Speech by the Financial Secretary to the Treasury.
Chairman, My Lord Mayor, Alderman, Sheriff, Ladies & Gentlemen I thank you for inviting me to speak today. As the Chancellor is speaking here tomorrow night, you could see me as the warm up act for him. But like any good warm up act I can steal the boss’s best lines.
Mansion House is always a special place to come to speak. For centuries it has stood at the heart of the City, a monument to London’s financial pre-eminence.
Many have contested London’s claim to be the number one global financial centre, but none has been successful. But, London, and the UK’s position has not come through luck or through entitlement. It has come through a deliberate commitment to openness and competition, and the ability of our industry to innovate and adapt to capitalise on new opportunities, new markets and new products.
But at the same time we derive our strength from the people and institutions that have come from abroad to Britain bringing their skills and their ideas. The UK continues to be the most attractive destination in Europe for investment and we are committed as a Government to making sure that stays the case. It’s because of London’s continuing appeal to foreign banks, insurers and asset managers that London remains the global financial centre.
UK as a place to do business
Chairman, your letter to the FT last week was a timely reminder of the contribution that foreign banks make. There are currently 230 foreign banks operating through branches or subsidiaries in the UK, and they employ more than 160,000 people.
Jobs that are not just here in the City or Canary Wharf, but the people employed by JP Morgan in Bournemouth, by Deutsche Bank in Birmingham and by Citi in Belfast. The reach of foreign banks in the UK spreads far beyond London.
And as you said, there are incredibly strong reasons why so many businesses choose to locate themselves in the UK.
We are consistently and internationally recognised for our legal services, our sophisticated commercial law, and our protection of investors.
The UK remains a major international market for accounting, and offers the most comprehensive range of specialist maritime financial services.
London is already the leading Western centre for Islamic finance and one of the leading centres worldwide for the development of carbon markets and emissions trading.
And this is all built on the back of our excellent infrastructure and highly skilled talent pool.
But we cannot be complacent. Our history does not entitle us to remain a successful global financial centre. Just as businesses innovate and adapt to stay ahead of the game, so must we as a Government.
As markets, products and services evolve, regulation must evolve as well.
Need for regulatory reform
We are still emerging from the shadow of the worst financial crisis in almost 100 years. A crisis that necessitated unprecedented Government intervention to save the system from itself … and total collapse.
This is a situation that we cannot afford to repeat.
And we are pursuing an ambitious agenda of regulatory change and market reforms to ensure that is the case both at home and abroad.
Indeed the UK is leading the argument for robust and internationally consistent regulatory standards and implementation.
On EMIR we believe that central clearing of derivatives must apply to all derivatives, not just OTC.
On resolution tools, all EU Member States must develop resolution tools capable of dealing with cross border institutions, and we continue to work through the intricacies of home-host coordination.
On Basel III, we agree with the IMF that the Basel standards should be fully implemented globally, and should allow national authorities to increase requirements where they see appropriate to implement macroprudential policy or address risks to financial stability. Otherwise, we will have failed to learn the lessons of the financial crisis.
The international debate has come a long way on financial regulatory reform, and we have an ambitious set of proposals…but now is not the time to shy away from their implementation. We have to ensure that they are implemented in a full and consistent way globally to avoid regulatory arbitrage and the fragmentation of international financial markets.
Role of EU and international institutions
The IMF, the G20 and the Financial Stability Board have a crucial role to play in this, in setting expectations and ensuring consistency. And we are continuing to drive the agenda through these forums … last week the Acting Managing Director of the IMF, John Lipsky, praised the UK’s international leadership on the regulatory reform agenda.
Within the EU, the European Supervisory Authorities also have a crucial role to play in implementing credible regulation and supervision.
Last year’s CEBS stress tests, whilst a start, were not sufficiently robust, transparent or credible. If the EBA is to be seen as effective, then this year’s have to be different. If they are robust, transparent and credible, then they will help restore confidence in the European banking sector.
We welcome the stronger peer review process, the stronger commitment to publish detailed information on bank exposure, that the tests will be using Core Tier 1 as the relevant threshold, and that all Member States will ensure that they have appropriate backstop measures for all those financial institutions which fail the test.
Robust regulatory measures such as these are vital to creating a more secure and more successful international financial system.
It is in no-one’s interests to undermine the stress tests by seeking to water them down or undermine them. Without a strong and well capitalised banking system, the health of the European economy will remain fragile.
I strongly believe that our leadership on this agenda is in itself an attraction to international businesses and financial institutions. By leading the agenda we are ensuring that we implement regulation that is effective, proportionate and internationally consistent. This is consistent with commitment to financial services competitiveness in all our domestic and international negotiations.
But our competitiveness goes beyond just regulatory changes. We are also driving changes to increase our tax competitiveness.
We have already announced that from April this year, UK Corporate Tax will be reduced from 28% to 26%, and by 2014 it will be reduced to 23%. We are also taking action to improve the Controlled Foreign Company rules and make changes to the tax treatment of foreign branches.
On the 50% tax rate, we believe that making this permanent would do lasting damage to the UK’s economy. The Chancellor has already made it clear that this is a temporary measure and he has already asked HMRC to assess the revenue raised from the measure once the self-assessment tax data for 2010-11 is available.
But I’d also like to pre-empt a burning question…why the bank levy? A levy which no doubt affects some of you here tonight.
We are adamant however, that it’s only right that during difficult times such as these, steps are taken to ensure that banks make a full and fair contribution. It’s a levy that demonstrates to families who are really facing the pinch that every sector of society is pulling in the same direction.
But equally, we don’t want to chase our financial institutions out of London or the UK.
The Bank levy gets this balance right - by charging a premium that reflects the risks the sector as a whole poses to the wider economy.
We will continue to ensure that the UK has the most competitive environment for financial services, and we will continue to protect the openness that has brought so many of you here today.
At the same time we will ensure that the UK provides the most proportionate and effective regulatory system for you to have confidence in our stability.
I am grateful for your huge contribution to the UK economy, and I look forward to your continued growth and success in the years to come.