Economic Secretary on the government's support for building societies and competition and diversity in financial services.
Good afternoon everyone – I’m delighted to be with you today.
Six months ago, almost to the day, I had the great honour of being asked by the Prime Minister to take on the role of Economic Secretary to the Treasury.
It’s the best job I’ve ever had. And that’s because the financial services sector plays such an important role in the day to day life of practically every household in this country.
My key priority – as the financial services minister – is to ensure that the sector is on the side of people who want to work hard and get on, helping them to achieve their aspirations at every stage of their lives – whether that’s saving for their first home, taking out a mortgage, buying a new car, or saving and investing for the future.
And I know that this is a priority that is at the heart of the building society sector.
As a government, we are absolutely committed to competition and diversity in financial services. We want to see firms with a range of business models compete and succeed – and we’ve put policies to help this happen at the heart of our agenda.
We all know that diversity can produce better outcomes for consumers. Building societies operating at different scales with different structures and objectives, competing to win and serve customers in different ways – all of this matches the diversity we have as a nation.
And, as the Building Societies Association (BSA) report into diversity in financial services found in November last year, diversity can also help the system be more resilient as a whole.
From the Buckinghamshire to the Newcastle to the Bath, building societies across the UK cater for a broad range of communities, and demonstrate great breadth of business models.
Nowhere is this truer than in the mortgage market.
In the first half of 2015, building societies approved just under 190,000 mortgages, accounting for nearly 30% of the total market. And net lending was £6.5 billion over that period.
In particular, I’m grateful for the role that building societies have played in supporting those looking to buy their first home. You stand out amongst other lenders for your flexible and inclusive attitude to lending, helping a wide spectrum of borrowers, and taking on complex cases from shared ownership to self-build. In fact, building societies are the main suppliers of mortgage finance for self and custom build.
That contribution is proof of the social good a diverse financial services sector can achieve.
And with this contribution, and the broader benefits of diversity in mind, we have supported mutuality in the financial services sector through a number of targeted initiatives over the last few years.
We’ve carved out building societies from the Independent Commission on Banking’s ring-fencing regulations - because the existing provisions in the Building Societies Act were already sufficiently robust.
We’ve helped mutuals overcome the challenge of capital raising, by allowing Core Capital Deferred Shares into the ISA. Moreover, the amount that can be purchased has changed, broadening their consumer base to retail investors.
We’ve allowed building societies to create floating charges for the first time, helping them compete on a level playing-field.
And we’re applying a £25 million sector-specific allowance to carried-forward losses for Corporation Tax, reflecting building societies’ unique nature as non-profit maximising organisations.
Alongside this, we have also made it a priority to support competition and choice in retail banking.
Put simply, when there is more choice for the customer, banks and building societies have to work harder to win the customer’s business.
They have to offer the best possible products and services to their customers.
The customer benefits – and there’s a boost to innovation, too.
Smaller organisations benefit in particular – because as customers become more expert at searching out the best deal, they begin to look beyond the typical household names.
Over the past five years, we’ve done a lot to improve competition.
We’ve delivered the 7 day Current Account Switch Service so consumers can switch current account where they see a better deal – simply, quickly and reliably. I am pleased to see that over the last year Nationwide has consistently been among the top performers in gaining new customers.
We have legislated to require the big banks to share credit data on small and medium-sized firms. This means that alternative finance providers, including building societies, are more able to make effective lending decisions – and win those new customers.
We have put competition at the heart of the regulatory system, by embedding competition objectives within the remits of the Financial Conduct Authority and the Prudential Regulation Authority (PRA).
And you will have seen that the PRA is actively pursuing this objective, agreeing in an exchange of letters to review whether changes can be made to the application process for firms wanting to move to IRB.
We are always on the lookout to do more in terms of making sure regulation takes into account the ever-growing diversity of the sector.
So, for example, the Bank of England and Financial Services Bill will remove the ‘reverse burden of proof’ from the Senior Managers and Certification Regime as part of the extension of the regime to all financial sector firms.
