Economic Secretary's speech to the International Financial Centres Global Series
Sajid Javid, Economic Secretary to the Treasury addresses the International Financial Centres Global Series 2013.
I’m very glad to be here this morning.
I’d like to begin by using five words that people wouldn’t expect of a politician.
Five words that people certainly wouldn’t have heard very often from politicians over the last five or six years.
I like the financial sector.
It’s a sector that I’ve seen the best side of as an individual.
It was a sector in which I worked for twenty years…
And I found a work environment that didn’t judge you by your surname or your colour or your religion.
I found an environment that judged you by how hard you worked.
And that – I think – represented the best side of capitalism.
I’ve also seen the best side of the financial sector as a politician.
I’ve seen a sector that brings in over 10% of the government’s taxes each year.
A sector that employs more than 2 million people, in Edinburgh, Manchester, Leeds, Glasgow… and, of course, London.
And it’s because of those positive sides of the sector that I’ve seen – both as an employee, and as a politician – that I want to see it continue to perform strongly.
There’s no question that this city is a world leader in the financial field.
It’s been ranked number one for five successive years in the Global Financial Centre Index…
And there are a number of historical and geographical factors that have helped it rise to – and maintain – that position.
- Our location
- Our concentration of financial institutions
- Our tradition of welcoming foreign firms and investors
- And our respected legal system
But what this City mustn’t do – and what we as government mustn’t do – is become complacent, and think that because we’ve reached the top of the world rankings, that we’ll stay there forever.
We know that we have to keep adapting to global trends, social changes, and international developments to maintain that top spot…
And that’s what I want to talk to you about this morning…
The work we’re doing – both internationally and domestically – to make sure that the UK retains its competitive and successful financial sector.
But before I go into those factors, it’s worth briefly reflecting on how we’ve reacted to recent global events.
This week marks five years since the collapse of the Lehman Brothers…
And those employees who left their offices that day, clutching cardboard boxes became – if you will – the poster boys and girls of the financial crisis.
Nothing has threatened this sector quite like that crisis.
The public reaction to those events – rightly or wrongly – has been one of deep suspicion, and often – if we’re completely honest – deep dislike of anyone associated with financial industries.
In fact, when I arrived for my first day as an MP three years ago – after twenty years in banking – I had the unique sensation…
…a sensation that none of the rest of the intake shared…
That I was moving into a more popular profession!
But it’s true that, as well as highlighting some very poor individual and commercial decisions…
The financial crisis also highlighted the shortcoming of our old regulatory system.
And so when my Party came to power, one of the first things we had to do was change financial regulation…
Not only to help rebuild the trust between the sector and the public…
But also to ensure that we wouldn’t see a repeat of the crisis.
The Financial Services Act – which was the vehicle for that change – placed responsibility for financial stability with the Bank of England.
It created a new prudential regulator – the Prudential Regulation Authority – alongside the Bank’s current responsibilities;
And the Act also created the Financial Policy Committee, which has been charged with identifying, monitoring and taking action to remove or reduce systemic risks in our financial system.
On top of that, the Act created the Financial Conduct Authority, who have responsibility for regulating the conduct of financial firms and ensuring the good conduct of business in our markets.
It is – as they say – early days, but we’re confident that those reforms will deliver smarter and more effective regulation…
Which will help make our sector more stable, more resilient, and more efficient…
And that will be central to maintaining the attractiveness of this city – and the UK – as a global financial centre.
Our other big – post crisis – project, has been to improve bank resolvability…
A central part of which will be the ring-fencing of retail from investment banking.
I know this project hasn’t been without its detractors…
But it will protect retail banking services – whose continuity is essential to our economy – from global financial shocks…
And it will make UK banks easier to resolve if they get into financial difficulties – making them safe to fail.
We’re on track to have this legislation on the statute book by the end of this Parliament.
In short, we’re getting our House in order.
We’re learning from the lessons of the last decade…
And making sure that we create a country – and a city – in which citizens can trust that their money is secure…
And in which a financial sector can flourish.
But any great global country…
Any great global city…
Has to look outwards.
And for us to continue as a global leader, we need to be at the forefront of global discussions.
We’re making sure that the UK continues to play a key role in international fora, such as the G20 and the Financial Stability Board…
And in the last five years, substantial progress has been made in implementing international reforms.
Reforms like implementing new global capital standards through Basel 3 which will make banks more resilient…
Taking steps on OTC derivatives, which will make markets safer and more transparent…
And pursuing a coherent and sensible outcome for cross-border trading of derivatives.
The UK shown a strong degree of leadership, and played a central role in these reforms.
And we will continue to do so.
While I talk about our role internationally, it would be remiss of me not to discuss the European Union.
I know that there has been a great deal of debate about the Prime Minister’s recent speech on the EU…
But if one thing came through from it, it was this.
He wants to see a relentless focus on the Single Market.
He doesn’t want to see an EU that is happy to tread water, and do more of the same.
Instead, he wants to see an EU that is focused on a stronger, more competitive economy…
And an EU that recognises that national parliaments are, and will remain, the true source of democratic accountability.
As such, our position on financial services within the EU is clear:
We expect the Single Market and the freedoms set out in the EU Treaty to be upheld, and exercised in a non-discriminatory way.
And we’ve demonstrated some real muscularity in that respect.
We’ve launched a legal challenge at the European Court against the ECB’s location policy…
Because – if implemented – the policy would require a number of major international clearing-houses to move to the Eurozone, including from here…
Which is a suggestion that simply doesn’t make sense.
