Speech by the Financial Secretary to the Treasury.
[Check against delivery]
Good morning ladies and gentlemen.
It’s a pleasure to be here today in Merchant Taylors’ Hall, at one of the grandest and most historic venues in the country.
Yet this hall has seen more than its fair share of hardships over the many centuries.
From the great fire of London, which left only the walls and foundations standing, through to the destructive incendiary bombs of the Blitz, this building has had to deal with a number of crises.
But despite all it has had to endure, it’s still standing here today.
And the same is the case for Britain’s financial sector.
Where recent events have certainly proved challenging.
Yet the City remains as vibrant as ever.
That said, like anyone who’s been through a period of turmoil and come out the other side, what’s important now is to learn - and put into practice - the lessons we’ve learnt.
So that growth across the whole economy is sustainable.
Built on a solid foundation of investment and saving.
Not debt and ever increasing levels of borrowing.
Last week’s Budget emphasised this point… with sustainable growth being the focus of our reforms.
But the fact that we can now look ahead to a brighter future is only because of difficult decisions we’ve already had to take.
Decisions that have bought about economic stability.
Secured our international credit rating.
And set in place a credible plan to deal with our record borrowing, which has seen us avoid the sovereign debt storm that has engulfed our continent.
This action has enabled us to set out our long-term strategy for growth.
With cuts to corporation tax - to encourage greater enterprise.
Support for SME finance - to increase business investment.
Huge reductions in business regulation - to create jobs.
And measures to rebalance our economy - and drive higher exports.
Yet, we will not achieve our full potential without a strong and stable financial system to act as the driving force behind economic growth.
One that supports consumers and businesses up and down the country.
And is a source of wealth and prosperity in its own right - not just here in the City, or in Canary Wharf, or in the West End, but in every town and city across our country, employing around 1 million people across the nation.
From my perspective, there are three lessons we have to take away from the crisis if we’re to make ambition a reality.
The first of these is about reconnecting the financial sector with the rest of the economy.
- By this I mean providing the lending that viable businesses need to invest and expand.
- Supplying the capital help to stimulate enterprise across the country.
- And ensuring that we a have financial sector that serves its customers, has their trust, as well as their best interests at heart.
This is vital.
Because if our financial sector doesn’t do this then we’ll have an economy that struggles to respond to today’s challenges; a country that doesn’t fulfil its potential; and a recovery that fails to gather momentum.
It’s no exaggeration to say that private finance is the lifeblood of British business and that when our financial system is healthy, then so is our economy.
But the current environment has thrown up particular challenges as the City has retrenched; weathered the financial storm; and looked to rebuild its balance sheets.
So, as a Government, we’ve been working with the financial sector to get credit flowing again.
Part of this, of course, is the recent Project Merlin announcements that I’m sure you’re all familiar with.
Among other things, this agreement will ensure that the UK’s largest banks will lend up to £190 billion to creditworthy businesses in 2011 of which £76 billion has been earmarked specifically for small businesses.
Which is an increase of almost 15 per cent on last year’s lending figures to small business.
But there’s still more that needs to be done and ultimately it will be the financial sector, not the Government, who will have to lead this work:
- By providing the finance that’s essential for investment.
- The advice that helps businesses grow and succeed.
- And the confidence that underpins a flourishing economy.
TheCityUK has an important role to play in taking this forward.
You’re ideally placed to help strengthen the sector’s relationship with its customers.
To demonstrate the value you add across all areas of industry.
And help restore confidence in our financial services, and ensure their continued success.
Which brings me to my second lesson: the need to ensure that our markets remain open and competitive.
On the road to sustainable growth, there still exist some barriers that we have to overcome.
Which is why we’ve been campaigning in Europe for proportionate and well-thought-out reforms.
Because we’re serious about the EU remaining a great economic power… and the UK being a key driver behind this success.
Over the last 11 months we have engaged in the debate with a seriousness and vigour that has surprised some people - and with some successes that have also surprised our partners.
Look at the Alternative Investment Fund Manager’s Directive.
