitioner himself, so he knows about the practicalities of these issues. It is hard, in contemplating the extra work that has to be done because of Brexit, to know quite where one starts, but if we do not get it right and if we do not get on with it, this terrible reputation of London having become a laundromat for dirty money will only persist and perhaps get stronger, which will do us untold damage. I urge the Minister responding to this debate to give us some words of comfort that he is getting on with the economic crime strategy. We have an economic crime strategy—
Order. I hesitate to interrupt the hon. Lady, but I have been very lenient on timekeeping this afternoon because we have plenty of time and not very many speakers, and I have been particularly lenient because she is the only representative of the Opposition Back Benches. However, she is in danger of taking a very large chunk of time: she has spoken for about 20 minutes, which is longer than the person who introduced the debate. I wanted to keep such a balance, so I am not stopping her, but I am hoping, in the interests of being fair to everyone, that she will soon draw her remarks to a close.
Madam Deputy Speaker, I am delighted to do so. I suppose that, when one gets let off the leash away from debates with three-minute limits, all the words just come tumbling out, but I would not want to take more than my allotted time.
I hope the Minister will be able to give us some words of comfort, particularly that he will be taking fast action to establish a beneficial ownership register and bring some transparency to what is going on in respect of financial crime.
Finally, I want to mention the issue of the model all too often pursued by some of our financial services, and this is a final philosophical point perhaps. All too often, complexity is seen as an end in itself in our financial services, and as a proxy for competition and a proxy for innovation, when in fact it is merely an excuse for opaque pricing. That makes it difficult for average consumers who want to put their money somewhere, make money, protect their money, or get a reasonable return on their money, and who find it too complex to do so. I do not believe that this is serving customers well, catering, as it does increasingly, for just a few at the top of the earnings distribution rather than the many who have smaller pots of money. I hope that the Minister will reflect in his response about what might be done to reverse that trend. With that final observation, Madam Deputy Speaker, I am happy to draw my remarks to a close.
It is an honour and a privilege to follow the two speeches from my hon. Friend the Member for South Cambridgeshire (Anthony Browne) and the hon. Member for Wallasey (Dame Angela Eagle). Both of them gave us philosophical, intelligent and really interesting speeches, and I noted that both of them made the point that financial services as an industry perhaps do not get the respect or the renown they probably should have.
I was reflecting on that when I heard the remark my hon. Friend the Member for South Cambridgeshire made about the German who said financial services are not recognised. Why is that? I think it is probably for three particular reasons, yet when we look at the contribution to the UK economy, we should really be shouting out against that. The first point is that, for all too many, when we say financial services, they think of banking. They forget all the related professional services, notwithstanding the subdivisions—indeed, financial services themselves are more tightly defined—and just concentrate on banking. They think back to the financial crisis and all the attendant problems that my hon. Friend so rightly pointed out.
The second point is that, when we say financial services, people may expect the hon. Member for Wimbledon to stand up, but they should expect the hon. Member for Wallasey to stand up as well. Although, understandably, financial services account for 16% of London’s total gross value added, the reality is that in the north-west the industry is 6% of the regional economy, in the south-west it is 6%, in the west midlands it is 6% and in Yorkshire and Humberside it is 6%. The smallest contribution of financial services anywhere in the country is actually the east midlands, and that is 3%, but it is none the less 3% of that regional economy. So we should be standing up and saying that this is a UK-wide industry.
The third point—with complete respect to my hon. Friend on the Front Bench, who is establishing his reputation for being perhaps the best City Minister we have ever had—is that there are one or two at the top of this Government who have occasionally thought that fishing was more important than financial services. If one says that the total contribution to the UK economy of financial services was £67.4 billion last year, and for fishing the number is so small it is not worth talking about, correcting that and looking to that in the future would underline the point about the power of financial services. As has already been stated, there is a huge trade surplus.
My hon. Friend the Member for South Cambridgeshire talked about the opportunities and the hon. Member for Wallasey talked about the threats from the EU. It is none the less true that during our membership of the EU we established ourselves as the world’s global financial centre, and whether we like it or not 40% of UK financial services exports still go there. So my hon. Friend the Economic Secretary to the Treasury will know that in those very complex negotiations—I will not repeat what has already been said about them—we must have a sensible, diplomatic and economically viable dialogue with our nearest and dearest neighbours.
The tax contribution has already been mentioned several times, and the hon. Lady made the point that PwC estimates that £75.5 billion, or 11% of Government receipts, come from the wider financial and associated professional services sector, including insurance and legal. So there cannot be any doubt that this is a hugely important industry and a powerful industry for the UK, and if we want a globally successful Britain we need a globally successful, renowned and well-regulated industry. It is noticeable that in the last few years we have very slightly slipped in the global financial centres index to second place and we must recognise that there are threats as well as opportunities from leaving the EU. It is of significance that on the first trading day of this year we lost £6 billion of activity out of London, and that is a continual threat. So I say yet again not only that we need those important negotiations to be conducted in a manner that is to London’s benefit but that we equally need to recognise of course that the threat is also now once again from New York, Switzerland, Singapore and Hong Kong. In the global alliances that we strike in financial services it is perfectly possible to recognise that, with some economic diplomacy put into deepening regulatory engagement, we could find ourselves in a powerful international regulatory alliance with the Americans, the Swiss and some of the far-east countries. Andrew Bailey some years ago when I was serving on the Treasury Committee raised this as an opportunity we should consider. Building those new trade and investment ties, and underpinning international agreements with financial services, is key to a globally successful Britain.
