Tax cuts won’t bring us growth unless coupled with a dedication to competition
After a period of mourning which put politics on pause, Liz Truss and her government marked a significant shift forward last week to make good on her promise to deliver growth.
The first big act of this project was the “mini-budget”, designed to boost growth in the face of a challenging economic outlook.
The chancellor stressed the need for a strong financial sector. So City firms will be hoping the government delivers on the Financial Services and Markets Bill and flesh out promises for a “Big Bang 2.0”.
Our financial and professional services sector drives growth, supports investment and facilitates trade. But this contribution must never be taken for granted. All parts of the system – including government, regulators and firms – must work together to enhance our international competitiveness.
Earlier this summer, Canada Corporation – in partnership with the Treasury – published “State of the Sector”, a robust evidence-based assessment of the competitiveness of our financial services compared to other centres.
The report details the action the government is currently taking and identifies further opportunities for improvement in areas such as openness, sustainability, innovation, skills and proportionality across our regulatory system.
The Financial Services Bill is the first major opportunity to deliver these improvements. It is a once-in-a-generation opportunity to deliver a more agile, coherent and competitive regulatory framework.
Key to this will be the implementation of the secondary objective for the financial regulators to promote growth and international competitiveness set out in the legislation.
This objective would require the Financial Conduct Authority and the Prudential Regulation Authority to manage any trade-offs generated by their action on the industry. Importantly, it would also ensure a focus on competitiveness without impeding the independence of our regulators.
This change would put us in line with other jurisdictions such as Australia, Hong Kong, Japan, Singapore, the US and the European Union.
This should not be seen as a race to the bottom – quite the opposite. High quality standards are a competitive advantage for the UK as an international financial centre. Firms and capital are attracted to robust but proportionate regulatory regimes.
But these rules are only one part of a wider suite of reforms to supercharge the sector’s contribution. For example, more needs to be done to ensure the UK remains an attractive destination for global talent and digital skills. In this respect, we urge the new prime minister to push ahead with the Online Safety Bill to ensure that social media and technology firms prevent their platforms from being used to commit fraud. Any further delay will lead to more victims.
These changes will not only benefit the sector’s competitiveness, but the future prosperity of the UK economy as a whole. Financial and professional services account for more than 2.3 million jobs across the country – two thirds of which are outside of London. London must stay front and centre of these developments, but the capital’s success will benefit other parts of the country – and vice versa.
This virtuous circle will help to ensure that a successful financial and professional services sector delivers for businesses, households and consumers across the UK during these tough times.