London is a “burning platform” as a financial centre and needs to be bolder and faster with regulatory reforms if it is to maintain its position of global dominance, a major trade body warned ahead of a report to be published on Monday.
The call to action comes with a stark analysis of a “hard truth” that Britain’s financial sector has grown more slowly than the rest of the UK economy over the past ten years and, without action, will continue to lag the wider economy.
The report by the industry lobby group TheCityUK and the professional services firm PwC argues that the City matters because it generates more than 11 per cent of national economic output and contributes £12 in every £100 of tax.
Based on a survey of 300 key figures in the City government, regulators and academia, it describes the financial services sector as being at a “critical juncture” and sets out five “critical imperatives for action” under the broad headings of financial technology, tax, international trade, allocation of capital and building a nation of investors.
If these areas are tackled, the report reckons that the industry could generate £53 billion in additional economic output by 2035.
It warns that wealthy individuals are being driven to lower-tax regimes in the United Arab Emirates and Milan to the detriment of the City and that British people should be encouraged to buy more shares to boost the economy.
Miles Celic, chief executive of TheCityUK, said changes were needed because Britain’s current status as a financial centre was a “burning platform”.
“If we keep going the way that we’re going, we are risking a period of relative decline: the industry declining as a share of the economy but also the industry declining comparative to our major competitors,” he said.
Britain, which is the biggest net exporter of financial services in the world, is at risk of losing ground to financial centres in New York, Singapore, Hong Kong and the United Arab Emirates, which are moving quickly to attract business with “speed and hunger”, the report said.
Five steps to boost the CityTokenisation
The report calls for the government to have a clear regulatory framework for digital assets and highlights the importance of Britain moving ahead in tokenisation — a form of digitisation of securities where you can buy just a fraction of a company share rather than the whole thing.
“Tokenisation brings an existential threat to our power globally but also provides an opportunity if we get it right because we have time to catch up [with the likes of Singapore, Hong Kong and the UAE],” said Darren Ketteringham, UK financial services leader at PwC.
The Bank of England has thawed on cryptocurrency
GETTY IMAGES
When it comes to crypto, the report warns: “The UK is not currently set up to compete directly in the most advanced crypto-native ecosystems or large-scale stablecoin issuances.”
Regulation and tax
The report discusses the authorisation process run by the Financial Conduct Authority for individuals who want to work in the City. This certification regime for senior managers is being reviewed but the report says that respondents to its survey said the rules needed to be simplified even more.
In wholesale markets, used by professionals rather than retail investors, the document said changes were needed to allow firms to deal more easily with high net-worth individuals.
It described Britain’s tax system as “one of the least competitive in the world” with bank levies and taxes on insurance companies on top of corporation tax.
It also highlighted a personal tax regime that was pushing senior professionals to relocate to other financial sectors and said “addressing this is critical”.
Trade
Britain needs to be the “destination of choice for talent” but tax regimes and lifestyles in the UAE and Milan were drawing wealthy individuals away, respondents to the survey suggested. The abolition of the non-dom regime, the system under which people could avoid paying tax on income made abroad, had “weakened” the UK’s ability to attract “entrepreneurs and internationally mobile talent”.
The report says that those surveyed called for new incentive schemes to win back talent along with fast-track work visas with accreditation for financial firms. It recommends that roles such as such as risk modellers, data scientists and AI engineers should be added to the government list of occupations where there are critical shortages.
Pensions
Unleashing pension assets could help to achieve the government’s goal to invest £725 billion in infrastructure by 2035 and channel more investing into start-ups. But the report said the proliferation of government-backed institutions such as the National Wealth Fund and the British Business Bank, which were designed to help support innovation, had become difficult to navigate.
Tax relief schemes to encourage investment such as business asset disposal relief and enterprise management incentives were less generous than those of other countries, including the US, the report added.
Nation of investors
Rates of personal investing in the UK are “strikingly” low by international standards, with 8 per cent of household wealth invested in equities, mutual funds or bonds compared with 30 per cent in America, the report said. Britons keep twice as much of their savings in cash.
It says addressing this underinvestment will boost financial resilience, improve savings for old age and support businesses.
While the government is changing the amount that can be saved tax-free each year in cash Isas from £20,000 to £12,000, the report says interviewees in its survey said there is a “need for a refreshed tax framework”.
Anne Richards from Fidelity
HOLLIE ADAMS/BLOOMBERG VIA GETTY IMAGES
Anne Richards, a senior adviser to fund manager Fidelity who now chairs TheCityUK leadership council, said: “The UK cannot afford to be complacent. History shows that globally leading financial positions, once lost, are difficult to recover.”
Lucy Rigby, the City minister, said: “This government’s ambitious reform agenda is designed to unleash the full potential of the [financial services] sector including by ensuring regulation is fit for purpose, backing innovation and ensuring that we retain our competitive edge.”