I want to briefly talk about two other points. First, as has been said, there is a difference between wholesale regulation and retail regulation. The Financial Services Act 2021 says that the Financial Conduct Authority must have regard to the relevant international standards and the effect of the rules on the UK’s international standing. That is hugely important, particularly in wholesale regulation where we hope to ensure that the UK is an international powerhouse. I accept that that will always be a secondary objective of the rules and the obligations on the regulator, but it must not be deviated from. I hope that my hon. Friend the Economic Secretary will set that in place. In terms of the history of regulation in the UK, a large number of people think the system, while rightly seeking to ensure extensive consumer protection, has come at the cost of overspecification for the wholesale markets to no benefit at all and to the diminution of our standing.
The other point has also been raised, but it is important. The 2021 Act has given a huge increase in power to the regulators in a way that we have seen with very few other regulators, by which I mean the lack of scrutiny in this House. I note that the financial services document “Future Regulatory Framework (FRP) review” has come out and it talks about this, and my hon. Friend the Member for South Cambridgeshire referred to evidence to the Treasury Committee. Because of the importance of this industry to the country, I urge the House to consider very carefully establishing a Select Committee of both Houses or indeed a standing sub-committee of the Treasury Committee. I do not accept the argument that several have put that there is not the expertise or capability within this House, or that this House is not able to get the necessary resources and capability brought into it to undertake that proper and appropriate parliamentary scrutiny.
Finally, in the last minute of my speech I want to talk about two other matters. We have talked a lot about the past and what financial services has done, but it could do a lot more to help in what this Government and this country want to achieve. If levelling up means anything, it means bringing opportunity to the regions of this country. Financial services is already a powerful industry in the regions of this country, and bringing in those high-paid, high-value jobs also brings in skills. We should be doing all sorts of things to encourage that, not necessarily just within Government; universities should specialise in master’s degrees in financial capabilities and regulation. We should be focusing heavily on developing the UK as a centre of financial skills. That way we would not only drive UK levelling up but bring the talent to make London and the other global centres of this country into the powerhouse of financial services.
Finally, the Government have done a huge amount of good work already in delivering the net-zero economy from financial services. Financial services can do much more in that area; all sorts of things, particularly using the tax system, have been done already, but we can do much more, and the financial services sector must play its role to deliver that objective.
It is a pleasure to follow the hon. Member for Wimbledon (Stephen Hammond).
I thank the Backbench Business Committee and the three sponsors of today’s debate for bringing this topic to the House for discussion. The UK’s financial services are a huge asset and truly world class. The UK’s sector is the third largest of the OECD countries in terms of its economic output. Recent rankings put London’s financial market as the second most competitive in the world, only narrowly beat out by New York. It is therefore unsurprising that even within the UK London holds the lion’s share of the glory. The city’s contribution to the UK economy for the sector accounts for 50% of the sector’s economic output, but, interestingly, Scotland ranks just behind London and the south-east; it is a very well-established financial centre. So while London might sit firmly centre-stage, contributions from across the UK should also be celebrated.
In fact, Scotland has a rich history as a thriving financial hub, one that spans over 300 years. The Institute of Chartered Accountants of Scotland was the world’s first professional accounting body, established in 1854. The Chartered Banker Institute—or as it was originally known the Institute of Bankers in Scotland—was established in 1875, making it the oldest banking institute in the world. Today there are around 84,000 jobs in the sector in Scotland, and around 2,000 businesses. The FinTech industry is growing too, with many firms looking to establish homes in Glasgow and Edinburgh. Many cite the excellent provision of local skill and talent as the reason for wanting to do so. It is attractive to foreign direct investment, too.
Like so many of the UK’s industries, the financial sector has not escaped unscathed from the realities of Brexit. Financial services were largely overlooked in the trade and co-operation agreement, so provisions are relatively sparse. According to the Financial Times, there are 90 mentions of financial services in the agreement, but variations of the word “fish” appear 368 times. In December last year the sector lost passporting rights and we moved into market access determined through equivalence. The deal we came away with was not a good one and, as expected, many businesses moved to other European financial centres where they have access to the single market. Jobs and business have been lost and perhaps still will be, but we will not know the true impact for a long while yet.
The sector’s economic contribution is substantial, as we know. A recent study showed that Scottish businesses had an average profit margin of 7.5%, above the UK average and second only to London. Financial services are a big part of the reason that average is so high. The sector’s profit margin in Scotland is 13.6%. Its tax contribution is impressive too, at £28.8 billion in income tax, national insurance, corporation tax, bank payroll tax and the banking levy last financial year. That is 4.1% of all taxes collected last year.
What is next? How do we build on what we have and mitigate the impact of leaving the single market? The Government’s answer seems to be deregulation, although industry experts seem to be not wholly in agreement about the impact that will have. I would be interested to hear what discussions the Minister has had with the sector about deregulation, and how that has informed the Government’s strategy. Have the Government considered the argument for reregulation—a reshaping of the current framework so that it is more suitable—rather than deregulation?