On the passport for example, we engineered a complete reversal of Council’s position from 25 to 2 against our position to 26 to 1 in favour.
Christine Lagarde referred to this as ‘typical British diplomacy’.
Our success was even described as ‘Churchillian’.
I think this was apt given that without third country access, it would have meant an iron curtain not so much falling across Europe, as encircling it.
This is hyperbole of course, but there is a serious point to make.
In an increasingly globalised economy, we cannot afford to pull down the shutters and say that Europe is closed for business.
Fund managers across the world will not take the time to negotiate difficult regulations.
And why should they have to?
Equally, if we keep building barriers, then international businesses will not locate here.
They’ll go somewhere else.
Europe, will simply, be bypassed.
So when it comes to negotiations with the Commission, we will continue to trumpet this message and I’d encourage you to do the same.
To make sure that Britain looks outward to Europe, but also that Europe looks outward to the world.
The International Regulatory Strategy Group is already doing this, but I feel they need to go further.
Just as the Government engages with its partners to shape directives, you need to do the same.
To make the case not just here, but everywhere you can by compiling the rigorous evidence needed to support our positions.
Providing credible data, to back-up our proposals.
Ensuring that we have hard-headed analysis to deploy with our European colleagues and, importantly, going beyond raising your concerns with the UK, and working with your European counterparts and talking to other Member States.
The need for sound evidence and credible positions will underpin our approach to the upcoming markets agenda in particular the MiFID Review .
It’s important to acknowledge the many benefits MiFID has already brought-benefits which demonstrate the value of well thought out regulation.
Ten years ago, Europe was an underdog relative to the strength of the US capital markets.
Member States worked in relative financial isolation.
Were hampered by high costs and low liquidity.
And the Single Market had hardly got off the ground.
But MIFID became instrumental in breaking down some of the barriers that were holding us back.
Today, as a result of the competitive pressure of MIFID, Europe has exchanges that are capable of competing globally:
- the London Stock Exchange,
- Deutsche Boerse,
- Euronext-Liffe - to name just a few
Europe has become the destination of choice for many global companies seeking to access deep pools of capital.
Competition has brought down trading costs, improved liquidity, and resulted in better protection for investors.
In fact, some estimates suggest the single market benefits of MIFID could have contributed as much as 0.8% to EU GDP.
And if we get the MiFID Review right- through effective and evidence based engagement not only from the Government but from the financial services industry- then we can build on this progress.
But just as open and competitive markets are important, so are high and consistent regulatory standards.
This is my third lesson.
As a Government we are working hard to maintain a level playing field across European and global markets.
This is exactly what TheCityUK has been asking for.
But on the other hand, I also hear calls for derogations and exemptions.
That regulation is good, but it should be applied to someone else.
This is neither strategic nor credible.
For example, if we want a common implementation of Basel III, we cannot cherry pick measures.
We need to ensure that financial institutions have sufficient capital and liquidity to survive a downturn.
And Basel III has delivered the framework to support this.
Having reached this agreement, we now need to see it through.
And with the most successful financial centre in the world, it’s our responsibility to show leadership in this area.
To ensure that these proposals are implemented in full.
To avoid attempts that would weaken the overall ambition of these reforms.
And prevent any regulatory arbitrage, which would only fragment the world’s financial markets.
As from my own perspective - and I’m sure this is a view that we all share - it’s important that firms can compete on price and quality not on the costs of regulation or an ability to bend the rules as they see fit.
This is what we want to achieve.
But as a Government, we can’t do this alone.
We’ll need your engagement to back up our proposals.
Your evidence - to strengthen our positions.
And your positive ideas for reform.
Not just as a response to what’s currently going on, but also looking ahead to what’s just over the horizon.
To engage with Government early on and set out more explicitly what, together, we should be aiming to achieve.
This way we will ensure that our markets remain open and competitive.
Restore trust in the financial system.
And create a level playing field on which the City can showcase its talents.
So I look forward hearing your thoughts on the lessons I’ve touched on today.
Your ideas for reform.
And your plans for the future.