The Chancellor, Jeremy Hunt, has today unveiled much-anticipated reforms to the UK’s financial services sector, in a bid to boost competitiveness and growth across the UK.
In a highly consequential and wide-ranging statement, the Chancellor has put forward thirty proposals, split into four broad buckets:
- A competitive marketplace promoting effective use of capital
- A sector at the forefront of technology and innovation
- A world leader in sustainable finance
- Delivering for consumers & businesses
The Politics
The reforms were initially developed under Kwasi Kwarteng (Liz Truss’s Chancellor) and labelled ‘Big Bang 2.0’ by those close to Kwarteng. Positioning them as a successor to Margaret Thatcher’s deregulation of financial services in 1986. In an effort to distance himself from the turbulence of the Truss government, Hunt has steered clear of this language, calling them “the Edinburgh Reforms”, but he has not watered down the scope or ambition of the package.
Government and industry concern that London is beginning to lag behind New York, Amsterdam and Paris, has been a powerful driver to bring forward this package.
But the ability to improve the UK’s competitiveness in financial services, taking advantage of the regulatory freedom that comes from being out of the EU is a big political win for the government and it is noteworthy that Financial Services was one of the five growth areas that Hunt identified in the Autumn Statement.
Of course, the City losing business to other global financial centres and now being able to look at regulations that are derived from the EU is not a mutually exclusive issue. Making these changes may be an essential measure to maintain London’s position while some of the City’s functions move to centres within the EU single market.
The government wants to make clear this package benefits towns and cities across the UK as part of the continuation of the ‘levelling up’ strategy. And launching it in Edinburgh is also a significant commitment to the union.
Finally, on the politics, the attempted demonstration of the benefits of Brexit has a dual function for both Sunak and Hunt. They both need to show Conservative backbenchers that there will be no ‘going soft’ on Brexit after a series of damaging stories which indicated the UK may seek a ‘Swiss style’ arrangement with the EU which would limit the divergence that many Brexit-supporting MPs want to see. By claiming this package is a Brexit dividend they are looking over their shoulders to the MPs on the green benches behind them as much as they are looking down the river to the City and Canary Wharf.
Please see below for the analysis from our Edelman Global Advisory team. Please do not hesitate to get in touch if you would like further information.