Financial services policy remains reserved to the UK Government, and I urge them not to overlook the sector’s prominent Scottish presence as they review and reform their policies in a post-Brexit context.
It is a pleasure to speak in such a well-informed and thoughtful debate.
First, on the contribution of the financial services sector, I do not want to repeat what has been said by my hon. Friend the Member for South Cambridgeshire (Anthony Browne) and others about the tax paid, the growth or the jobs, but I want to bring up something that has not yet been discussed: the contribution during the acute phase of the covid pandemic in 2020, when about £75 billion was facilitated through the UK financial services sector. To illustrate what that means, in my constituency, which does not have a huge number of businesses compared with many other constituencies, over £100 million was facilitated through the financial services sector for businesses. That is a practical demonstration of the positive impact that the financial services sector can have on the lives of our constituents.
Competitiveness has been mentioned by many Members. I support what the Treasury want to do in adding growth and international competitiveness as a secondary obligation for the FCA and the Prudential Regulation Authority. I support the action in the Budget to reduce the bank surcharge on banks in particular. Had we left the surcharge where it was, from a tax perspective, it would have made the UK one of the most expensive jurisdictions in the world in which to operate a bank, and that is not in the UK’s national interest. I support the work that the Hill review did on listings, the general approach to public markets, the share trading obligation and the double volume cap. On a lot of these technical things, I think the Government are in the right place; we are going in the right direction, we are doing the right things and, as many others have said, the Minister is doing a great job.
On ringfencing, I will make a confession: before I came to this House, I spent some time at HSBC, where I worked in restructuring, and I had a lot to do with ringfencing. I can say from bitter personal experience that it is deeply complicated. It was well intentioned, but a review is overdue. I am glad that the Government are going to look at it. I ask them to look not just at whether ringfencing has done a reasonable job so far, but at the asymmetry of how it is imposed on UK-domiciled banks compared with our competitors, including the sheer complexity and cost associated with it, not just in terms of compliance and what we think of as regulation, but in terms of the IT systems, where people are and how the buildings operate. It costs a considerable amount of money and a huge amount of focus for big banks such as HSBC, Barclays and others. Without prejudging the outcome, I think that review is critically important.
Let me pick up something that my hon. Friend the Member for Kensington (Felicity Buchan) said about trade deals. The Government, and indeed the country, are right in pursuing our strategy on trade internationally, looking beyond Europe and seeking to strike as many good trade deals as we can across the world. We need to make sure that those trade deals are best in class. What I think of as a best-in-class trade deal today, in the modern world, has to include services, and it has to include financial services and other professional services, not just because that is a good thing for this country but because the nature of modern international trade is increasingly moving towards services rather than goods, particularly for advanced western economies such as our own.
We have a great opportunity to pioneer that at an international level. In particular, our regulators must seek to have many more regulator-to-regulator exchanges across the world as part of those trade deals. A lot of the regulations that are in place for financial services often happen at sub-national level, so it is so important that our regulators do that. I am sure those regulator-to-regulator exchanges will be very good fun indeed for all concerned.
My hon. Friend the Member for Wimbledon (Stephen Hammond), who is very experienced in these matters, talked about levelling up and about the positive regional aspect of the financial services sector and the jobs it creates outside London and the south-east. I completely agree, but I think of levelling up as not so much about levelling up places as about levelling up people. It is about people’s opportunities. Alongside all the technical work that we have already talked about, with regulations, ringfencing, the double volume cap, listing, public markets, prospectus directives and all that stuff, the financial services sector needs to do more—and I think it can do more—on levelling up in the United Kingdom.
What does that look like for the financial services sector? It means the industry doing more on alternative routes into the sector—apprenticeships and others. It also means the industry doing more not so much to provide more jobs outside London and the south-east, although that is always welcome, but to help to develop regional clusters around Edinburgh, Leeds, Bournemouth and various other places. There are significant numbers of financial services jobs in those places, but what more can the industry do to develop those regional clusters to give more opportunities to people from all over the country and from different backgrounds?
Let me briefly mention debt advice for those who have found themselves in problem debt after the covid pandemic. I think we all recognise that, for some people, debt has grown significantly. I think there is more that the industry can do to work with people with problem debt and help them get out of that situation, with the help of the legislation that is already in place.
Finally, if my hon. Friend the Member for Thirsk and Malton (Kevin Hollinrake) were here, I am sure he would talk about small and medium-sized enterprises and access to finance. I do not want to steal his thunder, but we must think about SMEs getting access not just to debt but to equity finance, and about ensuring that underrepresented groups of entrepreneurs—often ethnic minorities or women—get more and better opportunities to raise funds for their businesses. That is the skillset—the core determinant—of a financial services sector: providing funds for people to realise their aspirations as individuals or as part of a business.
I will be doing some more work on this in the new year, as the Minister knows, but I urge the sector to do more on the levelling up agenda in its broader sense, in addition to working with the Government, with me and with colleagues, including the people here, on the technical regulatory aspects that are critical for our international competitiveness.
This has been a really valuable debate, and I hope that it gets as much publicity as it ought to get. I hope, too, that the sector gets as much publicity—and as much credit—as it ought to get.
