Hm Treasury
Good afternoon, everyone, and thank you for the introduction.
It is a pleasure to be here with you.
The last few years have not been easy for the British economy. Weve faced the legacy of Covid, war in Ukraine and the Middle East. These challenges have made life tough for people in Britain.
Since the beginning of 2023, we have been working on five priorities. Three of them are economic. To halve inflation, grow the economy and reduce debt.
We have made good progress. Inflation has fallen from 11.1% to 3.2%, the economy has performed better than forecast, wages are rising, mortgage rates are down significantly from their peaks. The economy has outperformed European neighbours and debt is on track to fall as a share of the economy.
The job is not done. But because of the progress we have made, the economy is turning a corner.
But today, I want to talk about the progress we have, collectively, made on financial services over the course of this Parliament. Because this Parliament has truly been a Parliament of Success.
Over the last 3 years, my predecessors at HM Treasury and I, alongside the Chancellor and Prime Minister, have embarked on the most comprehensive set of reforms to financial services in a generation.
I will be honest with you we havent been able to do everything as quickly as we would have liked to have done.
And there are things important things which we need to do more on.
But when you boil it down, I am confident that we are hand in hand with industry successfully delivering a new model for the UKs FS sector
A model that is open to the world, which embraces the opportunities of tomorrow, and which is firmly at the heart of a modern, dynamic UK economy.
And it is our hopes and our plans for this new model that I would like to talk more about today.
Underpinning my thinking is a clear assessment of the fact that our country cannot significantly upgrade our economic growth without a growing and thriving financial services sector.
Of course, to understand where we are now, and where we are going, we must understand where we have come from.
The booms, busts and bankruptcies of the last two centuries are lessons in the capacity of individuals, governments, and institutions to change the course of history.
After the Golden Age of the late 19th century, the trauma of the Great War, and the decision to return to the gold standard, by 1929 the Square Mile and the wider economy was in serious trouble.
The Macmillan Committee was set up to look at the finance sector because, as David Kynaston says in his brilliant book on the City not just the City, but capitalism itself was on trial.
There was a perception that the City existed to finance imperial and global trade, and was neglecting the necessary support of British industry throughout the regions of the UK. Plus a change.
This phrase capitalism is on trial has stuck with me. Because in 2024, nearly a century on, I am struck by the way in which the health of the financial services sector remains intertwined with perceptions of the health of capitalism
And the reality of the health of the broader economy.
This is, in part, I think, why we care so much about it
And why we continue to examine and evaluate the relationship between finance, industry, government and regulators.
Back in the 80s, it was adapt or die, because the rules of the game were being rewritten all around us
Now; taking account of both the post-crisis reforms, and our current set of reforms; we have rewritten the rules
We are adapting successfully in the face of change and challenge
But we should not forget the need to continually capitalise on our uniqueness.
The UK is the one place in the world where everyone can transact and interact the Far East, Middle East, America, Africa, Asia, and Europe.
Yes, there are other financial centres, but they dont have the breadth and depth that we have. To maintain our uniqueness, we must remain highly competitive
Taking a different approach to our EU counterparts where necessary, updating where we want to go further, better, and faster than we could when we were in the EU
So that, as we approach the second quarter of the 21st century, we can confidently showcase a new, world-leading model for financial services one that is fit for the future.
So, what is at the heart of this new model?
At Mansion House nearly four years ago, the now Prime Minister then Chancellor set out a vision for the financial services sector. One that is technologically advanced, open, sustainable, and competitive.
One that builds on our history including both the Big Bang deregulation of the 80s, and the care weve taken since 08 to embed and protect stability whilst also looking forward to our future.
We are delivering this vision: through the Edinburgh Reforms in 2022, the Mansion House Reforms last year, and the progress made at Autumn Statement and Spring Budget.
We are also global leaders in the regulation of new digital assets ensuring innovation and consumer safety go hand in hand.
The Financial Markets and Services Act 2023 is the cornerstone of our reform programme.
This Act cements, in law, growth and competitiveness secondary objectives for our regulators
Which I hope will precipitate a cultural shift in our regulatory approach. With our country, alongside many in Europe, having the profound problem of slow economic growth, there is no point having the safest graveyard.
I know some have questioned whether this objective will go far enough in creating a pro-growth regulatory mindset.
I dont want to jump the gun on this, so I want to monitor how the new system beds in for now. Both the FCA and the PRA will soon be reporting on how they are implementing the new objective.
Be assured that we will go further if needed but also, be confident in the steps that we have taken, and the change that this will bring about.
And perhaps the reform that I am most excited about is PISCES the Private Intermittent Securities and Capital Exchange System which we are establishing this year.
This new class of market is a world-first. It will give private companies better access to UK capital markets, and create regulatory coherence between public and private markets.
It exemplifies how we are on the front-foot; leaning into the structural shift to private markets, rather than allowing ourselves to suffer as a result of the world changing around us.
Alongside this, we are taking forward Lord Hills listing reform recommendations. This includes a complete rewrite of the UKs Prospectus regime, creating tailor-made rules that make it easier for companies to list and raise capital on UK markets.
These reforms will strengthen the operating environment for our capital markets by increasing the pool of investors with a stake in UK markets
And enable firms to raise larger sums of capital more quickly.
Were also implementing a move to T+1 settlement by the end of 2027, in line with the recent recommendations of the Accelerated Settlement Taskforce.
So, there is much to celebrate in this Parliament of Success and the Chancellor will update on our vision at Mansion House this summer.
But it would be remiss of me to not also mention the challenges that we need to do more to address.
There are three key challenges.
Pension funds
First, we have a challenge on pensions funds.
UK pension funds do not invest enough in unlisted equity in the UK, especially in comparison to international peers like Australia where better returns for pension savers are being generated, with effective investment strategies and more investment in high quality domestic growth stocks. For defined contribution schemes specifically, comparable Australian schemes invest 10 times more in private markets as a proportion of their total assets than equivalent UK schemes.
Alongside this, UK pension fund holdings in UK listed equities have fallen from 53% in 1997 to around just 6%.
So, we are introducing new requirements for DC and local government pension funds to publicly disclose their level of international and UK equity investments. If there is not improvement, as the Chancellor said at Spring Budget, we will then consider what further action should be taken if we are not on a positive trajectory towards international best practice.
Higher investment levels in these asset classes can help improve returns for savers and promote economic growth, by unlocking billions of investment for high-growth companies. And by doing so, this will help our capital markets to thrive.
Part of the fundamental issue is that the pension market is too fragmented. So, we are taking steps to improve consolidation of the market, particularly the LGPS, as well as ensuring that the regulatory structure rewards funds that invest for long term returns, not just for cost.
And developing vehicles that ensure pension funds have access to high-growth assets including in the science and tech sectors via the LIFTS initiative, which we announced the winners of at Spring Budget.
To this end, the package the Chancellor announced last year at Mansion House, including the Mansion House Compact, will unlock up to 75 billion of financing for growth by 2030.
Demographic and regional inequalities<