CityWeek 2015: Economic Secretary's keynote address
This was published under the 2010 to 2015 Conservative and Liberal Democrat coalition government
'The financial sector is a fundamental part of the government’s long-term economic plan', says Andrea Leadsom.
Good morning. It is a huge honour to be your first speaker in what promises to be a fascinating couple of days.
Last week’s Budget shows the future for our superb financial services sector is bright. Our economy is growing, employment is at its highest ever, and inflation is low. There are big opportunities for new savings and pension products and in a sector that, like it or hate it, has a clear and sound regulatory backbone supporting it.
And there’s no doubt, UK financial services provides the vital underpinning of our economic success. It’s a sector full of amazing talent and creativity, and so a key message I want to give you today is that this government welcomes the huge contribution you make to our lives, ranging from insurance to pensions to mortgages, our world leading market-making skills and the brilliance of our FinTech entrepreneurs who aspire to transform the way we manage our finances, from the most successful businesses to the poorest in society.
There are big, meaty issues that face this sector ranging from monetary policy, to growth in Europe, to the rise of China. But what unites these diverse themes?
I think it is the following challenge: how do we achieve economic growth which is sustainable, and which is long term?
More specifically, what is the role of the financial sector in achieving that vision? What are the opportunities, and where are the challenges?
It’s something this government has been focused on for 5 years now, and it’s what I’d like to talk to you about today.
I think there are 5 challenges the UK’s government and financial sector needs to rise to if it’s to properly serve the broader economy.
These are: first, stability; second, a focus on the customer; third, innovation; fourth, a strong relationship with the European single market; and fifth, closer ties to the countries that will be tomorrow’s economic giants.
First and foremost – stability. I don’t need to tell anyone in this room about the severity of the crisis that the government inherited in 2010. You were there, you lived it.
As lending contracted and markets veered downwards, we all saw in practise what we knew to be true in theory – that stability is the bedrock of any strong economy.
So this government came to power determined to take bold domestic action, show international leadership, learn the lessons of the crisis, make us stable again, and of course get the taxpayer’s money back.
With the 2012 Financial Services Act we addressed a regulatory system that had failed us big time. We put responsibility for financial stability back under the Bank of England, with the creation of the Prudential Regulation Authority (PRA) and the Financial Policy Committee, and set up the separate conduct regulator, the Financial Conduct Authority (FCA).
With the Banking Reform Act we took on the challenge of ‘too-big-to-fail’, and delivered legislation to ring-fence high-risk activities and protect the tax-payer.
And we should all, as taxpayers, be delighted to know that we have recouped much of the taxpayers’ money – selling the branches of Northern Rock, raising £9 billion from Lloyds shares, and recovering 85% of our total claim from the collapse of Icesave.
The Budget is going further – announcing the sale of £13 billion of mortgage assets from the bailout of Northern Rock and Bradford and Bingley; and the sale of at least £9 billion of Lloyds shares over the coming year.
We have led too on the international stage. With the FSB, and our partners in the G20, we have worked out arrangements for cross-border resolution, and an international standard for loss absorbing capacity (the so-called ‘TLAC’).
We have increased transparency in OTC derivatives. And we’re supporting robust implementation of capital requirements through Capital Requirements Directive (CRD) VI and the Bank Recovery and Resolution Directive – putting in place a system which is far better placed to withstand future storms.
There’s more to do, but we’ve made a good start, with your support.
The second challenge is to put the customer first, at all times. It’s been clear from the appalling misconduct of a few that this core purpose was lost along the way, and I congratulate all the work I know so many here are doing to restore the customer focus to the centre of everything you do.
Allied to this work on stability, the industry has to ensure it never loses focus on why it is here.
The clue is in the name; financial services are services. They exist to serve customers – the households and enterprises the economy depends on.
And as a government, we have taken multiple steps to ensure that financial services do indeed serve the public.
Through our reforms to put choice and competition at the heart of retail banking, we are making sure that the customer is number one – and that, if necessary, they can vote with their feet and switch provider.
We’re opening the market to new challenger banks.
And promoting diversity in the retail sector, whether that’s through credit unions, building societies or other mutuals.
We’re creating a proper “savings society” – with Budget introducing a radically more Flexible ISA, a Help to Buy ISA and a new Personal Savings Allowance that will take 95% of taxpayers out of savings tax altogether.