The sector is massively important to my constituents in Bromley and Chislehurst, as it is in much of outer London. In my constituency, financial and professional services together account for over 36% of the workforce. The sector is by far the largest driver of jobs and of prosperity overall in our area. Of course, we must consider not just the jobs in the City or elsewhere in London, but the other jobs that the income from that work supports elsewhere in the employment chain, and the growth of other businesses in the area. The sector is critical.
It is also worth stressing, yet again, the diversity of the sector. We talked in particular about its overall contribution. As my hon. Friend the Member for Wimbledon (Stephen Hammond) said, we often think of the sector in terms of banking. Distinctions are rightly made, which I know the Minister is well seized of, between wholesale and retail, but other sectors in financial services such as insurance contribute something like £30 billion to the economy on their own. The London insurance market is massive, and has a very high reputation in both insurance itself and in reinsurance. It is vital that we include access to insurance products in any free trade deals, and keep regulation appropriate and proportionate.
London’s other great strength is the nexus of the financial services sector with other supporting professions, including the law. I declare an interest here and refer the House to my entry in the Register of Members’ Financial Interests. Legal services are themselves worth some £60 billion to the UK economy and are a net contributor to the UK’s balance of trade. So many of our financial services instruments, from derivatives right the way through to other types of contracts down to trading mechanisms, are underpinned by legal services and by the reputation of the United Kingdom as a jurisdiction of choice, because of its reliability, legal certainty and the expertise of its legal community. That is backed up by the accountancy sector, too.
As we go forward looking at free trade arrangements and regulatory deals, which I think we will have to have for the reasons that have been well set out, it is important that we do not lose sight of the fact that the whole basket comes together and contributes overall to that cluster of excellence and critical mass, which so far has given us a great competitive edge. We cannot take that for granted, and that is why some of us were troubled at the lack of reference to financial and professional services generally in the trade and co-operation agreement. We have to build on what we now have and this is a very good example of that.
Reference was made to regulatory reform. The opportunity, for example, that the insurance industry suggested for two specific reforms to solvency II would be of considerable benefit. I hope the Minister will be able to update us on progress on that. Perhaps, too, we can have an update on where we are with the actual implementation of the outcomes of the Kalifa and Hill reviews, and where we are, for example, on the movements that are freeing up and easing listing, to which I know the Government are already committed, and where we might be on variable classes of shares to encourage different types of listing on London markets.
The other point I want to make on legal services and future co-operation echoes the point made by the hon. Member for Wallasey (Dame Angela Eagle). In maintaining London’s reputation as a reliable and honest jurisdiction, it is important that we bear down on the risk of economic crime. That cannot be done in isolation. Sovereignty takes us only so far when it comes to fighting international organised crime, so it is absolutely critical that, having regrettably lost access to some of the European Union justice and policing mechanisms, we find ways to replicate them either bilaterally or perhaps through future agreements as we, I hope, develop a more constructive relationship with our European partners than is perhaps the case at the moment. It is in nobody’s interest that we have a permanent state of tension between two such significant markets on the world stage. Including legal co-operation is massively important, certainly on the justice side and stretching that out into other jurisdictions, too.
As the Minister has heard me say many times, it is regrettable that the European Union is taking a needlessly obstructive approach to the United Kingdom’s application to join the Lugano convention on the enforcement of civil judgments. It wrongly argues that it is a single market mechanism. I think the Government are right in saying that it is not a single market mechanism. It is entirely separate and this is a regrettable product of the tensions we have had. I hope the Government will not give up on that and will also look at workarounds with other, non-EU countries to maintain high levels of recognition. The enforceability of any contract, including a contract for financial services, is absolutely critical to our remaining the jurisdiction of choice.
My final point is on the contribution the City of London Corporation makes in areas such as green finance. A huge amount is being done. The City Corporation, with the Government, provided the seed funding for the first three years of the Green Finance Institute. That, of course, has been involved in building coalitions of private finance actors. The most obvious of those is the Coalition for the Energy Efficiency of Buildings. The work of the City Corporation in such areas, and in bringing forward and helping to promote and organise a bespoke platform, the Green horizons summit at COP26, shows the innovation of the financial services sector and the City as its great champion.
It was a pleasure to welcome the current Lord Mayor and the Remembrancer of the City to this place only last week at the inaugural reception of the all-party parliamentary group for London as a global city. That co-operation is as important as the way the City has sought to champion the bringing together of professional expertise. The Minister will know, and I hope will never cease to value, the work of organisations such as the Financial Markets Law Committee. It probably has more legal and financial expertise brought together in one room than we will find anywhere else in any developed economy and perhaps anywhere on the globe. Its reports are of the highest quality. It is chaired, as we know, by a former Lord Chief Justice and has a range of high-ranking professionals. I hope that the Government will continue to listen carefully to their suggestions on how to keep regulation proportionate and deal with a system that gives us good access to markets across the globe, while at the same time dealing with the necessary prudential measures from the point of view of the UK economy.
On that note, I hope we can recognise the financial services, and their allied and supporting professions, as the jewel in the crown of the British economy and emphasise that repeatedly whenever we get the chance to promote the UK abroad. We should also promote them to our own constituents and fellow citizens because they do not always get the credit that they should.
