Chief Secretary to the Treasury's speech to the Association of Foreign Bankers Lunch
Good afternoon – it’s great to be here today (27 April 2016) in Mansion House, and many thanks to Gerald and the City of London Corporation for inviting me along to talk to you.
Let me introduce myself - I’m Greg Hands and I’m the Chief Secretary to the Treasury, as well as the MP for Chelsea and Fulham – some of you here may even be my constituents. As Chief Secretary, my job is to run all of public spending.
But before I entered politics I used to work in financial services myself, in the 1990s – including at two foreign banks – and people in the City often tell me that once you’ve worked in the industry, you can never really leave it behind!
When I started work at Credit Suisse in 1990, it was only 3 years after the ‘Big Bang’, and working for a foreign bank seemed like an exotic adventure. Now, graduates would treat it as something entirely natural, so open has London become to the global financial services industry.
So although my day job is mainly focused on managing the £742 billion this country spends every year, I’m really pleased to talk to you today about a subject which is still very close to my heart: making sure the UK remains one of the best financial hubs in the World.
The UK is officially the world’s premier international financial centre.
Three leading independent surveys all rank London number one last year, praising our stable legal system, skilled workforce, and cluster of complementary professional services.
We should be really proud of this achievement, and vow to maintain it.
We manage over £6 trillion of assets here – with well over half of that from international banking.
We’ve got around half of the world’s top financial firms choosing to base their European HQs here in the UK.
In fact, there are more bank head offices here in London than in any other place in the world.
And the contribution you make to our economy is huge:
International banking accounts for around half of the worth of our entire banking sector, give work to just under a third of its employees, and pay over 50% of its taxes.
That’s why we are not resting on our laurels, and so I’d like to talk about just 4 areas where we’re taking action to make sure Britain is a place that banks from across the world wish to be based in:
- getting our tax system right
- making sure our regulatory framework is world-class
- investing in the country’s infrastructure
- staying at the cutting edge of financial technology
So let’s start with one of the most crucial, as well as controversial areas: getting the tax system right.
We believe in low taxes but taxes that are paid – that’s why, for example, we’ve cut corporation tax dramatically to make sure we will still have the lowest rate in the G20.
But, as ever, it’s always a balancing act.
I will be very frank here. Because, of course, the government is committed to reinforcing the UK’s position as a world-leading financial centre.
However, this commitment needs to be balanced against the need for banks and building societies to make an appropriate tax contribution, one that reflects their unique risks to the financial system, and to the wider UK economy.
That is why we have introduced specific taxes on the banking sector.
These taxes will result in banks paying a 25% rate of tax on profit greater than £25 million – the lowest rate among G7 nations – and a 0.1% levy on the UK balance sheet liabilities of the largest banks.
Extra tax will rarely prove popular with those who have to pay it.
But the recent changes mean a fairer and more sustainable basis for taxing the UK banking sector, which allows banks to plan for the long term with greater certainty.
Secondly, we are working hard to make sure we have a regulatory system that delivers a high standard of oversight, while at the same time supporting competition.
Of course, that means regulation that is both clear and proportionate.
But it also means making sure we work to bring international standards into line – to make it easier for companies like yours to operate across borders.
That’s why, for example, we’ve been strong supporters of the European Commission’s plan for Capital Markets Union - a range of measures designed to further integrate Europe’s capital markets – whether through reform of, say, venture capital rules, or changes to securitisation regulations.
And I’m pleased to see that the Commission seem keen to make swift progress on this, as well as more proportionate regulation for smaller banks.
We will certainly continue to push them to accelerate their efforts on this front.
Investment in Infrastructure
Third, we’re making sure we have the infrastructure in place to support our status as a global hub.
It’s no secret that for too long, we didn’t build enough.
To put it in context, across the Channel in France, they’ve built 2700 miles of new motorway since 1990. That’s more than the entire UK motorway network put together.
And in the noughties, the Dutch built over 4 times more motorways than we did – for a country a fifth of the size.
We’re turning that around with over £100 billion investment scheduled by the end of this Parliament.
Crucial to this is regional growth, which flows on from the idea of the Northern Powerhouse.
Our strategy is this: let’s increase investment, let’s get money flowing in, let’s get these projects built; but, at the same time, let’s think about the coming decades and how we can prioritise meeting the challenges we face.
Fourth, we’re determined to embrace and nurture new ideas and technology.
We’re already the ones to beat when it comes to FinTech, ahead of other hotspots such as California, New York and Singapore. And the support we are providing for this sector is envied across the world.
We have one of the best regulatory systems and we are committed to keeping it that way.
Membership of the EU
There is, of course, a lot more we’re doing. But, in the interest of time, I really want to turn now to an issue looming on the horizon, and one which I know many of you are following very closely: what happens on the 23 June 2016.
I know that many of you may have real concerns about the possibility of the UK leaving the EU - some of you may even have done some serious thinking about what your companies might do, in the event of a vote to leave.
We understand how important our membership of the EU is for many of you, who have chosen to base your European headquarters here in the UK.
As a member, we act as a gateway to the European market. Not only do we have common regulatory standards, but firms in the UK can sell their services across the single market through the EU’s financial services passport.
We share your concerns about leaving. In our view, the evidence is clear: we are stronger, safer and better off, as a member of a reformed European Union, compared with outside on our own.
You’ll have seen last week the publication of the Treasury’s analysis of the risks involved in leaving the EU.
This showed that if the UK left the EU, we would be permanently poorer – an annual loss of 6.2% of GDP after 15 years.
And it set out that EU membership is an important factor in the UK’s position as a global financial centre, providing a gateway to European markets.
There are those who say that we were just scaremongering about the effect it could have on our position as a financial hub; that we’ll still get market access; that Europe won’t harm itself by cutting us off.
Well, no one actually knows what would happen. It would be a huge leap into the unknown.
But what we do know is that the EU hasn’t signed an agreement with any other country – including Switzerland – to give them full access to the single market in financial services, without having to comply with EU rules.
We know that it wouldn’t be in the EU’s interest to do so.
And we know that even with access to the EU financial services passport, we’d have to follow EU rules, just without any say over what they are.
So I want you to rest assured that we are doing all we can to make the case to stay in the EU, and help people understand what we would risk, if we were to leave.
Above all, we know how much a strong, thriving financial services sector matters to the economy.
That is why we’re not only working hard to fend off the huge threat to your industry that leaving the EU would entail, we’re also going on the offensive with a wide range of proactive measures, to cement our place as a dynamic and attractive place for foreign banks to operate in.
And I look forward to continuing our successful partnership with you, long into the future.