And on pensions, this government has made the most radical changes in generations, offering people unprecedented access and choice in how they use their savings, combined with free, impartial advice.
And we have helped improve how services are provided. In the housing market, we have worked closely with industry to widen access to mortgages. Through our ground-breaking help-to-buy scheme, 80,000 households have already completed mortgages.
SMEs, the lifeblood of our economy, have faced a massive challenge in trying to access finance in the wake of the financial crisis. But now SME financing is going in the right direction, helped by the government’s funding-for-lending scheme, with gross SME lending 40% higher in 2014 than it was in 2012.
I would like to say two additional things about focusing on the customer.
First, it means all customers.
I have been really heartened to see banks embrace that point and work with the government to help the most vulnerable people access financial services.
Last year, we secured a landmark deal with the major banks on basic bank accounts to help the nearly 2 million unbanked people in our country to manage their money without fear of running up overdrafts.
And we are working with the credit union movement to support its further development across the UK with a goal of achieving provision of services for up to a million more people.
And second, “focus on the customer” is more than good business practice. It is vital that you do this if you are to regain trust.
Trust that has been totally lost through recent scandals.
LIBOR and Forex manipulation, appalling sales practices - these dark chapters have done serious and lasting damage to the reputation of the financial sector.
Now I know that financial services employs 2 million people in the UK, and that probably 99% of those hard-working professionals are doing a great job day in day out, so we must resolve these issues once and for all. The public – our customers – will tolerate no more.
We launched the Fair and Effective markets review to understand what can be done to reinforce confidence in the fairness of fixed income, foreign exchange, and commodity markets, and we will continue to come down hard on those responsible for misconduct.
And the Senior Managers and Certification Regime will ensure the bosses have a clear accountability for wrongdoing on their watch.
But ultimately it is down to you.
And as someone who went into financial services in the 1980s because it was not just an honourable career, but also seriously cool (my kids will kill me for using that word, but you know what I mean), my genuine hope is to see financial services restored to their rightful place as the respected and trusted backbone of our economy.
The third challenge is innovation.
Customer focus is something innovative firms know more about than anyone. That is how they get off the ground: they think about what customers want, they see a gap in the market, and they provide a product to fill that gap.
So that brings me to my next point – innovation.
High in the league of quotes about political dark arts is Mayor of Chicago Rahm Emmanuel’s line that you should never let a crisis go to waste. And terrible as the financial crisis was, the UK’s entrepreneurs made sure that they didn’t.
In the challenges we faced, they saw the seeds of opportunity.
Young, technology oriented financial companies found new ways to link savers and borrowers, make payments, and calculate risk.
And so the FinTech revolution began.
Companies like Funding Circle, CrowdCube and TransferWise came into the mainstream to compete with established firms, and provide new services to customers.
There’s a quiet revolution going on in the way we access and use financial services. That’s due to FinTech.
Put simply, FinTech is the future. It has the potential to transform finance. It’s a national strength, so we need to get behind it.
We are already the leading FinTech centre in Europe – and it’s our clear and stated ambition to make the UK the leading FinTech centre of the world.
That’s why we’ve just announced a new package of budget measures to allow the UK to harness the benefits and mitigate the risks of the growth in digital currencies.
And it’s why we’ve asked regulators to work more closely with the FinTech community to bring new business models to the market safely.
That comes on top of previous announcements including providing funding to FinTechs from the British Business Bank, and consultations on digital currencies and APIs.
The UK has always been an innovator in finance. FinTech can do a lot for you as investors, as customers and as business partners. We should make the most of it.
The fourth challenge is the European Single Market
So stability, a focus on the customer, and technological innovation. That’s a really good start, but alone, it won’t be enough.
We are, and have always been, a trading nation. Trade quite literally made Britain great.
We export our goods, our services, our expertise all over the world. And as our financial sector continues to develop, we will need the best possible access to the markets that will create demand.
In Europe that means a mutually beneficial relationship with an improved single market.
We believe the EU must stay relentlessly focused on creating a stronger, more competitive economy.
That is why we strongly support the idea of a Capital Markets Union of all 28 member states, to promote business, jobs and growth.
We think it should be a single market initiative, that will give all Member States huge opportunities, opening up new access to capital, reducing businesses’ dependency on bank finance, and offering new products and services across the EU to support people and businesses.