It is a pleasure to follow the hon. Member for Bromley and Chislehurst (Sir Robert Neill), who speaks with great knowledge on these matters at all times.
Like the hon. Member for Hitchin and Harpenden (Bim Afolami), I started my working life in financial services. I started out working in the small but perfectly formed share registrars department of the Bank of Scotland, which was taken over by Lloyds TSB. I swiftly moved over to work for Scottish Widows, which, a few months later, was also taken over by Lloyds TSB. I decided that, since Lloyds TSB was clearly so keen to have me on its payroll, it would be churlish not to spend at least the next few years working for them, so that is what I did.
I started out in what was called the quality assurance department. We talk about the diversity of jobs in financial services. In plain English, it would have been better described as the complaints department because, if you wrote a letter or phoned up demanding to speak to the chief executive because your pension fund was not performing quite as well as you anticipated, you spoke to me, or somebody like me, in that department. I am not entirely certain whether it was good training or not for being a Member of Parliament and a councillor, but I have never felt the worse for the experience.
Each day, my colleagues and I went in to provide products and services for a wide range of people, at all different ages and stages of life, as they tried their best to prepare, hedge and insure for various happy, not so happy and inevitable events that we all encounter in our lives. We were not alone in that in Edinburgh because Scottish Widows was one of many life insurance and pensions firms in the city, a legacy of the more than 300 years of Scotland being recognised as one of the leading, most innovative financial centres in Europe.
That industry could not, and would not, exist if it was not for the high quality of life that people can enjoy outside work, for the quality of the public services that underpin that quality of life, and, as the hon. Member for Bromley and Chislehurst said, for the significance and importance of our professional services that underpin the sector. It could not survive if it was not for the support of Government and the quality, experience and adaptability of the workforce. We should not be in the least bit shy about saying that; we are exceptionally good at this and we should advertise that and remind ourselves of it regularly.
Scotland is the second largest financial services cluster in the UK outside London. Financial services are also one of the largest sectoral contributors to the Scottish economy at 9.4% of gross value added, which is equivalent to £13 billion. It employs more than 160,000 people directly in financial services and the related professional services; that is nearly 6% of Scottish national employment. Financial services also represent a disproportionately high share—25%—of UK employment in the life assurance sector and 13% of all banking employment. Together with the professional services sector, that accounts for 40% of Scotland’s services exports. The industry has disproportionate scale and scope.
Another emerging area is FinTech, in which Scotland is also emerging as a leader second only in scale and scope to London—again, we are the second largest outside London. The Financial Services Advisory Board, chaired by Scotland’s First Minister, established the need for an independent organisation to try to maximise the FinTech potential in Scotland. It provided £250,000 to try to leverage additional business contributions and academic contributions to achieve the goal of having Scotland in the world’s top 10 recognised international FinTech clusters.
FinTech is a tremendously exciting development. It is certainly a disrupter, but it is also an enabler. This is part of a landscape on which we have trodden with confidence for centuries. We have centuries of experience and a reputation in this fast-moving environment for probity, trustworthiness, quality and excellent performance, but it is all founded on people and their skills.
In that regard, Scottish Financial Enterprise’s five-year strategy, launched earlier this year, takes on a particular importance. It has four key objectives, including leading us on a journey to net zero, inspiring global leadership in green finance and supporting the transition to net zero. It sees a role in supporting our financial recovery post pandemic. It is about responding to changing customer needs, delivering innovative and, above all, inclusive products that meet the evolving needs of all customers. And to go back to the point made well by the hon. Member for Hitchin and Harpenden, it is also about delivering skills and inclusion, enabling financial services firms to recruit, develop and retain that pipeline of talent and high-performing, diverse skills that we need to continue with a successful industry.
These are challenging times on a number of fronts for the financial services sector, whether on an economic level, a political level or simply a regulatory front. I am reminded, however, of the history of the organisation that I went to work for, Scottish Widows, which was founded out of the tumult of the Napoleonic wars. Although I am sure that we would all very much prefer never to go back to that sort of degree of conflict and tumult, nevertheless, financial services have shown themselves to be remarkably adaptable and able to rise to the challenges that they face, whether that means meeting their customers’ needs and expectations or dealing with the world around them.
We may have a head start in financial services, but there is nothing to guarantee that, unless we continue to invest, innovate, and above all, talk up the provenance and importance of this vital industry.
I am very grateful to the hon. Member for South Cambridgeshire (Anthony Browne), the hon. and learned Member for Edinburgh South West (Joanna Cherry), who is not in her place, and my hon. Friend the Member for Wallasey (Dame Angela Eagle) for securing this very important debate. Not for the first time, I agree with the hon. Member for Bromley and Chislehurst (Sir Robert Neill) that this has been a very valuable debate, and I hope that it gets the exposure that he mentioned.
Labour wholeheartedly agrees that our financial services are central to the British economy. Our financial services sector is a major driver of our country’s growth. It contributed an incredible £132 billion to the economy in 2019. Financial services are also the UK’s most successful export and have been for decades, worth £60 billion in 2019 alone.
