I thought very long and very hard about what I would say to you all this morning. I thought I’d start with what I’m not here to tell you.
So I’m not here to tell you how the financial and related professional services are a key part of our economy. You know that.
I’m not here to tell you what you already know.
I’m not here to reel off statistics about how well the government is doing with the economy. You know that.
You are busy people and I’m very grateful for your time.
I have sat in many meetings that could have been an email, thinking “why don’t you tell me what I don’t know?”.
So I decided instead, this morning, I would tell you what I’m worried about.
The first 14 years of my career before politics were in banking and consulting as a systems analyst. I worked in a lot of places, but mostly at RBS and Coutts.
I trained as an engineer so I worked in tech. But after the financial crisis, the tech jobs dried up as investment decreased or jobs were offshored and the only way I could stay on was to work where all the new jobs were being created in compliance.
So this is where my intense dislike of burdensome, arcane and quite often needless regulation was born.
And not because compliance was dull. It was. But because I knew I wasn’t really being productive. Compliance was not the revenue generating part of the business, but that’s where I had to go to get promoted. And I was there to ensure that the work we were doing and the products we were building were focused on our most important client - the FSA, as it was then.
This context is important. I worry that in the 21st century, we take for granted many of the successes we have had in the productive parts of our economy.
I worry about the tendency to push for well-meaning but counter-productive measures that stifle growth, productivity and innovation.
Every day in Parliament, someone has a great idea for a new regulation. As MPs when confronted with a problem, the easiest thing is to say is “lets make some more rules”. But a lot of the time more rules aren’t what we need. Sometimes it’s more enforcement, other times, it’s more innovation.
But please do not underestimate how as Members of Parliament, the jobs we did prior to politics influence how we view the world. This current government is made up mostly of private sector alumni - people who worked where you worked, have seen what you’ve seen and know what you know. The Prime Minister worked in financial services, just as I did. Keir Starmer worked as a public sector lawyer, Rachel Reeves worked as a regulator.
This is not a criticism, it is an observation.
But the context matters because when I say the burden of regulation has become too high under successive governments I speak not from a theory perspective but from personal experience.
And I worry that too few people have enough of that sort of experience. Too few people understand where growth and wealth come from and what kind of society, economy, or laws you need to make them happen. We talk about jobs and skills sometimes in very perfunctory ways, but the conversations I am hearing more and more now worry me.
They’re like a conversation I had in 2008 when I first stood for Parliament in Brixton. A man came up to me and potential constituents came up to me and said to me “I won’t be voting Conservative because I don’t want anymore growth. We need to reduce growth and growth is what is killing us. There’s too much of everything”.
I’m not sure he would’ve felt the same way a few years later, when growth started shrinking and we had austerity. But I hear these sorts of arguments again and again, in the places you wouldn’t expect to hear them. People are putting theories that undermine the very foundations of what previous generations did, that created so much of what we still enjoy today.
So I found it very interesting when Rachel Reeves gave her Mais lecture, she quoted Joan Robinson, a woman who championed Chairman Mao’s policies on collectivised agriculture. Policies that led to a famine that killed about 50 million Chinese people. I don’t think that’s why Rachel Reeves said that this woman was her economic inspiration but the fact that she said that worries me and I think it should worry you.
And this is where the three jobs I do, on Business, International Trade and Equalities intersect. My role as Minister for Women and Equalities in particular often involves the killing of bad ideas.
Sometimes it means doing things like writing to the FCA and PRA, as I did a few weeks ago, warning them against their proposed mandate of equality quotas. Something the law does not require and could be counter-productive.
People often ask me “why I bother doing things like that? Why don’t you just look at how to create jobs, or lower inflation”. But these so-called cultural issues have an impact more significant than we realise on the bigger picture.
There is no distinction between the underlying principles of our society and our economy as a whole. The society and the economy we create are completely inter-twined with our politics.
Just to be clear, I am not a fan of Chairman Mao or any of his policies.But one of the most influential books that has influenced my economic and political thinking is called ‘Why Nations Fail’ [by Daron Acemoglu and James Robinson].
I don’t know if anyone here has read it but it gives a lot of historical and contemporary examples of what nations did right and wrong all around the world, that explains why they are the way they are today. And one of the most interesting points the book makes is that “England was unique among nations when it made the breakthrough to sustained economic growth”and “it is not a coincidence that the Industrial Revolution started in England a few decades following the Glorious Revolution of 1688”.
Since we are here at TheCityUK, the sections on the growth of the UK’s financial sector, are particularly relevant. I’m not here to give a history lecture, but it is interesting how the authors describe how financial services in England exploded after the Glorious Revolution and the changes brought in.
Monarchy is bound by the rule of law, including repaying its debts and this certainty that’s given to business, as it was then, changes the economic game.
Interest required on the national debt fell, private lending surges, the stock market grows rapidly, financial services takes off, property rights become embedded and eventually we have more than a social and economic revolution. We have an industrial one.
I skipped quite a lot in between that but I know you all know that this is true just as well as I do.
But these changes spread around the world, sometimes freely sometimes not, but eventually they do lift billions out of poverty and lead to unimagined wealth globally.
Wealth we still see today.
So it worries me when I hear people talk about the wealth and success of the UK as being down to colonialism or white imperialism or privilege or whatever.
It matters because if people genuinely believe that the UK only grew and developed into an advanced economy because of exploitation and oppression, then the solutions they will devise will make our growth and productivity problem, even worse. They’ll start quoting Mao!
It matters in other countries too because if developing nations do not understand how the West became rich, they cannot follow in its footsteps.
