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Good afternoon everybody. Morgan, thank you for that very kind introduction and it is a pleasure to be here with all of you to talk about finance, because finance really matters.

Financial services, as we’ve already heard, is the number one industry that the United Kingdom has, and so I’m obviously very privileged to be able to do this job, having had a career in the City before I went into Parliament. 

But, financial services doesn’t just matter for pounds and pence; it matters as a fuel to help fuel the whole broader economy. That connection is what I really want to talk about today.

The last few years have not been easy for the British economy. We face the legacy of COVID, the war in Ukraine and in the Middle East. These challenges have made life tough for so many people here in Britain. 

Since the beginning of 2023, we’ve been working on five main priorities, three of which are economic: halving inflation, growing the economy and reducing debt. We made good progress on all of those. Inflation has fallen from 11.1% to 3.2%. The economy has performed better than forecast, as many of you would have noticed with data that came out only the other day. Wages are rising above inflation. Mortgage rates are down significantly from their peaks last year. The economy has outperformed European neighbours, and debt is on track to fall as a share of GDP.

The job is not done. We’re not complacent at all. But because of the progress we’ve made, the economy is turning a corner.

Today I want to talk about the progress we have made collectively on financial services over the course of this Parliament. This Parliament I believe has truly been a parliament of success.

Over the last three years, my predecessors at The Treasury and I, alongside The Chancellor and Prime Minister, have embarked upon the most comprehensive set of reforms to financial services since the 1980s.

I’ll be honest with you, we haven’t been able to do everything that I’d have liked to have done and be able to do it as quickly as I’d have liked to have done it. There are important things that we need to do much more on. 

But when you take a step back and look at it all, I’m confident that we are, hand-in-hand with industry, many of whom are represented here today, successfully delivering a new model for the UK’s financial services sector. A model that is open to the world, which embraces the challenges and opportunities of tomorrow, and which is firmly at the heart of a modern dynamic British economy. It is our hopes and plans for this new model that I’d like to talk to you more about today. 

Underpinning all my thinking in this is a clear assessment of the fact that our country cannot significantly increase our economic growth rate, which is what we all know we need to do, without a growing and thriving financial services sector. 

Now, of course, to understand where we are now, we’ve got to understand where we’ve come from. Those of you who know me know that I love history, and so when thinking about this speech I started thinking about the history of the City of London and our financial services sector, and how it’s evolved over time. Because how we see it here today is not how it has always been. 

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 in this country was in deep trouble.

The typical British response, a committee was set up, and it was called the Macmillan Committee. It was set up to look after one of the members, Lord MacMillan, and it was set up to look at the financial sector. As David Kynaston – who’s written a fantastic history of the city of London – says in his book, and I quote, “Not just the city but capitalism itself was on trial.” 

There was a perception that the City existed only to finance imperial and global trade, and the City and the financial services sector in London was neglecting the support of British industry throughout the regions of the UK. This was a report 100 years ago. This phrase, “capitalism is on trial,” has stuck with me because in 2024, nearly a century on as I’ve said, I’m struck by how the health, or the perception, should I say, of the health of the financial services sector remains intertwined with the perception of the health of capitalism and our economy more broadly.

This is why I think it’s front-page news. Not because people really care necessarily about what a hedge fund is doing or what a bank is doing or what an insurance company is doing. I mean, people in this room care but guys we’re a small group. 

It’s not because generally that matters, it’s because of what that says about the broader health of the British economy and the relationship between finance, industry, government and regulators. 

Back in the 1980s, before the Big Bang, it was adapt or die. 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 – so post-crisis I mean post 2008/9 and our current set of reforms in this Parliament –  we have actually rewritten the rules. We are adapting successfully in the face of change and challenge. 

But we shouldn’t forget the need to continually capitalise on our uniqueness in this country. The UK is the one place in the world, the one financial services sector in the world, where everybody feels they can transact and they’ll get a fair share and they can get a fair deal. Everybody from the Far East, the Middle East, America (North and South), Africa, Asia and Europe. 

There are other financial centres, of course there are. New York, an emerging centre in the Middle East in Dubai, Singapore, and Hong Kong. They all have their strengths, but they do not have the breadth and depth that we have in this country. 

To maintain our uniqueness, we must remain highly competitive and continue to adapt, taking a different approach to our EU counterparts where necessary and updating where we want to go further, better and faster than we could when we were in the European Union. So, as we approach the second quarter of the twenty-first century, we can confidently showcase a new world-leading model for financial services – one that is fit for the future.

So, what’s in this model? At Mansion House nearly four years ago, the now Prime Minister, then Chancellor, set out a vision for the financial services sector. Put simply, he set out a vision which presented a sector that would be technologically advanced, open, sustainable and competitive. One that builds on our history, including both the Big Bang deregulation of the 1980s and the care that we’ve taken since 2008/9 to embed and protect stability in our banking system in particular, whilst also looking forward to the future.

