Financial services and fintech have been singled out as core growth drivers in the UK government’s plan for economic growth, HM Treasury announced yesterday, as economic growth slowed from 0.3% to 0.1% in Q3.
Rachel Reeves MP, the Chancellor of the Exchequer, made her debut Mansion House speech last night. The official residence of the Lord Mayor of London, Mansion House hosts a number of official finance functions throughout the year, including the Chancellor the Exchequer’s speech regarding the state of the British economy.
Labour has been courting business, and the financial services sector in particular, long before July’s election. The party has repeatedly asserted that it views financial services as one of Britain’s best success stories, accounting for around one-fifth of the country’s GDP.
Perhaps most significantly for the payments aspect of UK finance, Reeves has confirmed the publication of a National Payments Vision – a long-awaited initiative for the finance sector which will set out the future trajectory of the country’s payments industry.
Prior to the Mansion House speech, the government’s efforts so far over the past four months have included legislation in the form of bills around data sharing and digital identity, as well as the creation of a National Wealth Fund. This was backed by £27.8bn in capitalisation, expected to mobilise over £70bn of private investment.
The reforms announced yesterday are intended to double down on these ambitions.
“Before we came into government, I was clear that the financial services sector must play a central part in our economic vision and our plan for economic growth,” Reeves remarked at Mansion House last night.
“Because I know that this sector is the crown jewel in our economy. It employs 1.2m people, from London to Edinburgh, and from Manchester to Belfast. It is one of the country’s largest and most productive sectors, accounting for 9% of our economic output.”
“And it is a global success story: we are the second largest exporter of financial services in the G7. But we cannot take the UK’s status as a global financial centre for granted. In a highly competitive world we need to earn that status and we need to work to keep it.”
Learning from the past and planning for the future
Reeves’ plans for UK finance revolve around three core areas – regulatory standards, improving stability and investor confidence, and making investment through financial services.
The latter is an area the government has previously hinted at, such as in its first budget in late October, which saw higher taxation with the aim of funding investment and research initiatives.
Building on this, Reeves has outlined five priority growth areas in financial services which she and the Treasury believe will maximise UK economic growth. These are fintech, sustainable finance, asset management and wholesale services, insurance and reinsurance, and capital markets.
This is good news for these sectors coming off the back of the budget which saw some businesses express concern about the impact of tax raises. Fintech firms can now expect some return from this tax investment, it seems, whilst the Treasury also plans for a call for evidence so that industry input can introduce its financial strategy.
Speaking of this financial strategy, as stated above, the government has now published the National Payments Vision, which will set the tone for how this strategy around payments pans out over the coming years.
On a wider scale, the government states it will publish a Financial Services Growth and Competitiveness Strategy in the spring. The Treasury also hopes to build strong ties with international partners, seeing said partnerships as critical to attracting foreign investment to the UK.
Future growth is not the only thing on Labour’s mind, however. The 2008 financial crisis continues to linger in the party’s thinking, unsurprising due to the market crash leading to Labour’s defeat in the 2010 election – and the fact it presided over the crash being something its Conservative opponents continually, and likely very irritatingly, reminded it of during its 14 years in opposition.
“While it was right that successive governments made regulatory changes after the Global Financial Crisis, to ensure that regulation kept pace with the global economy of the time, it is important that we learn the lessons of the past,” said Reeves.
“These changes have resulted in a system which sought to eliminate risk taking. That has gone too far and, in places, it has had unintended consequences which we must now address.”
Labour’s regulatory reforms consist of a modernisation of the Financial Ombudsman Service framework to give consumers a means for refresh with clear expectations of decisions, and a consultation on replacing the current Certification Regime, which covers company functions that don’t apply to senior management but still have a significant impact on said companies.
The Chancellor added that she has written to the Financial Conduct Authority (FCA), Prudential Regulation Committee (PRC), Financial Policy Committee (FPC) and Payment Systems Regulator (PSR) requesting a ‘greater focus on supporting economic growth’.
Lastly, the Treasury has sought to build on its efforts in an area which has become a major talking point, and a point of contention, in British payments – fraud.
HM Treasury believes that more collaboration is needed across different sectors, law enforcement and the government itself to combat fraud, which it estimates cost UK consumers almost £8.3bn last year.
It added that Reeves – along with Home Secretary, Yvette Cooper, and Secretary of State for Science, Innovation and Technology, Peter Kyle – has written to tech and telecommunications sectors calling for them to ‘go further and faster in reducing the scale of fraud taking place on their platforms and networks’.
This will likely be welcomed by the UK payments sector and its trade body, The Payments Association. These stakeholders have been calling for big tech firms, in particular social media operators, to shoulder some responsibility for fraud reimbursement and prevention, in the context of the PSR’s new rules around authorised push payment (APP) fraud reimbursement, which came into effect last month.
Its the economy, stupid
After four months in office, Labour’s approach to financial services and the economy in general has been typical of the party’s ideology and historic attitude – higher spending, with a focus on economic investment, as opposed to the more ‘free market’ approach of its Conservative rivals.
This was evident in the budget, and can now be seen in Reeves’ Mansion House speech. Environmentalism can also be seen, with the government wishing to see more environmental, social governance (ESG) investment and support for green energy and net zero initiatives, including in the financial sector.
Reeves’ speech has been somewhat overshadowed in mainstream media reporting, however, by the news that the UK economy only grew 0.1% between July and September. The economy had previously grown by 0.3% twice this year, once under the Conservatives and once under Labour.
Although 0.1% growth is still growth, and is markedly better than the multiple recessions the UK has been facing since 2008, it will still not cast Labour well in the eyes of the average voter. To use the cliche Bill Clinton quote as this writer has unashamedly done above, ‘it’s the economy, stupid’.
Financial services, fintech and payments are a core segment of the modern British economy and the country is home to high-growth fintech firms like Revolut (Europe’s most valuable fintech) and Monzo (one of its fastest-growing challenger banks).
Reeves and PM Keir Starmer are placing a big bet on financial services and fintech as a growth driver for the UK at a time of ongoing economic uncertainty and high costs-of-living for Britons. The party’s success in government and future election prospects could hinge on its commitment to let financial entities flourish.