The contribution of the sector will be vital to the UK’s future prosperity. As the OECD recently warned, the UK’s economic recovery is at risk. Earlier this week, the CBI downgraded growth forecasts to 5% as we are surrounded by inflation and supply shortages, with the CBI director general warning that businesses will face
“a cliff edge in 2023.”
Supporting the financial sector to thrive will be fundamental to our economic growth after covid-19 and to delivering the higher growth, jobs and tax receipts that we need to fund public services. That is why we want the Government to do more to support the sector to retain its competitiveness on the world stage. My hon. Friend the Member for Wallasey spoke about how regulatory stability is the foundation for success and innovation in the financial sector. I agree wholeheartedly with that point, which has been made a few times by Members across the Chamber.
We know that the most serious issue threatening stability for financial services today is the post-Brexit regulatory environment. In government, Labour would focus on making Brexit work for the City as well as for the country. I think everyone in this Chamber will be pleased to hear that Labour does not want a rematch—we not do want to reopen negotiations, before any headlines start to fly—but being outside the EU does not change the fact that for many firms in finance it remains an important market. In 2019, an enormous 40% of UK financial exports went to the EU.
We have heard a lot about getting Brexit done, but what we want from the Government now is a proper plan for the aftermath. Regulatory equivalence for the finance sector should have been a priority in talks with the EU, but the Government have failed to achieve that. We feel that the sector is in a state of uncertainty now.
In my role, which I took on recently, I listen to the concerns of our world-class financial and professional service businesses. That is why Labour would seek regulatory equivalence with the EU for financial services and an agreement with the EU on mutual recognition of professional qualifications and conformity assessments across the entire sector. A Labour Government will build on the deal in the national interest through the mutual recognition of professional qualifications for our service sectors. We cannot risk our financial firms losing their competitive edge in the European market.
Labour would protect the UK’s status as one of the most important global financial centres as we shape a new future outside the EU. To achieve that, as Members across the Chamber have recognised, the sector must be ready for the challenges of the future. That will require the Government to provide the space and regulatory landscape for financial services to innovate. That is why Labour wholeheartedly welcomes developments in FinTech, which many hon. Members have mentioned and which will allow companies to experiment with new finance models and create high-skilled jobs for the future across the UK. Deloitte estimates that, with the right support, FinTech could add £3 billion to the economy and create more than 50,000 new high-skilled jobs.
The 21st century requires the Government to play an active role in ensuring that the UK can take advantage of new technologies. Labour would award far more public contracts to British businesses, such as a young entrepreneur who has established a FinTech start-up in Newcastle, as opposed to handing them to overseas firms.
I agree with the hon. Member for South Cambridgeshire that the biggest challenge facing the UK is the climate crisis and the transition to a green economy. I also agree with him that the Treasury Committee needs proper support, because it is the most important Committee in the House. Labour has committed to £28 billion a year of capital investment every year until 2030 to support the green transition.
We believe that the financial sector has a vital role to play in attracting green investment. Many innovative companies are already recognising their wider responsibilities. For example, Lloyds, which has been mentioned, is providing discounted financial support for investment in dairy farms to reduce their use of energy. This is a welcome step, but the transformation of our economy will require radical action from the Government. We want to see more ambition in the Government’s announcements on green bonds. Labour would seek to make the UK the green finance capital of the world. That is why we have called on financial institutions and FTSE 100 companies to produce credible climate transition plans by 2023.
The financial sector should serve the people of this country wherever they happen to live—a point that has been echoed by Members across the Chamber. My hon. Friend the Member for Wallasey and the hon. Member for Wimbledon (Stephen Hammond) both spoke about the importance of recognising the contribution that UK financial services already make beyond the City of London. The sector in Leeds, Birmingham, Edinburgh and everywhere else provides a significant contribution to our national economy.
However, in the past 10 years, regional inequalities have widened. Growth in the financial sector has not been felt equally across the country. In 2019, the financial services sector contributed more than half a million jobs in London and the south-east. That should be celebrated, but there were only 43,000 jobs in the sector in the east midlands and 24,000 in the north-east.
We have heard a great deal about levelling up in recent months, and I think that we can agree with much that has been said about it today. The hon. Member for Wimbledon talked about the UK being a centre of financial services. He also talked about a powerhouse of financial services, and that is what we want to see in this country. The hon. Member for Hitchin and Harpenden (Bim Afolami), who has left the Chamber, talked about levelling up people, and Labour shares that ambition.
Our recovery is fragile following the shocks of the pandemic, and our economy is much in need of a boost after a decade of low growth. The financial sector will be critical in delivering the prosperity that we need. I therefore welcome this important debate about the need for the Government to support financial services to enable them to retain their competitiveness on the world stage. I agreed with the hon. Member for Wimbledon when he said that it should not be just him and me standing up and speaking about this important topic; Members throughout the House should be standing up and speaking about it.
Let me end by asking the Minister a couple of questions. Does he accept that his Government should find an agreement on regulatory equivalence with the EU for financial services, and does he agree that UK financial services should be at the heart of all our future trade negotiations to help build a positive future for this crucial sector?