Especially when the EU and the Euro area both share the same stringent regulation for clearing-houses that we do.
It is because of our belief in the Single Market that we won’t participate in the proposed common supervision and resolution mechanisms.
Yet we will remain at the negotiating-table.
We’ve always seen these proposals as supporting the single currency.
Where we should be focussed on supporting the single market.
We’ve taken a challenge to the ECJ over the Financial Transactions Tax proposals…
Proposals which in our view are unlawfully extraterritorial and breach Treaty provisions.
And we’re also pushing back on the idea of harmonised EU rules on third countries, which would require others to have strict equivalence to EU rules and procedures.
Realistically, we cannot expect emerging markets – whose financial sectors are less developed – to have the same standards and needs as the EU.
It makes much more sense, to pursue a proportionate approach, based on the risk posed by each jurisdiction or area.
So we will continue to push back, and to fight our corner, wherever we believe that EU regulation is a hindrance – rather than a help – to the European economy.
In fact, we’ve launched a Review of the Balance of Competences between the UK and the EU…
And we’ll be happy to receive any views on how EU legislation affects you.
What I don’t want to do this morning though, is present the European Union as a hindrance…
Because – at its best – the EU can provide incomparable trading opportunities for its members.
This government has always been a champion for ambitious free trade agreements…
And the launch of the free trade agreement between the EU and the US is a once in a generation opportunity.
As part of that agreement, we want to see further integration and trade between the world’s two largest financial centres…
And we’re working to ensure that the agreement has financial services at its core.
We’re not seeking to harmonise regulatory standards between the EU and the US…
Nor are we looking to duplicate existing dialogues that are underway…
However, we think there is scope to explore stronger co-operation between the regulations of the two partners.
And if we can achieve that, it can only spell good news for both London and the rest of the UK…
As well as the EU and the US.
So companies that locate here can be confident that we are representing their interests internationally.
But I’d like to spend the rest of my time with you discussing some of the changes we’ve made domestically.
We understand the importance of a domestic tax regime that is simple, fair and streamlined…
And that’s why – following extensive consultation with the asset management industry – we announced several new tax measures as part of this year’s Budget.
The headline measure – if you will – is our abolition of Schedule 19 stamp duty reserve tax.
Schedule 19 is special stamp duty reserve tax currently applied to UK collective investment schemes, which industry identified as a major deterrent to locating funds in the UK.
So we listened, we took action, and the charge will be abolished.
On top of that, the Chancellor also announced at Budget that we would be abolishing stamp tax on trades on equity growth markets, such as AIM;
So whilst the Eurozone is looking at ways of increasing taxes on financial transactions, we’re abolishing them.
We’ve launched a growth action plan for our insurance sector;
And in March, we launched the acclaimed UK Investment Management Strategy, which gives an explicit long-term commitment to improve:
- Our taxation regime
- Our regulatory environment; and
- Our marketing approach.
Action is already underway:
- Three tax measures have been consulted on;
- We’ve launched the UK’s new tax transparent funds.
- And an overseas marketing campaign – which saw me visit Hong Kong and Singapore – has been launched.
That visit overseas was part of a concerted effort to promote the UK’s financial services abroad…
Because it is – I believe – critical not only that our firms can secure access to markets around the world…
But that we – as government – create the right environment and provide the right support to allow firms to win market share.
To help us achieve that goal, we created the Financial Services Trade and Investment Board.
The Board – which is chaired by the Treasury, and will work closely with industry and the City – will identify, agree and pursue high value trade and investment priorities…
And we will announce a full list of its members – which includes CEOs and Chairs of some large financial institutions – very shortly.
It is also crucial that we look to emerging economies, and make sure that the City benefits from their growth.
London has a long history of financial inventiveness…
From founding the first organised market for global trading insurance hundreds of years ago…
Through the development of the Eurodollar and Swap markets.
To – more recently – global foreign equities.
We want to maintain that reputation…
And one way in which we’re doing so, is by working to develop London as the western hub for RMB.
We’re already seeing our work in this area pay off.
And there are real economic gains to be realised by corporates from using RMB products and denominating their trade with China in RMB.
We’re also very keen to promote the UK as a western centre for Islamic finance.
Next month sees the UK become the first ever non-Islamic country to host the World Islamic Economic Forum.
And we’re keen to use that as a springboard…
To encourage Islamic finance to facilitate inward investment and strengthen our economy.
In fact, I’d like to end with a story about someone from an Islamic country.
I don’t know if anyone here has read the book Londoners by Craig Taylor?
Those of you that have, will know it is a fascinating series of interviews with the people from all walks of life in this city.
Taxi drivers, manicurists, street cleaners, beekeepers…
And one of the stories is about a man from Pakistan called Kamran Sheikh…
Who comes to London, works in a fried chicken shop and a pawnbroker’s, and eventually secures his dream job as a technical analyst in the City.
Perhaps I liked his story in the book because it reminded me of my father, who came to the UK from Pakistan to work when he was 17…
But the reason Kamran left his job at a brokerage firm in Pakistan, is because he knows that London is the global financial centre.
As he says in the book:
A live market has a feeling of life to it:
Each time a number flashes in front of me a deal has taken place […]
They are constantly flashing.
And they are flashing in London because [it is] the centre.
I want to keep it that way.
And through the actions I’ve set out today:
- Stabilising the banking sector in the UK…
- Pursuing tax and regulatory policies that will make the UK attractive for investment…
- Recognising the importance of taking a global view…
- And taking a sensible – and at times muscular – role in international discussions…
I’m sure we can keep it that way.
Thank you.