We’re delivering this vision through the Edinburgh reforms in 2022, the Mansion House reforms last year, the progress made in the Autumn Statement last year and the Spring Budget only a few weeks ago.

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 program, and a lot of the secondary legislation that you’ll read about is derived from that Act. The Act cements in law a growth and competitiveness secondary objective for our regulators. Pretty unusual if you actually compare us to other major financial centres. 

This growth and competitiveness objective, I hope, will precipitate a cultural shift in our regulatory approach with our country, alongside many other countries in Europe and across the West, having the profound problem of slower economic growth than we would like. There is no point in us having the safest graveyard.

Growth and competitiveness have to be at the heart of not just industry, but government and what the regulators do on a daily basis. 

Now I know that some, in fact looking across the room, people in this room have questioned whether this objective will go far enough in creating a pro-growth regulatory mindset. I don’t want to jump the gun on this and say that it has or it hasn’t. I want to monitor how the new system beds in for now. The regulators have only had coming up to a year with this new objective, and it’s only fair that we give them a chance to meet this new objective. They’re going to soon be reporting on how they are implementing this objective in the coming weeks and months. Be assured that we will go further if needed, if things are not happening and developing in the way that we would all like to see. 

I also want you to be assured and to have confidence in the steps that we have already taken, and that the change will come and the change will be brought about. If I were to isolate one particular reform that I’m particularly excited about, it’s called PISCES, which is an acronym that at least vaguely makes sense. It’s the Private Intermittent Securities and Capital Exchange System, which we are establishing this year. 

What does that mean? It is a world first. Nobody is attempting anywhere what we’re attempting here. It will give private companies access at particular times, for a particular percentage of their business, access to public capital markets and create regulatory coherence between the public and private market. Which, at the moment, in law and regulation, is completely separate.

It exemplifies how we are on the front foot. The reason why we brought this about isn’t for fun, we’re bringing this about this year because there has been a structural shift globally from public markets and public capital, to private markets and private capital. You can’t – “buck the market,” as Margaret Thatcher used to say – change those structural shifts. What we’ve thought about is how do we take advantage of these structural shifts, rather than allowing ourselves to suffer as a result of the world changing around us. 

Alongside this, we are taking forward Lord Hill’s listing reform recommendations. This includes a complete rewrite of the UK’s prospectus rules, creating tailor-made rules that make it easier for companies to list and raise capital on UK markets.

All of these reforms will strengthen the operating environment for our capital markets. Fundamentally, it will increase the confidence of people to invest in our capital markets, which will increase the pool of investors with a stake in UK markets and enable firms to wager larger amounts more quickly. We’re also implementing a move to a T+1 settlement by the end of 2027, in line with the recent recommendations of the accelerated settlement task force. 

There’s a lot to celebrate so far, but it wouldn’t be a particularly interesting speech if I wasn’t also challenging, and saying, what more do we need to do? We’ve done a lot but there’s a lot more we need to do and indeed, The Chancellor will update the country on our vision at Mansion House this summer. 

In my mind, there are three major challenges that we need to go further on. The first is that we have a challenge on pension funds. UK pension funds do not invest enough in unlisted equity in the UK. That’s not just my judgement or The Chancellor’s judgement, that is when we compare British pension funds to international peers. In places like Canada and Australia, 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 pension funds. 10 times! 

Alongside this, UK pension fund holdings in UK-listed equities have fallen. Listen to this. In 1997, 53% of their assets were in UK-listed equities, now it’s 6%. So, we are introducing new requirements for defined contribution (DC) and local government pension funds to publicly disclose their level of international and UK equity investments. 

If there’s no improvement, as The Chancellor said in the Spring Budget, we will then consider what further action should be taken if we are not on a positive trajectory towards international best practice. 

This isn’t just about the City of London, it isn’t just about companies, it’s about people and it’s about the fact that if we have higher investment levels, that will help improve returns for savers and promote economic growth in this country by unlocking billions of investment for high growth companies. By doing so, it will also help our capital markets to thrive. 

Part of the fundamental issue is that the pension market is too fragmented. We’re taking steps to improve consolidation of the market – particularly the local government pension scheme – as well as ensuring that the regulatory structure rewards funds that invest for long-term returns and see long-term value, rather than always just thinking about cost. 

Value for the long term – for savers and businesses and for this country’s economy – is what we all need to be driving for. In addition, we’re developing vehicles that ensure that 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 the 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. That’s the first challenge: pension funds.

Second challenge: there are demographic and regional inequalities in our country. I’ve been thinking about these issues a lot recently and we just cannot shy away from these challenges. I’ve talked a lot about how we need to grow the economy – the pie needs to get bigger – but how that pie is distributed, how that pie is sliced, really matters. 

Let me just take one area of this that I’ve thought a lot about. Securing access for small- and medium-sized companies for finance is particularly challenging for certain groups. It’s particularly challenging for women, it’s particularly challenging for people from ethnic minorities and for people from certain social classes. 

