What Does This Mean for the Regulatory Landscape?
On the 17th of July 2024, Parliament convened for the State Opening. During the King’s speech, the first legislative session commenced, highlighting key legislative actions including the Pension Schemes Bill. The new Labour Government also outlined its plans and priorities for the financial services sector.
In this piece, we will examine the Government’s plans and how they will affect the financial services sector.
The Labour Party’s plans were set out in a paper called “Financing Growth – Labour’s Plan for Financial Services” and was published on 30 January 2024. The paper was written by the new Chancellor of the Exchequer, Rachel Reeves and Economic Secretary to the Treasury and City Minister, Tulip Siddiq. It is a key part of the new Government’s overall plan to grow the economy.
The Labour Party set out six key areas of action. We will examine each of them below and explore what impact each of them is likely to have on the financial services sector.
Economic Growth and Financial Services
A key mantra of the Labour Party in the recent General Election was the importance of generating growth in the UK economy. The Labour Party has made clear that it sees the financial services sector as being a key sector of the UK economy.
The Labour Party quoted some key facts on the importance of the financial services sector to the economy and to economic growth.
The financial services sector:
- contributes 12% of UK economic output;
- provides £100 billion in tax revenue;
- is the second largest services exporter globally with £97 billion of exports;
- provides over 1 million jobs directly plus a further 1 million jobs in supplying professional and related services to the financial sector;
- supports regional financial centres – around 67% of jobs in or related to financial services are located outside London.
Not surprisingly, the Labour Government sees the financial services sector as critical to generating economic growth and contributing tax revenues and investment funds as well as well-paid highly skilled jobs. It highlights that in the financial services sector are generally highly paid and have high levels of productivity. It points out that, financial services productivity is 2.5 times higher than in the economy as a whole.
The Labour Party made it clear that the financial services sector has a critical role to lay in enabling the Government to bring about wider economic development and wealth creation.
Labour’s Vision for the Financial Sector
Labour has set out six overarching policy priorities for the financial services sector. However, these are not stand-alone policy priorities. They are intended to dovetail with other policy initiatives brought forward by the Labour Party to promote financial stability and growth in other sectors of the UK economy. We will look at the six priorities below and their likely impact upon the financial services sector.
1.Deliver Inclusive Growth
The Labour Government intends to boost the regional financial centres in England including the North West, West Yorkshire, the West Midlands, the South West as well as Glasgow, Northern Ireland and South Wales. It is intended that growth in and generated by the financial services sector should stimulate the regions as well as London and the South East.
With this in mind, it is intended that the British Business Bank (BBB) will be given a mandate to form and manage a National Wealth Fund for strategic investment, especially in infrastructure and to provide funds to finance start-up and scale-up funding for smaller and medium-sized enterprises (SMEs). These funding streams are intended to deliver growth stimulus to the economy.
In addition, the Government will cooperate with local authority pension funds to coopt investment into regional infrastructure and emerging regional investment opportunities. This is intended to work in tandem with Foreign Direct Investment from overseas governments, government agencies, sovereign wealth funds and institutional investors.
The Government has also set out its intention to modernise the Building Societies Act so that new and innovative savings and loan products and services can be developed without the severe constraints imposed on capital adequacy under the existing regime. Similarly, it intends to promote and encourage the role of mutual savings and loan societies and particularly the cooperative movement, in providing financial services.
There is significant emphasis on supporting and promoting diversity, equality and inclusion. In particular, there will be emphasis on promoting the role of women and especially women of colour in the financial services sector. There is also significant emphasis on addressing the issue of financial inclusion and digital inclusion. This is a significant factor in an age when many people are unable to afford to take good advice and where increasingly products and services are offered via digital platforms and distribution.
What does this mean for firms?
The influx of investment and the channelling of investment into specific priority areas of the economy is likely to boost regional growth and stimulate the local financial economy. Initially, this is unlikely to result in massive short-term change but it may well result in more higher paid jobs and an urgent need to train employees and upskill employees to advise on, administer and service increased investment activity. Such stimulus and demand is likely to be felt in the institutional sector first.
However, in the medium and longer term, as the economy grows and income and savings rise, that stimulus is likely to be felt in the retail financial services sector. There is then likely to be increased demand from consumers for advice, for investment and savings products, for mortgages and loans and for insurance. In turn, this may lead to increased demand for higher-skilled and higher paid jobs in the financial services sector itself.
There is also likely to be an increase in demand for education and training provision and for services to develop “can do” skills in the workplace. The financial services sector is already identified as a high skill and higher paid sector where there is intense competition for labour. Unless firms are prepared to broaden and change recruitment and training practices, there is a danger that the skilled/experienced pool of labour does not increase as fast as required causing a shortage of skilled and competent staff.
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