But when we believe a decision risks damaging that vision, we will not be shy of standing up to the EU.
That’s why we had to challenge the European Central Bank’s discriminatory location policy for central counterparties (CCPs).
I’m very happy to say the European Court of Justice has agreed with us.
It’s a great result for all those who want to see an open and successful European economy.
It’s the sort of stand this government must continue to take and, when necessary, will continue to take, to protect the single market for the benefit of all EU member states.
And it’s exactly what the Prime Minister meant when he set out his vision of a reformed, flexible, competitive and democratically accountable EU.
Then the fifth challenge: to harness opportunities arising from fast growing and emerging markets.
Our trading relationships, of course, stretch far beyond the borders of the EU and we are determined to support that growth in every way possible.
At today’s conference we have representatives of firms from all over the world.
And estimates show that in 10 to 15 years over 90% of global demand will be generated outside Europe.
We should see this as a vast opportunity for the UK.
A chance to build new partnerships.
To work with rapidly growing countries such as China and India.
To position ourselves as the number one partner for emerging economies.
And to strengthen and deepen the economic partnership with the USA – still the world’s biggest economy.
That’s why we attach such importance to our annual economic and financial dialogues to deepen cooperation with global markets.
And it’s also why we are unashamedly one of the strongest voices calling for the once-in-a-generation opportunity: TTIP [Transatlantic Trade and Investment Partnership].
But we know that governments alone can’t make this happen.
Much of the drive, and the expertise to pursue new trade and investment opportunities will come from the private sector: that means you.
Which is why 2 years ago, the Chancellor created the Financial Services Trade and Investment Board: drawn from government and industry, with a mandate to guide the government’s priorities on financial services trade and investment.
In fact, I understand you will have the pleasure of hearing from board members right after me.
But I am delighted that today I am able to officially launch the board’s second annual progress report.
I strongly encourage you all to pick up a copy – it’s a great read!
My good friend and our current culture secretary, Sajid Javid, launched the first annual report a year ago – some of you may remember what he said then.
He said that he hoped in a year’s time we’d be standing and reflecting on how much has been achieved.
He said that we should develop London as the global hub for offshore Renminbi.
Success! Over the last year London became home to the first western issuance of a sovereign RMB bond; the first RMB clearing bank outside Asia; and saw the first UK branches of mainland Chinese banks established since the founding of the People’s Republic of China.
He said we should build on our investment management strategy.
Success! This year Harvest Global Management, one of China’s oldest and largest asset managers, has decided to open an office in London. We’ve seen Shanghai Nord Engine Asset Management Group successfully opening its first overseas operation in London earlier this year. And today I can announce the launch by China Construction Bank International of the first UK domiciled renminbi denominated ETF.
He said that we should continue to expand the UK as the Western hub for Islamic finance.
Success! Last June we broke new ground by issuing £200 million worth of sovereign Sukuk, which was more than ten times oversubscribed. And the Bank of England has announced it will assess the case for a shariah compliant liquidity facility.
And he said we should grow UK insurers.
Success here too! Lloyd’s of London has secured the license for a Beijing branch. The Indian Insurance Bill has been crafted to reflect Lloyd’s unique legal structure. Our Insurance Growth Action Plan has delivered a commitment from five leading insurers to fund £25bn of investment in UK infrastructure. And – most excitingly – the new industry-wide apprenticeship programme has already seen 1000 apprentices enrolled. It’s so successful we’re rolling it out to the banking sector.
And just in this Budget, we have seen a further boost to the UK’s reinsurance industry: working with the industry to enable the domiciling of Insurance Linked Securities in the UK – an exciting area of growth.
So why are we doing all of this? Why have we set up bodies like the FSTIB? It comes back to what I said at the start. Long-term sustainable growth for our economy, that leads to a better quality of life for all our people. That’s what it’s all about.
And the financial sector is a fundamental part of the government’s long-term economic plan.
You directly employ over a million people all over the country, and a million more in related professional services.
You provide the financing solutions our businesses need to grow.
You are our largest export sector.
You spread opportunity and prosperity throughout the country.
In short, when you succeed, the UK succeeds.
In the last 5 years we have been laying the foundations for a thriving, world-leading financial sector, to secure British prosperity well into the 21st century.
We are finally on the right path.
Let’s keep going.