It is a great pleasure to respond to the debate on behalf of the Government. It has been an extremely well-informed debate, and I have enjoyed listening to all the contributions. I particularly thank my hon. Friend the Member for South Cambridgeshire (Anthony Browne), the hon. Member for Wallasey (Dame Angela Eagle) and the hon. and learned Member for Edinburgh South West (Joanna Cherry) for sponsoring the debate. They were absolutely right to point out that the financial services industry is critically important to the United Kingdom’s economy, and to champion the UK as an environment that ensures that the sector is able to retain its competitiveness on the world stage.
I discerned five themes as I listened to the debate: the response to the pandemic, the issue of levelling up, green finance, the context for our international relationships, and regulation, about which there have been a range of comments across the wholesale and retail sector.
I have been the Economic Secretary for nearly four years, and in that time I have come to recognise the vast economic contribution that the financial services industry makes to this country—we have heard a great deal about that today—but I have also observed the many hidden contributions that it has made, which have been particularly clear during the pandemic. On the frontline, bank staff have kept branches open and supported vulnerable customers at times that have been very worrying for them financially. In the back offices, people have rolled up their shirt sleeves and worked all hours with us and the regulators to deliver tens of billions of pounds of emergency loans. I have already thanked the industry publicly for what it has been doing, and I am delighted to do so again today at the Dispatch Box.
My hon. Friend the Member for Hitchin and Harpenden (Bim Afolami) mentioned the £100 million of loans and other support in his constituency, and that has been replicated across the country. The bounce back loans, the coronavirus business interruption loan scheme and the forbearance measures were critical at what was a critical time for our country.
I recognise and acknowledge the sentiments about the financial services industry not always getting a good press. This is not just about banks, although they are critically important for the underpinning of lending to our economy. However, I think we should also recognise, as the Scottish National party speakers did, that the industry is not just about the square mile but about the whole United Kingdom. I visited the constituency of the hon. Member for Rutherglen and Hamilton West (Margaret Ferrier) a few weeks ago to see the bank hub that is active there and informing the industry’s response to the challenge of access to cash.
In places such as Birmingham, Bristol, Glasgow, Cambridge, Edinburgh and Merseyside, this industry is critical. There is not an equitable distribution across every region, but there are hubs of real significance. Two thirds of people employed in the industry work outside London: 37,000 in Northern Ireland, 69,000 in Wales, and 153,000 in Scotland. I am proud that the Government have used that imperative to headquarter our new national infrastructure bank in Leeds and to establish our new economic campus in Darlington.
The sector has also made significant progress on diversity and inclusion, so that the very best people for the job have an equal opportunity to succeed, no matter what their race, gender or background might be. There is a lot more work to be done in that area, and I commend the incoming Lord Mayor of London for his championing of that agenda during his tenure.
I want to address some of the points raised by Members during the debate. I thank my hon. Friend the Member for Wimbledon (Stephen Hammond) for his kind words, his focus on the importance of the regional agenda, and his challenge to ensure that we have opportunities across the regions. The opportunity to secure high-paid, high-value jobs beyond Wimbledon and across the United Kingdom is a real imperative. I draw his attention to the Kalifa review into FinTech that was published at the beginning of March, and to the money secured and announced in the Budget for the centre for financial innovation and technology, which will be a key driver of that.
My hon. Friend the Member for Hitchin and Harpenden (Bim Afolami) mentioned levelling up and also raised some specific concerns about debt advice. I draw his attention to the work we have done with the breathing space scheme, which went live in May. I recognise the uncertainty around the maps and the reprofiling of face-to-face and online debt advice. I am taking a close interest in that. We are also trying to innovate when it comes to no-interest loan schemes, which are at the proof of concept phase and could make a massive contribution to assisting many vulnerable people.
My hon. Friend the Member for Bromley and Chislehurst (Sir Robert Neill) put a stark statistic before us when he said that more than 36% of his constituents worked in financial services and the broader legal and professional services sector. It is a critical sector for our economy. The financial services sector also has a crucial role to play in our response to climate change. The ambition is clear: we want the UK to be the best place in the world for green and sustainable investment. As a Government we have taken bold action in this area to transform the UK financial sector. That has involved introducing new economy-wide sustainability disclosure requirements for businesses, and the kick-starting of a green financing programme with two record-breaking sovereign green bonds: one for around £10 billion on 21 September and a further £6 billion on 21 October, achieving a “greenium”—a premium on what we would have gained from a non-green bond—of around 2.5 base points. We will not be complacent about this. We also need global action on green finance, and the Chancellor recently hosted the COP26 finance day, which saw financial firms with assets of over £130 trillion committing to net zero.
My hon. Friend the Member for Bromley and Chislehurst also drew attention to the role of the City of London Corporation in green finance, and I absolutely endorse his recognition of its contribution and in particular that of Catherine McGuinness, who has been the policy lead through most of my tenure. She has done an excellent job, and her tenure comes to an end next spring. As I have said, the Lord Mayor is also committed to taking on his predecessor’s leadership in that area.
Looking ahead, it is important that we do not rest on our laurels, as the motion recognises. There are obviously strong competitive pressures in the industry, and it is my mission to help to deliver the Chancellor’s vision for an open, green and technologically advanced financial services sector that is globally competitive and acts in the interests of communities and citizens across the UK. In his speech on 1 July, the Chancellor said that we should be proud that people around the world looked to this country for leadership, and we should be. We have an opportunity and a responsibility to lead the world on international standards, FinTech, green finance and much more.