The statistics speak for themselves. For example, only 8% of total equity funding is being invested in teams with at least one ethnic minority founder. This is compared to an ethnic minority representation in this country of 18% as a whole. If you were to look at people under the age of 50, which is where most companies are going to be started from, that percentage of ethnic minorities is much higher. 

The proportion of equity capital investment going to all female founders and founder teams has been stuck. I couldn’t believe this stat, I actually had to go and look this stat up because I didn’t believe it when people told me. It is 2%. So, 98% going to non-female founders, 2% going to all female founders and that has remained stuck for a decade. We haven’t actually made progress.

We’re working to address this in Government. Since 2012, of the people we received a startup loan from the British Business Bank which is funded by the Government, 40% went to women and 20% meant to those from an ethnic minority background. 

In March this year, the Prime Minister announced a new task force to boost private investment in women and their businesses and announced the ambition to make the UK the best place in the world to be a female founder. 

When I delivered my first major speech as City Minister last November, and in much of my engagement since then, I’ve wanted to keep at the front and centre of people’s minds that reforms must deliver investment all over the UK. 

It’s not just the characteristics and the demographic characteristics of people. We’ve got to make sure that where we are successful and all the reforms that the Government’s putting in all the hard work from industry, that distribution is happening in all parts of the United Kingdom. 

Financial services has, for far too long, and very incorrectly frankly, been seen as too London-centric. Even though, and I’m sure UK Finance will thank me for pointing this out, two-thirds of financial services jobs are based outside London.

I’ve never believed, as a free market Conservative, that success trickles down from the centre and the top. George H. W. Bush used to call this sort of thing voodoo economics. That isn’t how success and economic growth works. What happens is, to really have a successful financial services sector and a broader economy, it needs to be bottom-up from all parts of the United Kingdom.

I commend the individual efforts that companies have made to increase their regional presence. Before I went into Parliament, I worked for HSBC and one of the jobs that I did was helping establish HSBC UK in Birmingham and that’s just one example of a lot of good work that’s been done in the sector.

I’d like to extend a call to arms, for bankers, insurers, pension providers and others to take up the mantle of regional growth. To deliver ambitious investment strategies in our regions and publish them, and be transparent about them, so that we can work together to see how we can do more. Delegate more hiring decisions to local leaders, local managers, not just centre all the HR in London. When you do that, you develop much more local talent.

I’d also encourage the banking sector to roll out banking hubs much faster across the country to support local communities and local businesses and to be a presence where bank branches may shut. When you’ve got more banking hubs in different parts of the country, people will feel more connected to the financial services sector. As a country, the financial services sector will not get the public support that it needs in order to thrive without much more engagement from more people. 

More broadly, this question of engagement is crucial. How do we get people to engage in the evolution of financial services going forward? One answer is to show them how it affects them and why it matters. 

I was struck when Ryan was talking earlier about Bright Blue’s focus this year on younger people, and how younger people need to build more assets. I completely agree. It’s one of the key things that we need in government to work much harder with the industry, and with the public, and as a society to improve that because I think it’s absolutely critical. 

One other way in which younger people can get access to more assets is because younger people in this wonderfully entrepreneurial country of ours, start a lot of businesses, and they start small businesses because all businesses start small. 

How do we improve their experience? Open banking, which many of you may be familiar with, puts consumers at the centre of data sharing and the benefits of that data share. 

Last month, I launched the Open Finance Task Force, which is looking at, for example, how sharing data sets can help facilitate the availability of finance for those small and medium-sized businesses that people start up all over this country. Doing this, by the way, with people’s permission, with privacy absolutely paramount. We can’t compromise on that.

This task force; I’ve set them a pretty tight deadline and time frame of weeks, not months. I hope that we’ll be able to publish the findings of this task force this summer, to set out how we feel that this data sharing can unlock growth in providing finance, and then companies providing finance to SMEs.

We led the way internationally with open banking. Sharing data with consumers and businesses has the power to empower consumers and businesses across the spectrum of savings, investments, insurance, pensions and beyond. So let’s continue with that agenda.

To conclude, I hope you’ll not mind me referencing a report I wrote. Actually, I didn’t write it, we had somebody help us write it. I worked on it in 2022 when I was chairing the APPG on Financial Markets and Services. In this report, we said that financial services are not just the jewel in the crown of the British economy – as I said at the beginning of my remarks – but they are critical to the effective working of the real economy. Why? Because financial services are a part of, not apart from the rest of the economy. 

This is our model for the future, because capitalism, the economy, society and communities work better when there’s genuine partnership. Let’s continue building this genuine partnership, and collectively we will reap the rewards. 

Thank you for listening to me this afternoon, it’s an absolute pleasure.

The keynote speech was followed by a Q&A session.

Bim Afolami MP is the Economic Secretary to the Treasury.