I know the ‘reverse burden of proof’ was a source of considerable concern in the building society movement – particularly among smaller societies.
We have listened to those concerns and acted on them – and, where issues arise in the future, we’ll continue to do so.
So what else is on the agenda for building societies?
I’d like to focus on three things.
First, our changing society – and how the financial services sector responds to it.
The BSA open their report on lending into retirement with a fact that we should celebrate – life expectancy is increasing by around five hours a day.
This is of course excellent news.
But it also presents a huge challenge for the financial services industry – because as our population ages, its needs will also change.
I commend the building society sector for grasping this issue and coming together to discuss how to address this challenge in the mortgages industry, both through this report and the work that will follow.
And I am pleased to see that all BSA members have committed to review the maximum ages they set by which a borrower must pay off their mortgage. Indeed, a number of lenders have removed this age limit on lending altogether. This is important move which I strongly encourage others to consider.
And I particularly welcome the BSA’s commitment to a holistic view of financial planning for retirement, by forming a cross-industry alliance with other bodies who are focused on the needs of older customers, with the purpose of creating an environment where product development and innovation can take place.
These are all really positive developments – so I encourage industry to continue working alongside regulators and government to develop products that adapt to every stage of your customers’ lives.
The second area is the technological revolution.
Technology is transforming beyond recognition the way we carry out day-to-day tasks. And I believe that financial services can do a lot more.
Not only does financial technology – or fintech – make people’s lives easier and promote competition – it can also deliver a major boost to the UK industry.
Our ambition is for the UK to become the leading global hub for financial innovation.
That is why we have appointed Eileen Burbidge as the UK’s Special Envoy for Fintech. In this role she will represent UK interests in fintech, at home and around the world.
And yesterday, the Chancellor announced the launch of our international fintech benchmarking exercise. This will consider the UK’s performance against other countries, and identify emerging areas of fintech opportunity for the UK.
Already, building societies have got involved. For example, Yorkshire Building Society have developed a video advice system in partnership with Legal and General. The new service, which is a first from a major UK building society, means that customers can get expert investment advice on how to make their money work for them from the comfort of their own home.
And I recently experienced the new ‘Nationwide Now’ service in their new Victoria branch, even ordering a cup of tea through the video stream!
So we’ll continue to promote the UK as a global fintech hub – and I encourage you to make the most of the upcoming opportunities.
The third area I’d like to focus on is making sure that we have the best possible workforce.
As you know, this government is committed to delivering 3 million new apprenticeships in this Parliament. We are also committed to delivering employer-led apprenticeship reforms, which continue to improve the quality of apprenticeships to provide the skills that employers need.
Building societies can and do play a key role in this area.
I know that the Leeds Building Society have a two-year program where all apprentices complete two years of training where they receive formal qualifications in their chosen specialism, all the while receiving the living wage. I look forward to seeing many more.
But qualifications should also be ongoing. That is why I was pleased to learn about BSA and Loughborough’s Masters programme, geared specifically for people working in a customer-owned or mutual financial services firm.
My priority is to make sure we get the best possible talent in the sector.
And so I am delighted that Jayne-Anne Gadhia, CEO of Virgin Money, is leading a review into the representation of women in senior managerial roles in the financial services industry at.
Last week I hosted a reception at No11 Downing where Jayne-Anne announced some of her potential recommendations for the review and we debated these potential recommendations with over 80 senior representatives from financial services.
Jayne-Anne intends to release a consultation on these recommendations soon, and I hope you’ll contribute and share your opinions with the review by responding to this consultation.
On all these issues, one thing is of paramount importance for me: that we continue the dialogue; that we continue working together.
As the economy, and UK financial services, go from strength to strength, there are excellent opportunities opening up for your sector.
By continuing our tradition of collaborative, partnership working, I know that we can make the most of them.
Thank you for listening.