When I took on this role in January 2018, the nature of the international relationship that the UK would have in financial services was uncertain. We have now left the EU institutional framework and, where it makes sense to do so, we are taking advantage of our new freedoms to refresh the UK’s position as the world’s pre-eminent financial centre. We are not deregulating, but we are looking at those international relationships. We have set out a clear, ambitious programme of work to broaden and deepen those relationships. We have signed trade agreements with Japan, Singapore, the European economic area and the European Free Trade Association, and reached agreements in principle on free trade agreements with Australia and New Zealand.
I recognise that in many of these free trade agreements, financial services will not be as prominent because the regulator-to-regulator dialogues that exist on an ongoing basis are so instrumental in unblocking opportunities on both sides in financial services. The Swiss mutual recognition agreement, which we are negotiating at the moment, will be the most ambitious financial services agreement globally in both breadth and depth.
I recognise the uncertainty of the EU relationship. We have co-operated fully, and it will be for the EU to determine what sort of dynamic it wishes to have. I was pleased to visit my counterparts in Madrid last week, and I met several bank leaders over there. The warmth that exists towards the UK in financial services is clear, and I have recently had conversations with other bilateral partners.
We need a regulatory framework that is more agile, that avoids politicisation and that gives decision making to the independent and expert regulators. I take the point raised by my hon. Friend the Member for Wimbledon on the need to ensure proper scrutiny of that autonomy. I recognise and appreciate the support for the secondary growth and competitiveness objective that we set out in the consultation, and it is now critical that we clarify in legislation how the responsibility of scrutinising those independent regulators will work. It will be for Parliament to determine how to examine the way in which those regulators meet the objectives we will set out in primary regulation.
Members mentioned a number of initiatives concerning the wholesale markets review. I see broad consensus on the vast majority of issues identified in the consultation document. We are talking about incremental changes informed by deep dialogue with industry.
On the prospectus regime review, I am delighted to say there was extensive support for the proposals in our recent consultation, and I look forward to pushing ahead with our reforms. We are taking forward the recommendations of the Kalifa review on FinTech. We must remain at the cutting edge of technology and innovation in financial services. I recognise that its application both to the regulators and to the financial market’s infrastructure will be significant.
We have responded to the call for evidence on insurance and Solvency II, and we are now working closely with the PRA to identify an optimal reform package across both the risk margin and the matching adjustment. This is complex work, but we are taking it forward with enthusiasm.
It seems to me that the House is largely in agreement on two things. The contribution of the financial services sector to the country is critical, but we cannot take it for granted, and I will never do so in my role. I am proud to be delivering on the Government’s vision for an open, green and technologically advanced financial services sector that is globally competitive and acts in the interests of communities and citizens across the United Kingdom.
I welcome the many varied and well-informed contributions this afternoon. I agree with the motion, and I encourage others to do the same. It would be remiss of me not to welcome the hon. Member for Hampstead and Kilburn (Tulip Siddiq) to her place as my shadow, and I look forward to discussing these matters with her in future.
Madam Deputy Speaker, you were in the Chair on Monday night when we had a rather fractious debate on a different subject, and I think we all agree it is a nice contrast to have a debate on which there is such wide agreement.
To the hon. Member for Hampstead and Kilburn (Tulip Siddiq), you mentioned a couple of times that you agree with me on a couple of things, and you almost sounded surprised. To the hon. Member for Wallasey (Dame Angela Eagle), who also sponsored this debate, I agreed with almost everything you said.
This has been a well-informed, thoughtful and good-natured debate, and it was great to hear the hon. Member for Gordon (Richard Thomson) talk about the importance of financial services to Scotland—I also made that point.
Many hon. Members raised points that I did not mention in my opening remarks. The hon. Member for Wallasey mentioned the importance of financial crime, which I thought about mentioning, and she is right that it is a big challenge we need to tackle. My hon. Friend the Member for Bromley and Chislehurst (Sir Robert Neill) spoke about the importance of legal services and related financial services, which are all part of a package. My hon. Friend the Member for Hitchin and Harpenden (Bim Afolami) talked about the importance of getting the right skills and talent, which I did not address but is obviously completely true. And my hon. Friend the Member for Wimbledon (Stephen Hammond) touched on the importance of access to EU markets, which is critical and unknown at this point. It was good to hear the remarks from the Minister in summing up; it is great to hear that the Government are clearly very supportive of the financial services sector, committed to getting international agreements and making incremental changes that we can all agree on.
I have one last observation to make. My hon. Friend the Member for Wimbledon talked about the Minister being known as the one of the best City Ministers ever. I agree with that, but it is a misnomer calling him a City Minister because, as he said, and as everyone else has said, financial services are important for the entire country. So perhaps we need to change the informal name for that job. This has been an important and thoughtful debate, and it is nice to be part of a debate where there is a large consensus on the way forward.
Question put and agreed to.
That this House recognises the importance of financial services to the UK economy; and calls on the Government to provide adequate support to help create the right regulatory and operational environment for that industry to ensure that the UK is able to retain its competitiveness on the world stage.