And it matters, when as your Trade Secretary I go to the World Trade Organization Conference negotiating on the UK’s behalf and some of my counterparts spend the entire time in meetings talking about colonialism, blame the West for their economic difficulties and make demands that would make all of us, not just in this country but around the world, poorer.
And it matters for you as financial and professional services companies. A lot of regulation is because people don’t like financial services in particular. I remember this even from when I was working in banking. They don’t like financial services, they don’t trust it, and they don’t believe that you create wealth.
I believe in the social value of financial services, in particular, because I know what it is like to grow up in place that doesn’t have that strong system, that doesn’t have the deep capital pools and doesn’t have access to finance, the liquidity and there’s no reliability. The reliability a stable financial sector brings for investment and growth to deliver infrastructure to make people’s lives better is phenomenal.
I do think that all of you in here need to talk more about the social value and the social work that you do.
The understanding of where wealth comes from, of institutions and of culture matters when we consider our economic policies now.
We do well when we operate by certain principles. That bureaucracy be minimal. That Government should do a few things well, not intervene constantly and inconsistently. That rules are clear and simple. The rule of law should not be ruled by lawyers.
These ideas paved the way for the greatest expansion of wealth the world has ever seen.
We perhaps have not stood up for these ideas as often or as much as we could.
There are always progressive reasons to add new complexity, new rules, new interventions. And there are an increasing number of people whose jobs consist of enforcing these new complex rules.
Of course, there must be a set of laws to prevent fraud. To allow enforcement of contracts between individuals and companies. And in financial services, to provide an adequate capital buffer in the case of wider macroeconomic difficulties.
But sometimes it feels as if in Western countries the balance has tipped too far in favour of the bureaucracy and against the individual consumer, entrepreneur and the innovator.
Let’s take financial services again. Andy Haldane pointed out that in 1980 the UK had one regulator for every 11,000 people in the financial sector. That went down to one in every 300 by 2013.
These changes are global. The share of workforce and revenue around compliance has risen steadily to about 10%, according to one estimate.
Regulation has moved from protection against fraud and systemic failure to everything from diversity to green finance.
This ever-rising tide of micromanagement will not necessarily make us, or the financial markets, stronger.
Because we have been living in an era of multiple crises, the competition of ideas which fuels our creativity and growth becomes more muted as a new, controlled and regulated vision of how the world should work replaces it.
This era of multiple crises – financial crash, Covid, a war in Europe means that, as the governing party, we Conservatives have spent more time managing the effects of these crises than reminding people about our underpinning philosophy or articulating our values.
So that’s why I’m doing that today.
Obviously as a Conservative politician, I don’t think your sector survives without the centre-right or centre-right thinking. Let’s just look at the stats today.
Services make up just over half of UK exports – roughly twice the OECD average of 25 per cent.
Yet after so much new regulation in the sector, financial services share of exports fell from 12 per cent in 2009 to 9 per cent in 2019. So before Brexit, that’s what we’re talking about.
And there’s more.
Just as Miles said, the UK just recently became the fourth largest exporter in the world of goods and services. We’ve overtaken France, which always makes me happy.
The UK is the second largest exporter of financial services in the world and the world’s leading net exporter of financial services ahead of even the US.
So I would ask you to think of how different things might be with different philosophies, a different government. Perhaps with a Labour Chancellor inspired by Maoists. I can assure you this tide of ever more intervention will accelerate and become even stronger.
This idea that we all need to be micromanaged whether in social or economic terms, comes very easily to all of us as MPs, even I fall foul of it, but more so on the other side, where the belief is that it’s the state that can solve all these problems and so the demand for more and more regulation increases.
And sometimes the reasons put forward sound good. The people who put new rules forward mostly do so with good intentions.
But the result is ever greater regulatory capture, stifling of the free market, and the weakening of the wealth generation that we desperately need.
The policies that I’ve been listening to from my opposite numbers are all the things I’ve been saying no to for these past few years. So its very interesting when I hear people put them as manifesto proposals because I and my Department have been saying no.
Policies which you, as employers, will have to sign up to.
Employment regulations that ban probationary periods for staff - making you liable to unfair dismissal claims from day one.
I was so pleased when I read that the CEO of Curry’s, had said that “Many things are better sorted out between individual businesses and individual people, rather than by government diktat. If you get rid of a very valuable probationary period for every colleague, that’s going to make businesses more hesitant to hire in the first place”.
And I know he’s not alone, I know that people in this room get it.
I’m not here to list all of Labour’s proposals like stopping employers from contacting staff about work outside of working hours. And one thing I particularly hate, reporting burdens. I’ve been stopping them recently like new ones which will come in like mandatory ethnicity pay reporting which I have spoken against in Parliament on dozens of occasions. People want us to bring these things in. I say no.
Instead, I will ask that you look at our record, how we have delivered for your sector and the new exciting things we have planned, like our Smarter Regulation programme which I will be expanding on in the next month but it looks at how we can reform our regulatory regime to drive economic growth and it spends a lot of time looking at what regulators have been doing.
I know I told you I was giving a speech about what I was worried about. But the truth is, I’m actually very optimistic about the future.
The case can be made for those principles that I set out. We can learn from the history and we can repeat it. We can repeat the good bits.
How? Fewer, simpler rules, with less intervention, and greater power for individuals and businesses.
A safety net yes but limited, not an all-encompassing web of control.
And I believe that if we get this right, those very same principles that led to the creation of the world’s first truly successful financial sector can ensure that our future is as glorious as our past and spreads wealth at home and abroad. Then I can stop being worried.
Speech delivered on 18th April at TheCityUK International Conference 2024
